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Good 3Q driven by stronger performance in East Africa

Revenue and EBITDA beat est. by 4% as CC growth accelerates

* Airtel Africa (AAF) continued to report healthy double-digit revenue growth in constant currency (cc) as 3QFY25 revenue at USD1.33b grew 21% YoY (+6% QoQ), driven by growth acceleration in data (+31% YoY) and Mobile Money (+31% YoY) revenue growth and stronger cc growth in East Africa (+23% YoY).

* Reported revenue came in at USD1.27b (+4% QoQ), 4% above our estimate of USD1.2b.

* EBITDA increased by 19% YoY in CC to USD626m (vs. 16% YoY in 2QFY25). Reported EBITDA at USD589m (+5% QoQ) came in ~4% above our estimate of USD565m.

* Reported EBITDA margin improved further to 46.5% (+30bp QoQ) and was 10bp above our estimate.

* With capex declining ~23% YoY to USD140m, 3Q cc operating FCF rose 41% YoY to USD486m. 9MFY25 operating FCF stood at USD1.29b (+26% YoY).

* Net debt increased further to USD5.27b (vs. USD5.16b at end-Sep’24) largely on account of a further increase in lease liabilities. Leverage inched up to 2.4x (vs. 2.3x QoQ). Excluding leases, the net debt-to-EBITDA stood at ~1.1x (vs. 1x QoQ).

* With a strong ~4% beat on revenue and EBITDA in AAF and a significant beat in Indus Towers (driven by higher-than-estimated provision reversals), we believe there would be upside to our 3Q estimates for Bharti Airtel.

Robust double-digit cc YoY growth led by strong growth in data and Mobile Money

* Mobile services revenue at USD1.06b (+4% QoQ) continued to report double-digit cc YoY growth (+20% YoY, vs. 19% YoY in 2Q), with robust growth across both voice (+10% YoY) and data (+31% YoY).

* Mobile services EBITDA at USD486m (+4% QoQ) was up 15% YoY in cc (vs. 12% YoY in 2Q), with margins stable QoQ at 45.7%.

* Mobile Money revenue at USD265m (+9% QoQ) jumped 31% cc YoY, driven by 18% YoY subscriber growth and 14% YoY constant currency ARPU increase.

* Mobile Money EBITDA at USD140m (+10% QoQ) grew +32% cc YoY, with EBITDA margin expanding 30bp QoQ to 52.9%.

Geographical performance: Growth accelerates in East Africa, further recovery in Francophone Africa

* Nigeria: Nigeria cc revenue grew strongly by 34% YoY (vs. 38% YoY in 2Q), driven by robust growth in data (+44% YoY) and voice (+20% YoY) revenue. Reported revenue fell 31% YoY due to the impact of currency devaluation. EBITDA was up ~18% YoY in cc as margin declined 50bp QoQ to 48.6%.

* East Africa: East Africa cc revenue growth remained robust at 23% YoY (vs. 21% YoY in 2Q) on strong 29% YoY growth in data and 34% YoY growth in Mobile Money. EBITDA was up ~25% YoY in cc as margin expanded further 60bp QoQ to 53.4%.

* Francophone Africa: Growth recovered further in Francophone Africa with cc revenue up 10% YoY (vs. 9% YoY in 2Q). EBITDA was up by a modest ~3% YoY (vs. +1% YoY in 2Q) in cc terms as margins declined 50bp QoQ to 43.3%.

Robust operating performance underpinned by strong net adds, data consumption and ARPU growth

* Subs base grew 6.5m QoQ (vs. 1.2m net adds in 2Q) to 163.1m (+8% YoY), driven by ~7% QoQ growth in the subscriber base in Nigeria.

* Data subs increased by 5.4m QoQ (vs. 1.6m net adds in 2Q) to 71.4m (+14% YoY, 43.8% of subs now opting for data). Mobile Money subs rose 2.8m QoQ (vs. 2m in 2Q) to 44.3m (18% YoY).

* Blended ARPU was up 1% QoQ at USD2.2 (+12% YoY cc growth), driven by robust ~18% YoY cc growth in data ARPU and ~14% YoY cc growth in Mobile Money ARPU.

* Data usage per sub increased ~4% QoQ to 7.6GB/month (vs. 5.6GB/month YoY). Voice usage per customer increased ~4% QoQ to 310min/month (vs. 288 min YoY).

Highlights from the management commentary

* Robust growth: Over the last few years, there was volatility in the macroeconomic environment; however, there are some signs of stabilization now. Demand for mobile services remains strong, given low penetration in the Airtel Africa footprint.

* Price hikes in Nigeria: AAF has received approval for a price hike of up to 50% in Nigeria (applicable for 75% of revenue). The company has submitted a proposal to the regulator and would implement the hikes post the approval.

* Airtel Money IPO: AAF continues to stick to the original guidance of four years (i.e. Jul’25) from the first strategic investor coming into Airtel Money and would look to provide more updates on listing plans by FY25 end.

* Capex: AAF maintains its FY25 capex guidance of USD725-750m. However, management expects capex to be near the lower end of the guidance.

Consistent growth and long runway for growth warrants a re-rating

* AAF continues to deliver double-digit cc revenue and EBITDA growth for the past several years. Despite solid growth, AAF trades at ~3.9x Mar’27E EV/EBITDA. We ascribe a modest ~INR33/share valuation to Bharti’s stake in Airtel Africa in our TP of INR1,890. We believe that with continued strong growth and long runway for growth, there is a case for re-rating of AAF, which in turn would benefit Bharti Airtel shareholders.

Other takeaways

* Shareholder returns: After the completion of its first buyback of USD100m, AAF has announced the second round of buyback for another USD100m.

* Francophone Africa: The growth in Francophone Africa recovered to double digit cc growth. Slight impact on margins was on account of higher marketing spends.

* Impact of Starlink: The fixed-broadband market has a massive opportunity, which should enable high growth rates to sustain. Further, management indicated that Starlink had to stop customer acquisition due to capacity constraints.

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