Bharti Airtel Targets 30% Increase In ARPU In Near Term. Why That May Be Tough

Bharti Airtel Ltd.’s average revenue per user, a key operating indicator, rose to its highest in 12 quarters in the three months ended March. But the company doesn’t think it’s enough and is looking at an improvement of at least 30 percent in the near term. That may be tough to achieve.“We believe that an ARPU of Rs 154 is inadequate to turn a reasonable return on capital,” Gopal Vittal, chief executive officer, said in an earnings call after the fourth-quarter results. “[The company] remains hopeful that ARPUs will get to Rs 200 in the near term and eventually to Rs 300 which is where it should be for a business like ours.”The last time billionaire Sunil Mittal and SingTel-backed wireless carrier generated an ARPU of Rs 200 was before Reliance Jio Infocomm Ltd. upended India’s telecom market with cheap data. Bharti Airtel reported a reading of Rs 300 about 11 years ago..In the quarter ended March, ARPU rose because of the tariff hikes in December, after the Supreme Court asked operators to pay pending dues worth thousands of crores based on a new definition of adjusted gross revenue.The company has two ways to quickly boost its ARPU: increase tariffs again, or collect more high-paying customers by either upgrading low-cost users to costlier plans or win over high-paying users from rivals.Both pose a challenge, more so during an uncertain period..Option 1: Tariff HikeThe tariff hikes in December were rolled out smoothly and the company didn’t lose subscribers—partly because all carriers increased pricing. Operators have also sought floor tariffs from the regulator. If accepted, that would lead to an indirect tariff hike.But a tariff hike when the economy has been battered by a nine-week-long lockdown to contain the new coronavirus outbreak looks unlikely.Another tariff increase may take at least four to six months on account of Covid-19 and economic slowdown, said Himanshu Shah, a telecom analyst at Dolat Capital. A hike sooner than expected will be a positive surprise, he said.Macquarie, in its recent note on Reliance Industries Ltd., said an ARPU of Rs 200 in India would mean 1.34 percent of the per capita GDP. The global average is 1 percent.Analysts at other brokerages also don’t see the possibility of the indicator rising to Rs 200 anytime soon..Also Read: Reliance Jio Vs Bharti Airtel: How Investors Should Look At The Telecom Pack.Option 2: Upgrading CustomersBulk of the subscriber base in India is of prepaid users. And nearly half of its 28.3 crore users own feature phones..Bharti Airtel’s revenue per user jumps fourfold when a prepaid feature phone user switches to a smartphone.It doubles when a prepaid user chooses a postpaid plan.The best opportunity for the operator to improve its ARPU is by upgrading existing users. But converting feature phones users to smartphone owners will be difficult during the pandemic as Indians have seen their incomes fall and sales of non-essential goods have tumbled. Still, the lockdowns have caused data usage to spike as people watched more videos and surfed the web often from home.Bharti Airtel is betting on boosting its postpaid usage, citing trends in other developing nations. In the Philippines and Brazil, 50-55 percent and 60-65 percent users are postpaid, the management said in an earnings call.In India though, prepaid plans were always cheaper. They tumbled further after Mukesh Ambani-controlled Reliance Jio unleashed a low-cost tariff war three years ago in its quest to become the nation’s largest carrier by users.Analysts, however, remain optimistic about Bharti Airtel. More so after an uptick in ARPU and the company’s targets.Just one analyst recommends ‘Sell’, according to estimates tracked by Bloomberg and the ‘Buy’ calls are at the highest level in 12 years. Average of 12-month targets suggests and upside potential of more than 12 percent. Ambit Capital had a ‘Buy’ with a target of Rs 808, implying potential gains of nearly 36 percent.

Bharti Airtel Targets 30% Increase In ARPU In Near Term. Why That May Be Tough

Bharti Airtel wants to increase its ARPU by 30% in the near term. That is a tough target.

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