Published on 10/08/2022 12:29:18 PM | Source: Emkay Global Financial Services Ltd

Buy Bharti Airtel Ltd For Target Rs. 850- Emkay Global Financial Services Ltd

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Consistent delivery continues

* Bharti Airtel delivered yet another steady quarter. India wireless ARPU grew 2.8% qoq to Rs183. The company delivered healthy data subscriber additions of 4.8mn, outpacing our estimates of 3mn, supporting 3.4% qoq revenue growth in the India mobile segment.

* After two successive quarters of double-digit growth, home broadband growth moderated but still grew at a healthy 5.7% qoq, while the enterprise segment’s revenue accelerated to 4.7% qoq. DTH decline continued for the fourth consecutive quarter, down 0.9% qoq.

* Capex spends will see an increase in FY23 due to advancement of 5G rollout (in-line with management’s guidance at its analyst meet in March 2022). We maintain our consolidated capex estimates of Rs290bn/year (excluding spectrum) till FY25E.

* We had tweaked our estimates post the auctions to factor in (if) spectrum purchase, (ii) SUC savings, and (iii) tariff hike in Q4FY23, and maintain those estimates. Capex spends and tariff hike timeline will be keenly watched. Retain Buy with an unchanged TP of Rs850.


In-line performance: For Q1FY23, Bharti Airtel’s consolidated revenue and EBITDA grew by 4.1% qoq and 3% qoq, respectively. The India wireless segment grew by 3.4% qoq, aided by robust subscriber additions and ARPU growth. Home broadband and business segments grew by healthy 5.7% and 4.4% qoq, respectively, while DTH declined by another 1% qoq. India mobility EBITDA margin continued to expand, up 60bps qoq, despite the fuel price rise. India network opex was down 1% qoq, as the company has renewed tower rental deal with Indus Towers at a discounted price. Margin declined by 53bps qoq to 50.4% due to higher other operating expenses. RPAT declined 20% qoq to Rs16.1bn due to 11% growth in finance costs. Net debt inched up to Rs1.7trn due to higher lease obligations. Increased lease obligations are on account of MSA renewals (no impact on EBITDA). Core net debt stood at Rs1.19trn vs. Rs1.23trn in the last quarter. Capex for the quarter grew to Rs64bn from Rs60bn in Q4FY22. Capex for India mobility segment also recovered sharply, up 41% qoq to Rs36.9bn, after declining in the past two quarters.

Outlook: Bharti Airtel’s spectrum purchase in the recently concluded auction reflects a wellthought-out strategy, with pan-India 5G capacity spectrum purchase along with selective 4G spectrum in the key circles. The company is set to launch its 5G services later this month and targets to cover 5,000 towns by March 2024. However, with the ecosystem at a very nascent stage globally and lack of evidence regarding the monetization of 5G, we have not factored any revenue from 5G yet. Competitive intensity/strategy in 5G from Jio will be closely watched out for. The focus now shifts to the tariff hike quantum and timeline, which has become more crucial for the company to deleverage its balance sheet and improve ROCEs. Key risks: 1) delays in wireless tariff hike; 2) increased competitive intensity for land grab in 5G; 3) currency depreciation in African markets; and 4) further stake increase in Indus Towers.


Q1FY23 Highlights

* In Q1FY23, the India wireless segment grew by 3.4% qoq, aided by both subscriber addition and ARPU growth. Overall revenue for India and South Asia grew by 3.5% qoq.

* Data customer addition came in at 4.8mn (vs. 5.5mn in 4Q), above our estimate of 3mn. Data customer as a percentage of mobile customers was 65.2% in Q1FY23 vs. 63.9% in Q4FY22. 4G data customer addition stood at 4.5mn, down from 5.2mn in the last quarter. Data volume on network grew 6% qoq, while usage per subscriber grew by 3.7% qoq.

* ARPU grew 2.8% qoq to Rs183, in line with our estimate

* Among the non-wireless segment, the home broadband segment continued its momentum, growing by 5.7%, followed by the business segment, which grew by 4.4% qoq. DTH revenue declined for the fourth straight quarter, down 0.9% qoq in Q1FY23.


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