Published on 1/08/2020 10:30:42 AM | Source: Motilal Oswal Financial Services Ltd

Buy Bharti Airtel Ltd For Target Rs. 700 - Motilal Oswal

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Healthy performance despite COVID-19 crisis

* Bharti Airtel’s 1QFY21 performance was better than expectations despite the COVID-19 led lockdown. India Mobile EBITDA grew 3% QoQ (10% above est.) while consol. EBITDA growth 2.4% QoQ, which reflects healthy recovery in Jun’20. Positive FCF and de-leveraging resumed with INR23b net debt reduction.

* We largely maintain our FY21/FY22E consol. EBITDA estimates. We have built in 7%/14% ARPU increase for FY21/FY22E, translating into 20% EBITDA CAGR over FY20-22E. 2QFY21 is expected to see healthy 4-5% India mobile revenue growth QoQ based on exit ARPU/subs as at 1QFY21 and 4G subs adds trajectory in Jun’20


India wireless EBITDA up 3% QoQ (10% beat) on lower cost

* Consol. revenue was up 1% QoQ (in-line) to INR239.4b as revenue remained steady even during the lockdown.

* Consol. EBITDA was up 2.4% QoQ (in-line) to INR104.1b on stable India mobile EBITDA along with margin expansion of 60bp to 43.5%.

* Reported net loss stood at INR159.3b. Excluding exceptional, adjusted net loss after minority stood at INR4.3b (v/s -INR4.7b QoQ and est. -INR1.4b).

* Mobile India revenue in 1QFY21 was a surprise (-0.6% QoQ) at INR128.8b (5% beat). This could be attributed to stable ARPUs/subs, despite the free validity extended to ~20-25m subscribers. Nearly 2-3% revenue loss should be reversed in the next quarter.

* EBITDA was up 2.8% QoQ to INR52.2b (10% beat). This was despite the revenue decline as network/SG&A fell 4%/8% each. However, nearly twothirds of the benefit could be reversed in the next quarter as spends post lockdown should increase.

* ARPU jumped 2% QoQ to INR157 (v/s est. INR154), despite ~ 2% ARPU impact due to lower recharges during the lockdown. Further, subscribers declined marginally by 3.8m, possibly due to the lockdown related impact. Impact on Bharti’s subscribers was more stringent (v/s peers) as the company eliminates users that are inactive for >30 days (v/s RJio/VIL at >90 days). Moreover, 4G subs addition declined to 2m v/s average 8m historically (except for the last two quarter’s steep 33m cumulative addition). Our channel checks suggest that healthy subs adds have resumed in Jun’20.

* Capex was stalled due to the lockdown. Thus, capex reduced to INR39.8b (v/s the sharp rise to INR113.4b in 4QFY20). Full year estimate stood at INR200b. This was low across segments.

* FCF was normalized to INR26b after last quarter’s negative FCF due to high capex. Subsequently, deleveraging resumed with net debt reduction of INR23.2b to INR859b (excluding lease liability). Including rest of the INR220b AGR liability, net debt stood at INR1,079b v/s FY21 EBITDA of INR400b i.e. net debt to EBITDA of 2.7x (on pre Ind-AS 116). This should continue reducing with increase in EBITDA and continued deleveraging.


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