Company Update : Bharti Airtel Ltd By Motilal Oswal Financial Services Ltd
Strong 3Q with continued market share gains in the India Wireless business
* Overall Bharti reported another strong quarter with further ~6%/9% QoQ increase in India wireless revenue and EBITDA driven by residual flow through of recent tariff hikes and ~90% incremental margins.
* Similar to 2Q, Bharti continued to be the biggest beneficiary of the tariff hikes. We note Bharti’s India wireless EBITDA is now largely similar to RJio’s reported EBITDA, which also includes the contribution from Home Broadband business.
* Consolidated revenue at INR451b (+9% QoQ, +19% YoY) was 1% above our estimates, due to slightly better performance in the India Wireless and Africa businesses.
* India revenue (excluding Indus) at INR331b (+5% QoQ, 19% YoY) was ~1% above our estimate driven by the continued benefits of tariff hikes in India Wireless.
* Consolidated EBITDA at INR246b (13% QoQ, 24% YoY) was largely in line with our estimate, as better incremental margins in the India Wireless business were offset by a lower-than-estimated net contribution from Indus.
* India EBITDA (excluding Indus) at INR186b (+8% QoQ, +24% YoY) was ~2% above our estimate, primarily due to better-than-expected margin expansion in the India Wireless business.
* Reported EBITDA margin expanded ~180bp QoQ to 54.5% (+220bp YoY) but was ~70bp below our estimate, primarily due to Indus' accounting.
* Reported PBT (before the share of JVs) at INR77b (+35% QoQ, 2.17x YoY) was in line with our estimate as higher D&A (~1% ahead) was offset by lower net finance cost (~1% lower).
* Reported attributable PAT at INR148b was significantly above our estimate on account of exceptional gains on Indus consolidation.
* Adjusted for many exceptional items, PAT at INR55b (+41% QoQ, +2.2x YoY) was 11% higher than our estimate of ~INR49.5b.
* Bharti’s 3QFY25 consolidated financials are not strictly comparable on a QoQ and YoY basis, as Bharti consolidated Indus Towers (Indus) from mid-November 2024.
Leverage moderates sharply with Indus consolidation; FCF generation (excl. spectrum prepayments) improves further
* Consolidated capex rose ~19% QoQ to INR92b (-1% YoY) on account of the Indus consolidation and a pick-up in capex in the India Wireless and Homes businesses. India capex (ex-Indus) was up ~10% QoQ (-12% YoY) and ~9% below our estimate.
* Bharti’s consolidated free cash flow (after leases and interest payments, but excluding INR36b spectrum prepayments) improved further to INR126b (vs. INR98b QoQ) on account of improvement in operational cash flows (INR29b) from the Indus consolidation and tariff hikes in India Wireless.
* The company’s consolidated net debt (ex-leases) declined ~INR74b QoQ to INR1.341t (by INR110b QoQ on a like-for-like basis). Including the impact of leases, Bharti’s consolidated net debt declined by a sharp ~INR236b QoQ to INR1.97t (declined INR90b QoQ on a like for like basis), driven by the consolidation of Indus Towers.
* Bharti’s consolidated net debt (including leases) to EBITDA (annualized) declined sharply to 1.7x (vs. 2.56x QoQ and 2x on a like for like basis). India SA’s net debtto-EBITDA moderated sharply to 1.58x (vs. 2.56x QoQ and 1.95x on a like for like basis).
India Wireless continues to outperform RJio on most metrics
* Driven by the residual benefits of tariff hikes, Bharti’s India Wireless ARPU at INR245 (+18% YoY) improved ~5% QoQ (vs. +4% QoQ for RJio) and was broadly in line with our estimate of INR244.
* Bharti reported 4.9m paying net adds (vs. 2.9m declines QoQ, ~1.3m wireless net adds for RJio), which was better than our estimate of ~2.8m net adds.
* The subscriber mix continued to improve with 0.6m postpaid net adds (+2% QoQ, 13% YoY). Additionally, Bharti’s 4G/5G net adds improved to ~6.5m (vs. ~4.2m 4G net adds QoQ).
* Bharti’s India Wireless revenue was up 6% QoQ (vs. 3.4% QoQ for RJio, including FTTH) to INR261b (+21% YoY, 1% beat).
* India Wireless’ EBITDA was up 9% QoQ (vs. 3% QoQ for RJio, including FTTH) to INR151b (30% YoY) and was ~2% ahead of our estimates.
* Reported wireless EBITDA margin was up ~180bp QoQ to 58.8% (+375bp YoY, vs. ~25bp QoQ decline for RJio at 52.8%) and was 90bp ahead of our estimate.
* Incremental margin came in at ~90% (vs. 71% in 2QFY25 and ~46% for RJio).
* India Wireless capex was up ~9% QoQ to INR43.5b (still -34% YoY) and was ~13% below our estimate.
Homes: Robust subscriber additions offset by continued ARPU declines
* Bharti’s Homes BB net adds remained robust at ~555k net adds (vs. 580k QoQ, but lower than our estimate of ~800k net adds), reaching ~9.2m subs (27% YoY), likely driven by the ramp-up of FWA services.
* Reported ARPU further declined ~2% QoQ to INR554/month (-5% YoY, 1% below).
* Homes revenue was up 5% QoQ to INR15.8b (+19% YoY), but was ~5% below our estimate. Homes EBITDA at INR7.5b (+4% QoQ, 17% YoY) was also ~5% below our estimate.
* EBITDA margins contracted ~85bp QoQ to 49.5% (-75 bp YoY) and were ~15bp below our estimate.
* Capex in the Homes Business increased ~21% QoQ to INR11.4b (+46% YoY, though 7% lower than our estimate), likely due to the ramp-up of FWA offerings.
Other businesses: Strong growth in Africa; better show from DTH; Enterprise growth moderates
* Airtel Business (Enterprise) revenue at INR57b (9% YoY, flat QoQ) was in line with our estimate, while EBITDA at INR19.8b (-4% YoY, -2% QoQ) was ~1% above our estimate. EBITDA margins moderated further by ~60bp QoQ to 35.2% (vs.our estimate of 34.7% and 39.7% YoY) due to the rising share of lower margin adjacencies. Capex for the Airtel business was up 6% YoY to INR9b (+1% QoQ, inline).
* Airtel DTH’s revenue at INR7.6b (flat QoQ, -3% YoY) was 2% above our estimate, largely due to a better ARPU at INR160 (+1% QoQ, -2% YoY, our estimate of INR158). Subscriber trends slightly improved with 29k net adds (vs. our estimate of 50k decline and 546k net declines in 2QFY25). DTH EBITDA at INR4.4b (+4% QoQ, +3% YoY) was ~9% above, as margins expanded ~225bp QoQ to 58.2% (~340bp better vs. our estimate).
* Airtel Africa (AAF) continued to report strong double-digit YoY constant currency growth. Its reported revenue (in rupee terms) was up ~5% QoQ (4% above), while EBITDA was up ~6% QoQ (and was ~4% above our estimate).
Other highlights: Customer engagement remains healthy
* Data volume for the India Wireless business was up 2% QoQ (vs. 3% QoQ in 2QFY25, +3% QoQ for RJio including FTTH), while data usage per sub improved to 24.5GB/month (vs. 23.9GB QoQ, 32.3GB/month reported by RJio, including FTTH).
* Voice usage on the network in India Wireless was up 3% QoQ (vs. flat QoQ in 2QFY25 and +3% QoQ for RJio), with Minute of Usage (MoU) per subscriber improving to 1,160 mins (vs. 1,133 mins in 2QFY25 and 1,013 mins for RJio).
* Bharti added further ~5.2k towers QoQ (vs. 5k in 2QFY25), bringing the total tower count to ~335k. Driven by tariff hikes, revenue per site improved further by ~4% QoQ to INR262k/month (+10% YoY).
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