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Optimistic on profitable growth across segments

Bharti Airtel (Bharti) organised an analyst day on 25th Mar’22 to outline its growth plans and opportunities. It remains confident of sustaining strong revenue growth in mobile business and anticipates acceleration in non-mobile revenue growth in coming years. Digital business remains core for growth across both consumer and enterprise segments. Consumer business will benefit from rising adoption of digital properties by mobile users, which Bharti can monetise through ads and cross-selling. Also, enterprise segment looks more solid with CPaaS, data centre, IoT, and security & cloud. Bharti plans to achieve stronger growth in the payment bank business. We come convinced that 5G capex will have limited upside risk. Company plans monetisation of its payment bank and data centre businesses in the future, while digital and other businesses may remain under the Bharti Airtel umbrella. Maintain BUY.

Big picture. Bharti sees revenue growth to be driven by mobile / non-mobile businesses where it expects growth to accelerate / remain steady. Growth in mobile revenue is well captured in consensus: the big takeaway is company is aiming for another 2-3 tariff hikes apart from premiumisation. Non-mobile business is under-appreciated by consensus despite company belief that fixed broadband customer-base will expand significantly over the next three years, emerging categories in enterprise growing faster and digital & payment bank have just arrived. Bharti is staring at large FCF generation and reduction in 5G capex upside risk. To summarise, the company expects revenue growth momentum to continue in mobile, and accelerate in enterprise and digital (including payment bank), while capex to remain stable. Further, it plans to monetise data centre and payment bank businesses in the future, which should help unlock some value.

Strategy – quality and experience. Bharti’s strategy is built on two pillars: quality of customers, and brilliant experience. Company has changed its customer segmentation. Customers were earlier segregated separately for each business. But, now all customers are pooled across consumer businesses and one customer lifecycle management is applicable and omni channel experience on distribution. Bharti has significantly increased its investment in building infrastructure and enhancing digital analytical tools. Customer complaints have declined by 40% in absolute terms despite rise in sub base.

Mobile business – tariff hike + premiumisation. Bharti expects mobile revenue growth to continue on the back of more tariff hikes and four layers for premiumsation. It is looking at 2-3 more tariff hikes in the next 2-3 years as existing tariffs deliver RoCE < CoE. Four layers of premiumisation are: 1) subs upgrading to smartphone, and signing up data services on 4G; 2) adding ARPU from digital engagements such as payment bank, wynk music, xstream, Airtel Thanks and others; 3) upgrades to postpaid and use of converged services such as fibre and entertainment; and 4) Airtel Black. Bharti estimates to generate 20% RoCE at ARPU of US$3.3 (Rs250).

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