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Soft growth but gaining subscriber share

* Bharti Airtel (BHARTI) reported in-line revenue/EBITDA growth of 3%/2% QoQ for its India business, supported by 2.0%/0.5% QoQ subscriber/ARPU growth. The Africa business was hit by currency devaluation, which led to a 1%/2% QoQ decline in consol. revenue/EBITDA. Even the capex remained elevated QoQ. BHARTI continued with its deleveraging exercise, aided by healthy FCF generation during the quarter.

* Over the next 2-3 years, BHARTI is well poised to gain from sector consolidation and tariff hikes and drive strong FCF generation. We raise our FY25 and FY26 estimates by building in tariff hikes each year. The awaited tariff hikes and moderation in capex could be the positive catalysts. Reiterate BUY with an SoTP-based TP of INR1,640.

India Mobile and Africa’s EBITDA (CC) at +2%/-1% QoQ

* BHARTI’s consol. revenue/EBITDA declined 0.8%/2.3% QoQ to INR376b/ INR194b (in line/5% miss) due to currency devaluation in the African segment in 4QFY24.

* India Mobile’s revenue at INR221b grew 2% QoQ (in line), aided by 0.5% ARPU growth to INR209 and 1.9% subscriber growth to 352m. EBITDA grew 2.0% QoQ to INR122b (in line), with a flat margin of 55.1% in 4QFY24.

* The Africa revenue/EBITDA declined 10%/14% QoQ to INR93b/INR43b (reported currency) due to the naira devaluation. However, revenue grew 3% QoQ to USD1.4b (in CC), whereas EBITDA dipped 1% QoQ to USD652m.

* Consol. PAT after minority was down 15% QoQ to INR21b. Adjusted for exceptionals, consol. PAT (post-minority) stood at INR30b (vs. INR25b QoQ and INR22b estimated).

* In FY24, revenue/EBITDA grew 8%/10%, whereas PAT declined 11% YoY.

* FCF (post-interest) declined to ~INR49b in FY24 (from INR122b in FY23), due to higher interest costs. Capex grew 34% YoY to INR521b (vs. INR388b in FY23). OCF jumped 23% YoY to IRN710b, led by a 10% YoY increase in EBITDA and a partial benefit from the release in WC.

* Net debt (excluding lease liability) declined INR116b YoY to INR1,409b.

Key highlights from the management commentary

* Tariff hikes: Bharti implemented a moderate price increase in broadband during 4QFY24, in response to competitors raising their prices. Management reiterated the need for tariff reform, which is essential across the industry to improve return ratios. If competition does not follow suit, it will hurt Bharti. Therefore, the management is waiting for the right time to implement tariff increases.

* ARPU target at INR300: A rise in ARPU from INR200 to INR300 will require a couple of rounds. Even an ARPU of INR300 will be the lowest in the world.

* Capex outlook: Overall capex is likely to moderate from FY25. The company plans to roll out 25k more sites in locations where it has a lesser market share. Management expects deleveraging to continue.

* Enterprise business: The domestic enterprise business continues to grow at 18- 20%. The problem has been in the global business, where ~50% of the portfolio has remained under pressure.

Valuation and view

* We raise our FY25 and FY26 estimates by building in tariff hikes each year. We factor in 12%/16% consol. revenue/EBITDA growth over FY24-26E.

* The company has the opportunity to grow its EBITDA by 40-50% and halve its net debt over the next 2-3 years. It is well poised to benefit from the sector tailwinds resulting from market share gains, improved ARPU driven by the premiumization of customers and tariff hikes, and non-wireless segments such as Home and Enterprise.

* The management indicated that FY25 capex should moderate. We believe the cash flow generation will suffice for capex and deleveraging.

* We assign FY26E EV/EBITDA of 11x/4x to the India Mobile/Africa businesses and arrive at our SoTP-based TP of INR1,640. Reiterate BUY.

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