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Our view

The 2QFY23 consolidated operating profits at Rs 176bn (+27%YoY; +6.4% QoQ), stood in-line with our and street estimates. Strong YoY growth was led primarily by 24% YoY improvement in ARPU led by price increase undertaken in Nov’21, however QoQ improvement was led by improved data monetization and premiumization in subscriber base. While Ebitda and Ebitda margins continued to improve with uptrading but RoCE for India mobility business continues to be at ~8%, which is a rather inadequate return in perspective of required investment, thereby underlining the need for further ARPU rectification. Bharti is geared up for pan India 5G roll out by Mar’24, and most device ecosystem across manufacturers is almost ready to operate Bharti’s 5G network. While the 5G use cases appear limited in the near to medium term, but in the longer run there are strong prospects for multiple use cases across industries. Maintain BUY.

Result Highlights

* Revenue: Bharti’s consol. revenue at Rs 345.3bn (+22% YoY; +5.2% QoQ), stood in-line with estimates. The YoY growth was largely driven by 4% YoY growth in total subscriber base to 501mn and 24% YoY increase in India mobile ARPU to Rs 190. ARPUs improved primarily on up-trading, premiumization and data monetization.

* Operating Profits: EBITDA at Rs 176bn, stood higher by 27% YoY and 6.4% QoQ. A sequential as well as YoY improvement in ARPU, coupled with QoQ addition of 5.04mn 4G subscribers in India, aided profits. The consolidated EBITDA margins at 51%, stood better QoQ on concerted cost optimization and lower SUC charges.

*  Profit/(Loss) After Tax: On after tax basis, Bharti Reported an adjusted Profit of Rs 29.8 bn (+133% YoY; +21% QoQ).

* Customer Base: The total customer base on consolidated basis stood at 501mn a net addition of 21mn subscribers on YoY basis and 5mn on QoQ basis. Of the above the India mobile subscriber stood at 328mn, with an addition of 4mn subs on a YoY basis and 0.5mn on QoQ basis.

* Capex: While the total Capex during the quarter stood at Rs 70.5bn, the capex in India mobile services stood at Rs 39bn. Going ahead, while there is no specific capex guidance, but capex is likely to accelerate in near term to high intensity 5G roll out and network expansion in the rural areas.

* Debt: The consolidated net debt (excluding lease obligations) stood at Rs 1573bn (1QFY23: Rs 1195bn) . Consolidated net debt for the company including leases stood at Rs 2096bn (1Q: Rs 1673bn). The Net Debt-EBITDA ratio (annualized) for the quarter stood at 2.96x ( vs 1QFY23: 2.52x).

Valuation

We value BHARTI on SOTP basis at Rs 930/sh (Mar’24), as we roll estimates forward, implying a target EV/EBITDA multiple of 7.7x FY25e, vs 6.2x as implied by CMP. We estimate an operating earnings CAGR (FY22-25e) of 15%, backed by expectations of continual subscriber gain and ARPU improvement.

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