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Fund raise aimed at accelerating growth

Mr Sunil Mittal, promoter and chairman, attending investor call to interact with investors is big confidence booster. Bharti sees huge opportunities, and fresh capital infusion will support company’s balance sheet in investment to accelerate growth. It does not see any capital allocation in non-core business. However, capex investment in 5G spectrum (which the company believes will happen early next year), fibre and data centre are its priorities. It does not see any requirement of spectrum after 5G provides long-term FCF visibility.

Digital investment has been slow, but is shaping good; monetisation will be only at Bharti Airtel level, which could lead to value maximisation, in our view. It sees net debt to EBITDA at 2x soon supported by asset monetisation and FCF. Bharti expecting ARPU at Rs200 in FY22 is ambitious, but should provide comfort on revenue and FCF growth. We have cut our EBITDA estimates by ~3% for FY22/FY23E on annual report updation. However, we have increased the target price to Rs712 (from Rs675) as per realigned debt and Ind AS-116 impact. Maintain BUY.

* Rights proceeds to fund future growth and deleverage. Bharti has announced rights issue of Rs210bn. Issue is priced at Rs535 (10% discount to Friday closing price) and rights entitlement of 1 share for every 14 shares held on record date. Payment will be paid in three tranches with 25% upfront, and another two calls will be made based on business requirements in next 36 months. It said the fund will be utilised to grab ‘once in a life time opportunities’ in mobile business (5G and fibre), FTTH (expand homepass) and data centre. The company clarified no fund will be diverted to buy stake in Indus Towers and other related group entities. Investment in India entity of OneWeb will be limited to US$7-8mn. Additional 5% equity stake in Indus Towers has given Bharti one extra Board seat, giving more control over Indus Towers, which is a critical asset for mobile business.

* Capex in mobile business to be stable to slightly higher. The company believes 5G auction will happen early next year with rollout starting H2CY22 onwards in large cities and towns, along with gradual penetration in 2023/24. However, excluding spectrum, company do not see much rise in network capex due to completion of 4G capex and modular BTS rollout and investments in core. It wants DoT to price 5G spectrum at reasonable price for take-off of 5G. It sees fibre investment to accelerate for strengthening backhaul and support FTTH business. Apart from 5G spectrum, Bharti does not see any requirement for more spectrum in near future.

* Digital investment slow, but progressing well. Bharti believes digital investment has been slow, but businesses have shaped well such as Wynk, Airtel IQ etc. The company’s restructuring plan will put all digital assets in parent entity, and it has committed separate digital revenue disclosure in future. Bharti does not want to divest stake only in digital entity, and any strategic investment will have exposure to all businesses, which we believe could lead to value maximisation for shareholders.

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