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ARPU accretion drives earnings growth; BUY  

Our view

The 4QFY22 consolidated operating profits at Rs 160bn, missed our estimates, however stood in‐line with street estimates. The miss on our estimates stemmed from higher than estimated operating expenses and lower than estimated ARPU. The ARPU accretion continued over the 4QFY22, following the 20% price revision undertaken across pre‐paid plans in late Nov’21, on staggered recharges by subscribers. The SIM consolidation phase in BHARTI’s India mobile business appears to be over with addition of 3mn subscribers during the quarter. The high value subscribers continued to improve engagement with the network over the quarter, while there was some attrition at lower end of the subscriber base. BHARTI believe that there is scope for further increment in mobility ARPU and price revision are expected in later part of the FY23. Maintain BUY on expectation of improvement in cash‐flows and return ratios as ARPUs improve with tariff hike and premiumization of subscriber base.  

Result Highlights

* Revenue: Bharti’s consol. revenue at Rs 315bn (+22% YoY; +5.5% QoQ), stood largely in‐line with estimates. The YoY growth was largely driven by 1.5% YoY growth in India mobile customer base to 326mn and 23% increase in ARPU to Rs 178. ARPUs improved on 20% price revisions across pre‐paid plans (Nov’21) and on addition of 5mn 4G subscribers.   

* Operating Profits: EBITDA at Rs 160bn, stood higher by 30% YoY and 9% QoQ. A sequential as well as YoY improvement in ARPU, coupled with addition of 5mn 4G subscribers in Inida, aided profits. The EBITDA margins improved QoQ to 50.9%.     Profit/(Loss) After Tax: On after tax basis, Bharti Reported an adjusted Profit of   Rs 28.1 bn (+162% YoY; +74% QoQ).

* Exceptional Item: The company reported an exceptional gain of Rs 9.1bn during the quarter on account of gain on a) sale of telecommunication tower assets (Rs 7.6bn) and    b) settlement with vendor (Rs 9.9bn), offset by charges on c) impairment of property & equipment (Rs 3.8bn), d) provision of levies (Rs 3.2bn) and e) prepayment of bond (Rs 1.4bn).

* Customer Base: The total customer base on consolidated basis stood at 491mn a net addition of 20mn subscribers on YoY basis and 7mn on QoQ basis. Of the above the India mobile subscriber stood at 326mn, with an addition of 5mn subs on a YoY basis and 3mn on QoQ basis.

* Debt: The consolidated net debt (excluding lease obligations) stood at Rs 1235.4bn as on 31st Mar 2022 compared to Rs 1,313.4bn as on Sep 30, 2021. Consolidated net debt for the company including leases stood at Rs 1603bn as against Rs 1,485bn at end of 4QFY21. The Net Debt‐EBITDA ratio (annualized) for the quarter stood shade better at 2.5x (4QFY21: 2.95x).

Valuation

We value BHARTI on SOTP basis at Rs 905/sh, implying a target EV/EBITDA multiple of 7.6x FY24e, vs 6.1x as implied by CMP. With net addition of mobility/4G subscriber in the quarter, the SIM consolidation appears to be over. Going ahead incremental price revision and shift of 2G base to 4G would continue to drive ARPU improvement. We accordingly estimate an operating earnings CAGR (FY22‐24e) of 18%, backed by continual subscriber gain and ARPU improvement. 

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