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Healthy growth trajectory; outlook positive

Bharti Airtel Ltd (Airtel) is a leading global telecommunications company with operations in 16 countries across Asia and Africa. The company had over ~540mn customers as of Q2FY24.

• In Q2FY24, revenue grew 7.3% YoY to Rs. 37,044cr driven by the strong performance of the Indian mobile business (+11% YoY) and Airtel business (+9.5% YoY).

• Average revenue per user (ARPU) reached Rs. 203 vs Rs. 190 in Q2FY23 and Rs. 200 in Q1FY24. The ARPU was the highest among the peers.

• EBITDA margin expanded to 52.7% in Q2FY24 vs 51% in Q2FY23 owing to reduction in access charges (-6% YoY) and controlled operating expenditure (opex) growth.

• Airtel seems to have credible 4G/5G rollout plans with optimum capex allocations and well-defined structure. This would help the company to retain its leading position in India and deliver strong performance going forward. Hence, with a positive outlook, we upgrade our rating on the stock to BUY, with an increased SOTP-based target price of Rs. 1,042.

Indian mobile business remained strong

In Q2FY24, Airtel’s consolidated revenue grew 7.3% YoY to Rs. 37,044cr driven by the growth in Indian mobile services business and Airtel business. Indian mobile services grew 11% YoY to Rs. 20,952cr owing to elevated customer base (+4.4% YoY) and a rise in ARPU to Rs. 203 vs Rs. 190 in Q2FY23. Improved realisations and mix of 4G/5G customers boosted the ARPU. The Airtel business grew 9.5% YoY owing to synergies from connectivity solutions. However, devaluation of the Nigerian currency affected African mobile services revenue (-1.6% YoY) in Indian currency. However, in constant currency terms, it registered a 19% YoY growth.

Margin expanded surpassing higher opex

In Q2FY24, Opex grew 5.1% YoY but the War on Waste (WoW) program helped deliver positive EBITDA, which rose 10.9% YoY growth to Rs. 19,514cr. The management is expected to continue controlling opex through WoW. Further, the EBITDA margin widened to 52.7% (+170bps YoY) with a 6% decline in access charges. Exceptional loss of Rs. 1,570cr was due to elevated tax liabilities owing to the reclassification of licensing fees as capital expenditure by Apex Court and other litigation liabilities, and hence, dampened net profit, which fell 37.5% YoY. However, adjusting for nonrecurring items, PAT grew by 44.2% YoY during the quarter.

Key concall highlights

• The management indicated moderation of capex from FY25 onwards with radio capex cooling off while capex in transport, data centre, home broadband and B2B continue to remain elevated.

• In Indian business, 4G/5G subscriber mix grew to 71.8% of total customer base in Q2FY24 vs 66.8% in Q2FY23.

• The management intends to focus on deleveraging, supported by elevated operating cash flows and also focus on increasing the dividend payouts as well.

Valuation

The well-planned rollout of 4G/5G services and high-quality delivering services not only extended customer base but also elevated ARPU to Rs. 203, which is the highest among the peers. The company has ample potential to deliver good results in the coming quarters backed by a wider customer base, sound development strategies. Further, consistent focus on the WoW program would keep costs under control. With a positive outlook, we hereby upgrade our rating on the stock to BUY, with an increased SOTP-based target price of Rs. 1,042.

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