Published on 22/02/2020 9:46:39 AM | Source: ICICI Securities Ltd

Buy Bharti Airtel Ltd For Target Rs.610 - ICICI Securities

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Impressive execution in mobile services

Bharti Airtel’s (Bharti) Q3FY20 India EBITDA rose 2.9% QoQ to Rs65bn on strong execution in India mobile. We are impressed by the quality of growth in mobile services, which has come from higher incremental market share and efficient pass-through of tariff hike. Our thesis of Bharti benefiting from SIM consolidation is showing early signs, but we would wait till Q1FY21 when the entire tariff hike gets absorbed and we are confident that Bharti will get more than its fair share of tariff hike. AGR case resolution remains an overhang, but the going concern risk has been averted with fund raising. We maintain our estimates for Bharti as we wait to see execution in Q4FY20, but increase our EBITDA multiple for mobile business to 10x (from 9x) on strong execution driving our target price to Rs610 (from Rs550). Maintain BUY.


* Airtel Africa pre-IPO investor indemnity settled with payout of Rs42bn. Bharti has made full & final settlement of Rs26bn for indemnity liability to Airtel Africa preIPO investors. Including Rs16bn paid in Q1FY20, the total indemnity liability paid is Rs42bn. The company received Rs103bn in investment from pre-IPO investors for Airtel Africa, which means 41% of investment was returned in cash. We are disappointed by the quantum of payment considering the stock is trading close to IPO price.

* Impressive execution in mobile services. Subs grew 1.3% QoQ (+3.6mn net add), post-paid net add was 0.22mn and 4G subs net add was 20.7mn. Minutes grew 5.9% QoQ and that of data usage 14.9%. This clearly shows the quality of subscriber base, and benefit of SIM consolidation for Bharti. It also means higher incremental market share in key parameters in the quarter for Bharti; however sustaining it would be critical.

* India mobile EBITDA grew 6.6% QoQ. India mobile revenues (adjusted for reclassification) grew 5.4% QoQ to Rs113bn while non-mobile revenues dipped 0.1% QoQ. This led to India revenues growth of 2.8% QoQ to Rs155bn and EBITBA rose 2.9% QoQ to Rs65bn and was negatively impacted from normalisation of SG&A cost (+19.1% QoQ). Mobile EBITDA (adjusted) grew 6.6% QoQ to Rs40bn and nonmobile EBITDA grew strong 0.8%% QoQ (YoY not comparable on Ind-AS 116).

* FCF generation of Rs17bn on favourable working capital. Bharti’s operating cashflow post interest was Rs51bn and capex was Rs55bn (including spectrum payments) during the quarter. Therefore, business cash burn was Rs4bn. Bharti benefited from favourable working capital of Rs23bn. Bharti said near-term capex would slightly rise on surge in data demand but still remains under control. It sees multiple levers to expand capacity, thereby, not requiring more spectrum or towers for capacity. The higher capex is to strengthen 4G coverage in rural areas and city outskirts, transmission including fiber and core capex. It has categorically said that it is unlikely to buy 5G spectrum at the current recommended price.


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