Bharti Airtel

Bharti Airtel continued strong subscriber additions in October, adding 8.05 lakh subscribers compared to 4.12 lakh the previous month. With industry leading ARPUs of Rs. 190, the company continues to achieve greater traction in the telecom space. Africa business revenue growth, which contributes ~30% to the top line, continues to be on a strong footing and grew by 4% q-o-q in USD terms at $1,308 million for Q2FY2023. Airtel has been steadily rolling out 5G services at select locations with plans to progressively cover the entire country by March 2024. The company is well placed to capture market share gains from 5G rollout, as it has a high-value customer base and greater compatibility with leading handset makers, although mass availability of handsets would determine the pace of scalability at retail consumer level.

Key positives
* Robust subscriber addition: Bharti Airtel continued to add robust subscriber numbers, adding 4.12 lakh subscribers and 8.05 lakh subscribers for September and October respectively. TRAI data indicated that Airtel has widened its customer market share to 31.92% (31.8%) over the previous month. Visitor Location Register (VLR), reflecting the number of active users on a mobile network, indicated that Airtel had 98.08% of its users active on the network, which was 92.79% for Jio and 86.20% for Vodafone Idea.
* Revenue market share gains: Recent financial data from TRAI indicates that Bharti Airtel has gained more revenue market share (RMS) than Reliance Jio in the fiscal second quarter, helped by a combination of stronger growth in the lucrative urban markets and superior monetisation of data usage. Higher postpaid subscriber addition and better monetisation of data usage have probably contributed to faster acceleration for Bharti Airtel in metros and ‘A’ circles compared to Jio. Airtel’s AGR (including NLD) market share rose 83 bps sequentially to 36.3% in the September quarter. Jio’s quarter revenue share gain was lower at 56 bps to 41.4%, while that of Vodafone idea slipped by 20 bps sequentially to 17.5%, as per data from TRAI.
* 5G rollout steady: Bharti Airtel launched its 5G services during IMC 2022 on October 1, 2022. So far, Airtel 5G Plus Service can be experienced in three airports and 11 cities. Airtel has been steadily rolling out 5G services at select locations with plans to progressively cover the entire country by March 2024. The company is well placed to capture market share gains from 5G rollout as it has a high-value customer base and greater compatibility with leading handset makers, although mass availability of handsets would determine the pace of scalability at retail consumer level.
* Tariff revision initiatives: The company has embarked on a market-testing tariff in two of its circles – Haryana (B Circle) and Odisha (C Circle) by withdrawing its entry-level minimum recharge pack of Rs. 99, which used to be valid for 28 days. Now Airtel offers a Rs. 155 recharge pack, which offers unlimited voice, 1GB of data, and 300 SMS. While the revisions may not have any meaningful impact on Q3FY2023 numbers but follow-up by peers and extension of tariff revision to other circles could move the revenue needle decisively in favour of the telecom industry. With the huge capex and investment required for the 5G push, we expect the company to take tariff hikes of 8-10% each for Q4FY2023, Q4FY2024, and Q4FY2025.

Our Call
Valuation – Strong operational metrics, Maintain Buy: We reiterate Buy on Bharti Airtel with an unchanged PT of Rs. 1,010. The stock is our preferred pick in the telecom space on account of its industry leading ARPU, growing subscriber base coupled with increased data monetisation and on expectation of gradual tariff hikes in the telecom space. The stock trades at 10/8.7x its FY2023/FY2024E EV/EBIDTA.

Key Risks
Increasing competition could keep up the pressure on realisations. The decline in data volume growth and slowdown in Africa could affect revenue growth.

Investment theme
Revenue accretion from the 4G upgrade, minimum ARPU plans (rolled out across India), and recent tariff hike helped the company to report ARPU improvement. Further, the government’s data localisation policies with increasing penetration of smartphones are likely to boost strong demand for data over the medium-to-long term. Despite a predatory pricing strategy from new entrants since its commercial launch in September 2016, Airtel has been resilient in sustaining its revenue market share (RMS), as it has been drastically standardising its plans to retain customers and acquiring subscribers through M&A activities. We believe the company is well poised to deliver a strong multi-year EBITDA growth phase, given recent developments in the Indian wireless industry and market repairs (tariff hike and relief from the government).

Refer: BHARTIARTL for more details.