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Increased ARPU; Improved margins

Bharti Airtel Limited is a leading global telecommunications company with operations in 16 countries across Asia and Africa. The company had around 485mn customers across its operations at the end of Q3FY22.

* Consolidated revenue for the quarter 3QFY22 grew by 12.6% YoY (+5.4% QoQ) on the back of solid execution.

* EBITDA for the quarter increased by 23.6% YoY to Rs. 14,900cr as a result of improved margins and stronger sales. EBITDA margin expanded 440bps YoY to 49.9% (+110bps QoQ) on lower access fees.

* We see strong potential in India and Africa businesses on the back of steady growth, expected increase of ARPU across the industry and tariff hikes. Hence, we reiterate our BUY rating on the stock with a rolled forward target price of Rs. 788 based on SOTP valuation.

Company records industry leading ARPU

Q3FY22 revenue increased by 12.6% YoY to Rs. 29,867cr (+5.4% QoQ) on broad-based growth across all the segments. Mobility services India business grew 8.9% YoY (+5.9% QoQ) largely driven by improved pricing and modest 4G upgrades, ARPU for the quarter rose to Rs. 163. Mobile services Africa grew 19.1%YoY (+6.0% QoQ), Airtel business grew 13.4% YoY (+2.8% QoQ). Massive investments have been made in domestic fiber as well as international submarine cables paving the road for 5G.

Margins improved further

Company reported an EBITDA of Rs. 14,900cr, an increase of 23.6% YoY (+7.9% QoQ) due to strong sales growth and improved margins. EBITDA margin for the quarter expanded 440bps YoY to 49.9% (+110bps QoQ), due to substantial decrease in Access Charges (-43.7% YoY) slightly offset by increase in License fees and spectrum charges. The company reported PAT of Rs. 830cr (-2.8% YoY; 26.8% QoQ) on higher D&A and taxes. Company’s plan to prepay the debt shall further reduce the interest expense and enhance Cash flows.

Key concall highlights

* The company has decided to prepay the high-cost spectrum debt liability of Rs. 15,000cr.

* As a part of the first commercial agreement between Google and Airtel, companies will work to scale Airtel's offerings across three areas of device, cloud, and networks.

* Hughes Communications India Private Ltd and Bharti Airtel have formed a joint venture to provide satellite broadband services, Airtel VSAT business with Hughes to become the largest VSAT company in India.

* Nxtra, Airtel’s data center platform to launch new 38MW Hyper scale Data center in Chennai.

Valuation

With industry’s leading ARPU, recent tariff increases and company’s ability to generate healthy Free Cash Flows along with transformation of business from just telecom to “Digital business end-to-end” and partnership agreements with Google and Hughes, we see a great potential in the business. Maintaining a positive long-term outlook, we reiterate our BUY rating on the stock with a rolled forward target price of Rs. 788 based on SOTP valuation.

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