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Decent performance…

Bharti Airtel reported yet another decent operating performance with beat on KPIs such as subscriber addition and margins, albeit ARPU traction was weaker than anticipated. Consolidated topline came in at | 25,747 crore, up 2% QoQ on a like to like basis. Indian wireless revenues were up 4.2% QoQ on like to like basis) at | 14,080 crore. Consolidated EBITDA came in at | 12,332 crore, up 2.3% QoQ with margin of 47.9% (up 244 bps QoQ). Overall Indian margin was up 373 bps QoQ at 48.9% largely driven by Indian wireless margins, which at 47.5%, was up 380 bps QoQ on a reported basis largely due to IUC impact (like to like basis margin dip 30 bps QoQ.)

India wireless business –

Healthy print sans muted ARPU Key highlight was net subscriber addition of ~13.4 million (mn) to 321.4 mn, coupled with a strong 4G net adds of ~13.7 mn to 179.3 mn. It also added ~6.29 lakh post-paid subscribers driven by omni-channel capabilities. The reported ARPU at | 145 was down 12.6% QoQ (down 0.8% QoQ on like to like basis). The reported decline in ARPU and wireless revenues was owing to IUC rate going zero. The like to like decline in revenues is mainly due to lower number of days in quarter (up ~1% on same days’ basis) and lower quality of gross addition.

While the management rooted for tariff hike need for decent RoCE generation, they reiterated that they would drive ARPU growth ahead through natural upgrade to 4G and acceleration to post-paid but tariff hike decision remains a function of competitive intensity. We expect monthly ARPU to reach | 180 in FY23 vs. current levels of | 145, driven by 4G addition and higher wallet share of premium subscribers.

Non-wireless segment picks up traction

Broadband segment witnessed strong net adds of 274K subs (highest ever) during the quarter. Notably, the company has accelerated LCO partnerships which is now at 203 cities (~120 cities in Q3). It expects the 20-25 mn home passes in two to three years. Airtel also outlined a robust opportunity in Enterprise side (total market size of ~| 40,000 crore, where the company now enjoys 31% share) and adjacent areas like Cloud communication, cyber security, IOT with market size of ~| 50,000 crore.

Valuation & Outlook

Bharti Airtel continues to report resilient numbers especially on Indian wireless business front. The strong subscriber addition and margins traction are key positive. The non-wireless business momentum along with Africa performance, continue to be robust. We see the favourable industry structure of three players (two being strong), a good enough kicker for eventual hike in tariff (albeit some delay could be owing to Covid) as well as superior digital play in medium to long term. We maintain BUY on the stock with a revised DCF based target price of | 690/share (earlier | 730/share), with lower target price owing to higher debt levels due to spectrum auction.

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