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Under-appreciated bizs are also creating value!

Bharti Airtel’s (Bharti) Q4FY21 print was in-line with a bit of disappointment on ARPU and higher network cost eating positive surprise in EBITDA. Bharti has expanded its market share across businesses with many businesses under-appreciated. Mobile revenue market share likely reached life-time high. Bharti is investing in network which should continue to aid market share even in FY22.

In 4Q, it has achieved mobile revenue and EBITDA growth of 19% and 32% YoY without any tariff hike help, which is commendable. We have cut India revenue and EBITDA factoring de-consolidation of Infratel, six months’ delay in tariff hike and increased Africa number on strong FY21. Consolidated EBITDA has been cut by 5.2% in FY22 / 0.3% in FY23. However, target price is cut to Rs675 (from Rs723) as we factor 1) higher spectrum spend in Mar’21, 5G spectrum investment of Rs250bn in FY23; and 2) increased EBITDA multiples for India to 11x (from 10.5x) and Africa to 5x (from 4x). Maintain BUY

* Bharti’s under-appreciated businesses/assets:

1) Home services: Home broadband customer grew 27% YoY to 3mn. Run rate should continue and with reset in ARPU, subs growth will translate into revenue and EBITDA from FY22; 2) Enterprise: revenue and EBITDA grew 9% and 29% YoY in FY21; outlooks and opportunities remain exciting; 3) Payments bank: active users up 107% to 29mn and revenue grew 32% to Rs5bn in FY21; 4) Digital: efforts on growing properties like Airtel IQ, Airtel Secure and Airtel Ads; and 5) Airtel Money (Africa): revenue and EBITDA rose 29% to US$400mn in FY21. Master Card and TPG have announced strategic investment.

* Mobile revenue delivers again; ARPU tad low:

Mobile revenue grew (L2L) 4.2% QoQ / 19% YoY to Rs141bn and adjusted for 2 lower days it was 6.5% QoQ. Subs grew 4.4% QoQ (net add: 13.4mn); and 4G subs net add rose 13.7mn (8.3% QoQ) to 179mn. ARPU was confusing on inter-circle impact of IUC which led to a dip of 12% QoQ to Rs145. We saw lower benefit of 4G transition / post-paid add to ARPU. Bharti has likely gained market share across parameters, and reached higher life-time revenue market share.

* India EBITDA grew 4.4% QoQ / 20% YoY at Rs90bn driven by India mobile EBITDA growth of 3.6% QoQ / 32% YoY to Rs67bn despite tariff hike in base. However, incremental EBITDA was lower at 40-45% due to higher investment in network. Bharti expects 4G BTS rollout to slow down with strong expansion in the past 3 years, while it will continue to invest in fibre (transport). Diesel price rise has also hurt marginally. Bharti remains confident of incremental EBITDA margin at 60%.

* FCF (post-interest) was Rs20bn.

Bharti’s operating cashflow post-interest was Rs89bn (vs Rs53bn in Q4FY20). Cash capex was Rs148bn (including spectrum payments); hence, FCFE was at negative Rs59bn. However, if we adjusted for spectrum payment, FCFE was Rs20bn. Net debt increased by Rs5bn to Rs1,115bn (ex-lease liability), but if we include deferred spectrum liability from Mar’21 auction it was Rs1,275bn.

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