Resilient show; maintain Buy
Bharti Airtel reported healthy set of numbers in Q1FY21 considering the impact of lockdown. Its revenue growth was 0.9% QoQ led by stable performance in the Indian mobile services and Africa business. The digital services business registered a healthy growth of 23.4% QoQ. Its consolidated EBITDA grew by 2.4% QoQ led by improved margins in India mobile services and digital services business. It reported a net loss of Rs. 15,933 cr due to an exceptional item of Rs. 11,746 cr. Going forward, we continue to maintain our positive stance on Bharti Airtel led by improvement in market share, full benefit of ARPU increase and price hikes in the future, healthy addition of 4G customers, and improved traction in other businesses.
Result Update Q1FY21
* Its consolidated revenue was up 0.9% QoQ (15.4% YoY) to Rs. 23,939 cr led by stable performance in India Mobile services business and South Africa business. Despite the lockdown, the Indian mobile services business growth was flat and came in at Rs. 12,877 cr. Its customer base declined 1.3% QoQ which was lower than expected and ARPU was up 1.8% QoQ due to addition of 4G customers, higher data usage and spillover effect of the price hike taken in November. Its Africa business also registered a flat growth with revenue coming in at Rs. 6,451 cr despite a 2.6% QoQ decline in ARPU. This was led by customer additions (8.6 lakhs) and higher data usage (21.5% QoQ) during the quarter. In constant currency terms, the Africa business revenue was down 1.7% QoQ. The Digital Services business registered a healthy growth of 23.4% QoQ and Enterprise business grew by 3.7% QoQ.
* Bharti Airtel’s consolidated EBITDA grew by 2.4% QoQ (26.4% YoY) to Rs. 10,408 cr and EBITDA margin expanded 60bps QoQ to 43.5%. This was led by higher margins in its India mobile services, home services, digital services and stable margins in the South Africa business. The company reported a net loss of Rs. 15,933 cr which included an exceptional item of Rs. 11,746 cr. Out of which Rs. 10,744 cr was due to additional provision provided towards AGR liability. Barring the exceptional item, the company reported a net loss of Rs. 4,187 cr.
* Other key highlights: i) the management maintained its stance that ARPU needs to touch to Rs. 200 near term and Rs. 300 in the long run for the business to remain sustainable, ii) the COVID-19 pandemic has led to some cost-saving in India wireless business, iI) the positive free cash flow during the quarter has helped the company to deleverage its balance sheet and net debt currently stands at Rs. 1,16,541 cr for the company.
Outlook & Valuation
Bharti Airtel is well placed to benefit from increased traction received in digital services during COVID times, which we believe is likely to continue to going forward. After a steady addition of customers, we believe Bharti can continue to gain market share in the mobile services business. In our view, the tariff hike would continue from here on, to reduce the financial stress on telecom companies which would benefit Bharti Airtel due to its strong customer base and healthy addition in 4G customers. Further, strong cash flow generation would also help in deleveraging of balance sheet. Therefore, we maintain a Buy on the stock with a target price of Rs. 709.
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