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ARPU improves with healthy 4G adds

Our view

The 3QFY23 consolidated operating profits at Rs 184.5bn (+25.5%YoY; +4.9% QoQ), stood in-line with consensus but marginally ahead of our estimates, on stronger than expected ARPU and 4G subscriber additions. India mobile ARPU stood at Rs 193(+19% YoY; +1.6% QoQ), primarily driven by up-trading, as 6.4mn QoQ 4G subscriber addition surpassed the total mobile subscriber addition of 4.5mn. Bharti’s 5G services are now live in 70 cities, with the target to cover most Urban locations across the country by Mar’24. Bharti has also identified 60,000 rural locations with high potential, where its network was not present, and the company is in process of rolling out infra to tap into the market. The capex in India mobile business stood at Rs 64bn (+114% YoY; +63% QoQ) for 3Q and Rs 140bn (+17% YoY) for the 9MFY23. Capex is likely to remain elevated in near term due to 5G roll out and Rural outreach. Bharti maintain that current level of ARPU is unviable form a return on investment perspective and therefore undertook a revision in its entry level plan. Our ADD rating and TP of Rs 910, is also contingent upon sustained improvement in ARPU/Tariff revision over FY24-25e.

Result Highlights

* Revenue: Bharti’s consol. revenue at Rs 358bn (+20% YoY; +3.7% QoQ), stood inline with estimates. The YoY growth was largely driven by 5% YoY growth in total subscriber base to 511mn and 18.8% YoY increase in India mobile ARPU to Rs 193. ARPUs improved primarily on up-trading and premiumization.

* Consol. Ebitda: EBITDA at Rs 184.5bn, stood higher by 25.5% YoY and 4.9% QoQ. A sequential as well as YoY improvement in India mobile ARPU, driven by QoQ addition of 6.4mn 4G subscribers in India, aided profits. In addition, Africa business also witnessed addition of 4mn subscribers and improvement in ARPU to Rs 257 (2Q: 248). The EBITDA margins at 51.5%, stood better QoQ on concerted cost optimization and lower SUC charges.

Profit/(Loss) After Tax: On after tax basis, Bharti Reported an adjusted Profit of Rs 40.2 bn (+150% YoY; +35% QoQ)

* Customer Base: The total customer base on consolidated basis stood at 511mn a net addition of 26mn subscribers on YoY basis and 9mn on QoQ basis. Of the above the India mobile subscriber stood at 332mn, with an addition of 9.3mn subs on a YoY basis and 4.4mn on QoQ basis.

* Capex: While the total Capex during the quarter stood at Rs 93.1bn (+32% QoQ), the capex in India mobile services stood at Rs 63.8bn (+63% QoQ). Going ahead, while there is no specific capex guidance, but capex is likely to accelerate in near term to high intensity 5G roll out and network expansion in the rural areas.

* Debt: The consolidated net debt (excluding lease obligations) stood at Rs 1548.3bn (2QFY23: Rs 1573bn) . Consolidated net debt for the company including leases stood at Rs 2097.3bn (2Q: Rs 2096.4bn). The Net Debt-EBITDA ratio (annualized) for the quarter stood at 2.82x ( vs 2QFY23: 2.96x).

Valuation 

We value BHARTI on SOTP basis at Rs 910/sh, implying a target EV/EBITDA multiple of 8.5x FY25e, vs 5.9x as implied by CMP. We estimate an operating earnings CAGR (FY22-25e) of 22%, backed by expectations of continual subscriber gain and ARPU improvement. We estimate an ARPU of Rs 220 and Rs 256 in FY24e and FY25e, respectively, as against the current ARPU of Rs 193.

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