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Stepping up on growth pedals!

About the company:

* Bharti Airtel (Airtel) is India’s second largest telecom operator with a revenue market share of ~37%. The company has ~32.3 crore wireless customers in India and ~12.6 crore subscribers across operations in 14 African countries. It enjoys industry leading ARPU in the wireless business

Event: We attended the Analyst Day of Bharti Airtel with key takeaway being:

* The management reiterated the call for higher ARPU, another tariff hike by CY22 end and a couple more in the next few years (albeit inflationary trend, competitive stance and affordability a lower end could be a key deterrent in the near term, in our view). It outlined that US$3,3 (| 250) ARPU could propel RoCEs to 20% vs. 6% in FY21 at US$2.2 ARPU. It indicated that all heavy lifting in terms of capex is done. It also termed itself 5G ready with trails done, successful testing of use cases, 5G core & infra ready with only implication being on higher radio capex in near term, albeit with no major change in capex in three-year period from current levels

* Identified broadband to be area of focus with home pass expansion from 16 million to 40 million by 2025 through own and LCO model of expansion

* It outlined emerging products under Enterprise such as Data Centre, IoT, Security, Cloud, Communication Platform as Service (CPaaS) and Network as a Service (NaaS) as another key area of growth (current cumulative market size of | 36000 crore and ~25%+ CAGR ahead)

What should investors do?

* Favourable industry structure of three players (two being strong), government relief, tariff hike and fund raise puts Airtel in a sweet spot to maintain its relative strength with a formidable digital ecosystem offering.

We maintain BUY rating with an SOTP target price of | 860

Key triggers for future price performance:

* Tariff hike flow through to boost Airtel’s India ARPU, India EBITDA by 20%, 30%, respectively, from pre-hike levels

* Relative market share gain from VIL, given its stressed balance sheet and long term potential driven by growth opportunity from 5G & Enterprise

Key triggers for future price performance:

* Tariff hike flow through to boost Airtel’s India ARPU, India EBITDA by 20%, 30%, respectively, from pre-hike levels

* Relative market share gain from VIL, given its stressed balance sheet and long term potential driven by growth opportunity from 5G & Enterprise

Alternate Stock Idea: Besides Airtel, we like Tata Comm in our telecom space.

ternate Stock Idea: Besides Airtel, we like Tata Comm in our telecom space.

* Play on enterprise communication and improving balance sheet

* BUY with target price of | 1,775

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