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Strong Quarter; Outlook remain intact

Bharti Airtel Limited is a leading global telecommunications company with operations in 16 countries across Asia and Africa. The company had around 458 million customers across its operations at the end of Q3FY21.

* Company recorded double digit growth of 24.2% YoY in Q3FY21 revenue with robust customer addition and spike in tariff.

* EBITDA improved 38.3% YoY, with margin expanding 470bps to 45.5% benefitted by growth in topline and lower operational expenses.

* Net profit rose to Rs. 854cr vs. net loss of Rs. 1,035cr in Q3FY20. After adjusting for one-offs, Adj. PAT loss was Rs. 4,397cr.

* We remain positive on the stock with robust customer addition, rising ARPU, solid position across the business verticals coupled with strong traction in post-paid business. We reiterate our BUY rating on the stock with a rolled forward target price of Rs. 700 based on SOTP.

Robust customer addition derives topline growth Company registered revenue growth of 24.2% YoY (+5.8% QoQ) to Rs. 26,518cr, driven by higher traffic and upward traction in ARPUs with strong customer base. Revenue from India mobile services rose 32.4% YoY to Rs. 14,779cr, whereas African operations rose 21.9% YoY to 7,644cr. Airtel business improved 9.2% YoY to Rs. 3,622cr on higher demand, while home business went up 2.3% YoY with highest customer addition of ~215K taking total base to 2.8mn (intent to expand further its LCO partnership model). Digital service offering in Airtel business MAUs reached to 190mn across key digital assets (~1.2mn retail users every day). Revenue from Digital TV business rose 5.8% YoY on underlying basis to Rs. 789cr, aided by robust 485K customers addition.

Performance further helped by margin expansion EBITDA rose 38.3% YoY to Rs. 12,053 cr. EBITDA margin expanded 470bps YoY to 45.5%, on the back of strong topline growth owing to strong tariff hikes and improved subscriber mix, coupled with lower operating costs. Network operation expenses dropped 243bps YoY to 20.9% and employee benefit expenses declined 31bps to 3.9% as a percentage of sales. Reported net profit came in at Rs. 854cr vs. Rs. 1,035cr loss in Q3FY20. After adjusting for exceptional items, Adj. PAT loss totaled Rs. 4,397cr vs. Rs. 692cr loss in Q3FY20.

Key concall highlights

* Company continues to enjoy strong customer base with +9.4% YoY to 458mn (+39mn YoY), including India 336mn (+8.9%; +27mn YoY), Africa 118mn (+11.0%; +11mn YoY), while South Asia 2.8mn (+2.2%; -0.6mn YoY) in Q3FY21.

* In Q3FY21, company added 12.9mn 4G customers taking total to 165.6mn (+33.8% YoY). It added 42mn users to its 4G network over the last 4 quarters and also added 18mn users of Vo-Wi-Fi services, as a result, data usage per month was at 16.4GB and voice at 1,027 minutes per month.

* In India, ARPU improved 23.2% YoY to Rs. 166 vs. 135 as compared to last quarter, while monthly churn rate dropped to 1.9% vs 2.6% in Q3FY20.

* It has 5G ready infrastructure in Hyderabad and expects increase in demand of 5G compatible handsets in upcoming period. The capex requirement is only for radio units on new spectrum band and additional capex is from transport network.

Valuation

Company’s high subscriber base continues to offer competitive edge over peers. Also, customer addition, improving ARPU and solid position in digital and DTH business will likely to derive growth further. We remain positive on the stock and reiterate our BUY rating with a rolled forward TP of Rs. 700 based on SOTP.

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