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Market share win + deleveraging

Bharti Airtel’s (Bharti) Q3FY22 print indicates an inflexion point for the company in our view, given its decisive revenue market share gain and organic deleveraging. Since the last tariff hike in Dec’19, Bharti has consistently improved its market share, and every tariff hike allows it to speed up its gains from SIM consolidation. The much awaited deleveraging started with FCF (post interest) at Rs43bn in Q3FY22, and is likely to see sharp growth in the next two quarters with full benefit of tariff hikes and lower finance cost. Non-mobile business – home services, Airtel business, and payment bank – are scaling up, and they have started materially contributing to FCF and valuation. Airtel Africa has sprung a complete surprise with strong and steady performance. The dividend from Africa and Indus Towers will further boost India FCF. We have marginally tweaked our EBITDA estimate and our SoTP-based target price now works out to Rs850 (earlier: Rs861). Maintain BUY.

All segments firing: 1) Home services: Home broadband customers grew 49% YoY to 4.2mn. Revenues grew by a healthy 40% YoY to Rs8bn despite reset in ARPU; EBITDA rose 38% YoY to Rs4.4bn. 2) Enterprise: Revenues and EBITDA grew 13.4% and 12.9% YoY. 3) Payment bank: Active users were up 46% YoY to 32mn and revenues grew 58% to Rs2.5bn; EBITDA margin continues to expand. 4) Africa: Revenues and EBITDA (in USD terms) grew 15.5% and 20% YoY, respectively.

Mobile revenues grew 19% (L2L) YoY / 5.9% QoQ to Rs161bn: This, compared to RJio and VIL each showing revenue growth of 3.3%, implies Bharti’s market share win continued. The growth came from ARPU jump of 5.9% QoQ to Rs163. We will watch the next two quarters if Bharti can keep outperforming (which looks likely as it benefits from SIM consolidation). Bharti lost a mere 0.6mn subs in Q3 vs RJio’s loss of 8.5mn and VIL’s loss of 5.8mn subs. Postpaid net add was steady at 0.3mn to total of 17.6mn, while 4G net add slowed down to 3mn (past 4-quarter average at 10mn).

India EBITDA grew 5.6% QoQ / 21.2% YoY at Rs104bn driven by India mobile EBITDA growth of 6.4% QoQ / 23% YoY to Rs79bn. Incremental EBITDA margin was just 52.8% due to high network operating costs, which Bharti expects to moderate in the coming quarters, and higher channel spend. India depreciation and interest cost rose 3.5% and 5.1% QoQ due to recognition of costs related to spectrum bought in Mar’21 auctions. Interest cost should significantly reduce from the next quarter due to deleveraging, prepayment of high-cost spectrum debt and return of bank guarantees.

Organic deleveraging starts. Net debt reduced by Rs74bn to Rs1,239bn in Q3FY22. It partly resulted from right issue proceeds of Rs52bn. Company has organically reduced Rs22bn of debt despite increase of Rs21bn in accrued interest (but not paid on moratorium) on spectrum and AGR dues. This implies Bharti has generated FCF (postinterest) of Rs43bn in Q3FY22 (annualised run-rate of Rs172bn before full benefit of tariff hikes, which should add another Rs80bn of annualised FCF in the next two quarters

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