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ARPU to improve further amid strong 4G subscriber addition

Bharti Airtel (Airtel) reported steady operating performance for the India business, though consolidated numbers were impacted by currency devaluation in Africa. India wireless revenue increased 2% QoQ, with flat margin QoQ. Revenue growth was led by strong 4G/5G subscriber addition (7.8mn in Q4 vs. 7.4mn in Q3) and postpaid customer addition of 0.75mn (0.7mn in Q3). ARPU rose 0.5% QoQ to Rs209. Airtel should benefit from: i) subscriber gain from Vi, with the launch of 5G; ii) mix change, as it can move users to 4G/5G from 2G; iii) expected tariff hike; and iv) historically higher pass-through of the increase in revenue to EBITDA. We raise India EBITDA by 3% for FY26E, as we adjust for improving fundamentals. Our TP increases to Rs1,400/share (9.5x Mar-26E EV/EBITDA) from Rs1,325/share as a result. We retain our ADD rating.

Q4: 4G/5G subs addition remain strong; ARPU flat QoQ on 5G offer impact

Consolidated revenue (-0.8% QoQ) missed our est., while India Mobile revenue (+2% QoQ) beat our est. The margins missed estimate due to higher license fees and employee expense. Key positives for Q4 were: i) Strong data and 4G/5G subscriber addition (7.7/7.8mn in Q4 vs. 7.3/7.4mn in Q3). ii) Elevated postpaid net addition of 0.75mn (vs. 0.7mn in Q3). iii) Subscriber addition of 6.7mn (vs. 3.3mn in Q3). iv) Home/Enterprise delivered 3%/5% QoQ revenue growth and DTH margin expanded by 240bps QoQ, and (vi) Dividend increased to Rs8/share in FY24 vs. Rs4/share in FY23. Key negatives: i) License fee and employee expenses up 3% QoQ each. ii) Enterprise and Home margin declined QoQ, and iii) Consol. revenue was impacted by African currency devaluation.

2-stage tariff may yield Rs300 ARPU; capex moderation to assist deleveraging

As per Management, it will take a couple of rounds for ARPU to increase from ~Rs200 to ~Rs300. We see one round of tariff hike by mid-FY25E that can help ARPU reach Rs270 by FY26E. ARPU growth will be further assisted by: i) feature phone to smartphone upgradation; ii) prepaid-to-postpaid upgradation, and iii) driving higher share of wallet through data monetization. The increase in EBITDA and moderation in capex can aid consolidated net debt reduction to ~Rs1trn by end of FY26 from ~Rs2trn currently.

Outlook: Tariff hike, mix change, Home Broadband & Enterprise to aid growth

We see India mobile ARPU benefitting from the mix change and possible tariff hike, post the elections. Moreover, FCF will improve with rising EBITDA and moderating capex from FY25E. Pre-payment of spectrum dues till FY26 and pending calls on the rights issue of ~Rs156bn give us comfort on cash flow. We like Airtel’s high pass-through of revenue to EBITDA. The Home Broadband and Enterprise segments add growth levers. We cut consol. EBITDA estimate by 5%/2% for FY25E/FY26E, as we adjust for the margin miss. We raise our TP to Rs1,400 (9.5x Mar-26E EV/EBITDA) from Rs1,325, as: i) we increase FY26E India EBITDA by 3%; and ii) expect 50% of AGR dues of Rs440bn (~Rs220bn) to be reversed by the Supreme Court following curative petition. We retain ADD.

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