Buy Bharti Airtel Ltd for the Target Rs 2,335 by Motilal Oswal Financial Services Ltd
Strong start to FY27; FCF generation robust despite higher capex
* Bharti Airtel reported a strong performance in 1QFY27, with consolidated EBITDA rising 6% QoQ (3% ahead), driven by outperformance in India wireless and strong show continuing in Airtel Africa (AAF).
* India wireless revenue/EBITDA each grew ~4% QoQ (vs. ~2.5-3.3% QoQ for RJio), driven by benefits from subscriber mix premiumization (wireless ARPU up ~2.6% QoQ vs. ~0.7% QoQ for RJio) and one additional day QoQ.
* Enterprise continued to witness growth recovery and margin expansion (to 44% now), though growth moderated in Homes due to calibration in subscriber acquisition amid rising FWA CPE prices.
* Reported consolidated capex surged ~61% YoY to INR134b (though -17% QoQ), due to front-ending of capex in Airtel Africa. India capex (ex-Indus) also rose ~50% YoY on a low base to INR80b (though -29% QoQ).
* Consolidated free cash flow (after leases and interest payments) came in at INR140b (vs. ~INR143b YoY, INR542b in FY26), driven by improvement in profitability (OCF up by INR39b YoY), offset by WC build-up (INR10b), high capex (up INR29b YoY) and lease payments (up INR5b YoY).
* Bharti’s consolidated net debt (ex-lease) declined INR92b QoQ to INR818b, with leverage moderating to 0.69x (vs. ~0.79x QoQ). ? Our FY27-28E consolidated EBITDA remains broadly unchanged as higher ARPU estimate (up ~2%) is largely offset by 7-10% cut in Homes EBITDA.
* We model a CAGR of ~14% in Bharti’s consolidated revenue/reported EBITDA over FY26-29E, driven by
1) flow-through of the ~15% tariff hike in India wireless from 3QFY27
2) a strong growth opportunity in Homes
3) double-digit CC growth in Africa
4) steady growth in B2B offerings.
* We reiterate our BUY rating with SoTP-based revised TP of INR2,335. The India wireless and homes businesses are valued at DCF-implied ~12x Sep’28E EV/EBITDA. Risk-reward remains favorable (bull: INR2,860; bear: INR1,830).
Strong show in India Wireless and Airtel Africa; generates INR140b FCF
* Bharti’s consolidated revenue grew 6% QoQ (+18% YoY) to INR585b, led by robust growth in AAF (~10% QoQ) and India Wireless (~3.8% QoQ).
* India wireless revenue grew ~3.8% QoQ, driven by 2.6% QoQ growth in ARPU to INR264 (+5.5% YoY) due to one additional day QoQ and continued premiumization of subscriber mix. Net adds were resilient at 3.3m.
* Consolidated EBITDA rose 6% QoQ to INR333b (up 20% YoY, 3% ahead), driven by strong performance in Africa (+9% QoQ, 6% above) and Airtel Business (+6% QoQ). India wireless EBITDA grew ~4% QoQ (+12% YoY) to INR182b, driven by healthy ~65% incremental margins.
* Consolidated EBITDAaL grew 4% QoQ to INR298.4b, with India EBITDAaL rising 2.8% QoQ to INR228b (margin moderated ~70bp QoQ).
* Growth in Homes moderated as higher FWA CPE costs and calibrated customer acquisition weighed on subscriber net adds (0.47m in 1QFY27 vs. ~1.13m QoQ) and ARPU declined further ~1% QoQ to INR523 (-3% YoY).
* Enterprise (B2B) revenue grew 3% QoQ (+12% YoY), while EBITDA margin expanded ~105bp QoQ to 44%.
* AAF continued to report strong double-digit YoY constant-currency growth. AAF’s reported revenue (in INR terms) was up ~10% QoQ (+45% YoY, 4% ahead), while EBITDA rose ~9% QoQ (52% YoY, ~6% ahead), driven by higher revenue growth, lower impact from higher fuel costs, and cross-currency tailwinds.
* Reported PBT (before share of JVs) at INR140b (+7% QoQ, +35% YoY) was 3% below our estimate, due to higher net finance costs (+7% QoQ, 23% above) and D&A (+4% QoQ, 3% ahead).
* Adj. for exceptional items, attributable PAT at INR80.6b grew 11% QoQ (+36% YoY), though it was 7% below our estimate largely due to high net finance costs
Valuation and view
* Bharti is our preferred pick in the telecom space given its robust FCF generation, improving return ratios and outperformance (vs. peers) in driving organic ARPU growth through premiumization.
* Further, with a potential tariff hike (15% from 3QFY27) and broadly range-bound core capex, Bharti could deliver ~INR2.25t+ FCF over FY26-29 and become net cash (ex-leases) by FY28E, with RoCE climbing to ~20%+ by FY28E.
* We model a CAGR of ~14% in Bharti’s consolidated revenue/reported EBITDA over FY26-29E, driven by
1) flow-through of the ~15% tariff hike in India wireless from 3QFY27
2) a strong growth opportunity in Homes
3) double-digit CC growth in Africa
4) steady growth in B2B offerings.
* We reiterate our BUY rating with SoTP-based revised TP of INR2,335. We value the India wireless and homes businesses on DCF-implied ~12x Sep’28E EV/EBITDA, DTH/Enterprise at 5x/10x Sep’28E EBITDA and Bharti’s stake in Indus Towers and Airtel Africa at a 25% holding company discount to our TP/CMP.
* The impending tariff hike and upcoming JPL IPO remain the key near-term triggers. Long-term risk-reward remains attractive with significant upside and limited downside at CMP (bull: INR2,860; bear: INR1,830).
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