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5G rollout to lead the growth

Strong revenue growth: Bharti Airtel continued to deliver steady performance in Q2 both on revenue and margins. The company’s revenue stood at Rs 34,527 Cr registering a growth of 21.9% YoY, due to healthy addition of customers, higher ARPU and consistent 4G upgrades. Amongst segments, growth was seen in all its businesses except for digital TV. Its Mobile services India (which accounts for 55.0% of total revenue) grew by 24.8% YoY and its Mobile service Africa (which accounts for 30.3% of total revenue) reported a healthy growth of 21.6% YoY. Further, its Airtel business saw a growth of 16.8% YoY however its Digital TV services segment registered degrowth of 8.7% YoY.

Improving ARPUs: The company’s ARPU came in at Rs 190 vs Rs 153 up by 23.8% YoY. The growth in ARPU was on the back of premiumization, consistent upgrades from feature to smartphones, data monetization and premium customer acquisition during the quarter. Further, given the capex for rolling out 5G services, the company could plan for tariff hikes which would eventually lead to further expansion of ARPUs.

Expanding Margins: The company reported its EBITDA at Rs 17,594 Cr up by 27.4% YoY and its EBITDA margins came in at 51.0% an improvement of 220 bps. The improvement in margins was driven by cost control measures and better topline growth. Additionally, the company will continue to focus on its War on Waste program to keep the margins improving.

Growth story ahead: We believe Bharti Airtel is poised for a strong growth given its recent acquisition of midband spectrum, rolling out of 5G services across India as well as strong existing 4G customer base and 4G infrastructure. Going ahead, the company plans to penetrate in rural geographies which would lead to further increase in customer base. Additionally, despite muted demand for its digital services during this quarter we expect this segment to grow due to traction in bundled service offerings of fiber internet connection and TV services.

Valuations: With recent rollout of 5G as well as strong presence in Mobile and non-mobile businesses, we believe these factors will aid growth for the company in the medium to long term perspective. Financially, we have estimated its Revenue/ EBITDA/PAT to grow at a CAGR of 13.6%/14.5%/36.2% over FY22-25E and have maintained a Buy rating with a revised target price upwards to Rs 1,010.

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