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Bharti gaining market share across parameters

In Q2FY21, consumer spend on mobile services (post GST) rose 4.5% QoQ / 23.9% YoY to Rs373bn on relaxation of lockdown. Postpaid net revenue improved 3.6% YoY, but is still down 1.4% YoY due to no material tariff hike unlike in the prepaid segment. Prepaid net revenue grew 7.5% QoQ / 35.8% YoY and ARPU rose 7.1 QoQ / 34.3% YoY to Rs90. 4G subscriber (sub) addition accelerated to 4.6% QoQ (net add: 29.5mn) to 676mn on higher shipment of smartphones. RJio’s 4G sub market share dipped 170bps QoQ (down 400bps YoY) to 59.8%. Bharti Airtel’s 4G sub market share improved to 22.6%, up 120bps QoQ / 400bps YoY, and the company has been gaining market share in data usage, which rose 110bps QoQ / 600bps YoY to 30.3% (significantly narrowed gap with its AGR market share, which is a positive).

* Consumer spend on mobile services (post-GST) rose 4.5% QoQ / 23.9% YoY to Rs373bn in Q2FY21 and net revenue (deducting inter-company settlements) rose 7.1% QoQ / 30.4% YoY to Rs333bn. ARPU (based on consumer spend) rose 5% QoQ / 26.6% YoY to Rs109 (Rs132 including GST) on tariff hikes taken in Dec’19. Postpaid net revenue grew 3.6% QoQ / fell 1.4% YoY to Rs37bn in Q2FY21. Prepaid net revenue rose 7.5% QoQ (35.8% YoY) to Rs296bn. Postpaid ARPU (based on net revenue) rose 4.5% QoQ (fell 5.3% YoY) to Rs234 and prepaid ARPU was up 7.1% QoQ (34.3% YoY) to Rs90. Prepaid revenue also benefited on shift from 2G to 4G. Data revenue (not comparable on YoY basis due to reclassification of rental revenue) rose 5.5% QoQ to Rs290bn (77.7% of consumer spend). Outgoing voice revenue grew 2% QoQ to Rs65bn.

* 4G sub base grew 4.6% QoQ (29.5mn net add) to 676mn and RJio’s 4G sub market share fell to 59.8% (down 170bps QoQ) while Bharti Airtel’s improved 120bps to 22.6%. VIL’s sub market share shrunk 50bps to 15.7%. Industrywide 3G subs continue to decline fast and were down 2.7mn QoQ to 29mn. In mobile broadband category (including 3G and 4G), RJio still enjoys 57.4% sub market share. Total sub-base expanded 0.7% QoQ (net add: 8mn) to 1,149mn. Postpaid subs rose 2.7% QoQ (net add: 1.4mn subs) to 53mn. Bharti ’s postpaid sub market share rose to 28.9%, up 60bps QoQ, while that for VIL reduced to 40%, down 180bps.

* Data usage market share rose 110bps QoQ for Bharti Airtel. Data usage grew 1.8% QoQ to 25,227-bn MB led by 4G segment growth of 2.2% QoQ to 24,339-bn MB (and contributed 96.5% to total data usage). 2G data volume rose 16.9% QoQ and 3G data volume was down 12% QoQ. Bharti Airtel and VIL’s data usage market shares were 30.3% (up 110bps QoQ) and 17.2% (down 110bps QoQ) respectively. Industry minutes rose 1.9% QoQ to 2,613bn. Bharti Airtel’s minute market share improved to 32.9%, up 100bps QoQ, while VIL’s stood at 21.2%, down 130bps QoQ. RJio’s minute market share rose 100bps QoQ to 35.7%

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Gradual recovery in the domestic business

Symphony’s standalone and overseas business has seen a gradual recovery on a QoQ basis, however YoY recovery was still ~74% of previous year. According to company, the trade sentiments in the domestic markets were positive and company has witnessed stock out situation in some of the geographies. The inventory level is normalised with channel partners and the company expects good volume offtake from Q4FY21 onwards. On the subsidiaries front, Climate Technologies Australia performance remained impacted due to supply issues & lower operating leverage. The management expects a turnaround of Australian subsidiary from Q4FY21 supported by various initiatives (such as changing sourcing destination from China to India) taken by the management. The other two subsidiaries, GSK China and Impco Mexico performance in terms of topline remain impacted due to pandemic, however company has taken various cost optimisation measures in the subsidiaries. This would help company to improve profitability, going forward. We slightly tweaked our earnings estimates upward by ~2%, 6% for FY22E, FY23E respectively

Improvement in sales on a QoQ basis

The domestic and overseas business sales were up by 12% and 14% on a QoQ basis supported by improved demand post opening up of economy. For the 9MFY21, consolidated revenue was down by 34% YoY to | 561 crore mainly due to domestic business which were significantly impacted due to lockdown in the peak season. Management expects a strong recovery for domestic and overseas markets in Q4FY21 amid low base, refilling of channel inventory and market share gains due to supply disruptions. The unorganized players (70% of Industry size) has witnessed severe supply disruptions and hence likely to lose market share when season picks up.

Lower profitability of Australian subsidiary drags overall margin

Despite various challenges, company has maintained its standalone gross margin same as Q3FY20 level (improved by 100 bps QoQ). On a consolidated basis, the gross margin was lower by ~350 bps YoY due to ongoing supply issues in Australia. Lower volume and higher fixed costs dragged consolidated EBITDA margin down by ~800 bps YoY at 15%. According to management, the company has taken various initiatives to rationalise cost at subsidiaries level which would start showing results in the coming quarters.

Valuation & Outlook

We continue to like Symphony for its leadership position in the domestic air cooler market and its capital efficient working model. However, margin recovery and sustainability of market share in the upcoming summer season will be key variable to watch. We rollover our valuation on FY23E and change our rating from BUY to HOLD, with revised target price of | 1090 (valuing 27x FY23E EPS)

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