The key message from Bharti’s analyst day was that it is well positioned to grow its India-mobile, home broadband and Enterprise business. Bharti has invested in its network, taken a slew of initiatives to boost customer experience and revamped its go-to-market approach to drive growth. It is leveraging its database of 350m+ users to scale up its Airtel Ads, digital marketplace and Airtel Loans business. We maintain Buy with Rs 860 PT.
India mobile: Bharti highlighted that there is significant scope for ARPUs to rise as mobile tariffs are low and prepaid to postpaid migration and feature phone to smartphone migration is occurring. While a $2 monthly ARPU yields 6% ROCE, a $3.3 would raise ROCEs by over 3x to 20%. Bharti is focused on quality subscribers by offering superior experience through its investments in network and sales & support. A 40% reduction in network complaints over the past two years reflects Bharti’s efforts to improve its experience.
Well placed in enterprise business: The $8.4-bn Enterprise market is poised to grow at 16% CAGR over 2022-25 as against 10% CAGR over 2018-22. This is being driven by categories like Cloud Communications, Data Centre and Security and Cloud. Bharti’s CPaaS platform, Airtel IQ and its Data Centre business, Nxtra, position it well to capture this opportunity. This is evident from its high-teens growth in the enterprise business ex of voice.
Building digital assets: Bharti has rich data of 350m+ customers on which it runs AI/ML recommendation engine for effective cross-selling. While digital businesses are scaling up well, mgmt believes they may not be a significant part of its top-line over the next few years.
Capex: Bharti indicated limited change in its capex profile even when 5G networks are rolled out, as these rollouts will happen where 4G investments are complete. Full-scale 5G rollouts are more likely to be from FY24. Bharti’s healthy cashflows will be utilised to deleverage its balance sheet and prepay high-cost spectrum debt. Bharti also indicated that Indus Towers and Nxtra could be monetised in the future. The recent stake hikes in Indus Towers are driven by the need to ensure stable shareholding at Indus Towers.
Maintain Buy: Bharti Airtel offers strong growth (16%/20% CAGR in consolidated revenues and Ebitda over FY22-24) at reasonable valuations (stock trades at 8x EV/Ebitda– in line with its 5-year average). Maintain Buy.
