Analysts Remain Bullish On Bharti Airtel After Q3 Results

Most analysts retained their bullish investment recommendations for Bharti Airtel Ltd., citing, among others, an increase in average revenue per user, better Africa unit operations and market share gains.

The Sunil Mittal-owned telecom operator posted a Rs 853.6-crore profit in the quarter ended December, aided by a one-time gain stemming from the merger of its tower arm and Indus Towers Ltd. Adjusting for the exceptional item, however, the company reported a loss of Rs 846 crore in the third quarter.

Its revenue rose to the highest ever at Rs 26,518 crore. The carrier added 1.29 crore 4G customers in the reported quarter and the highest ever 2.15 lakh users in the home business. Its average revenue per user—the amount an operator earns per subscriber per month—rose 2.5% quarter-on-quarter to Rs 166.

Bharti Airtel’s board has also approved a fundraise of up to Rs 7,500 crore through non-convertible debt securities in one or more tranches.

The stock gained as much as 3.8% as of 1:20 p.m. on Monday at Rs 603.6 apiece. Of the 32 analysts tracking the company, 30 have a ‘buy’ rating and two suggest a ‘hold’. The average of Bloomberg consensus 12-month price target implies an upside of 21%.

Here’s what analysts have to say about Bharti Airtel’s third-quarter results...

Citi

• Maintains ‘buy’ rating

• Continues to outperform peers across most metrics in India mobile

• Mobile Ebitda rose 10% quarter-on-quarter, with margin expanding 110 basis points sequentially to 43.7%

• Net debt/Ebitda stood at 3 times (net debt of Rs 1.47 lakh crore includes Rs 0.25 lakh crore adjusted gross revenue dues)

• Nine-month mobile capex was Rs 10,900 crore versus Rs 15,100 crore in 2010-20

• Home segment witnessed strong subscriber additions, though revenue and Ebitda fell 3% and 8%, respectively, quarter-on-quarter following the September price cuts

• Tariff hikes and AGR reassessments could be catalysts going forward

CLSA

• Retains ‘buy’ rating

• India mobile data traction remained strong, with Bharti Airtel gaining 13 million quarter-on-quarter (versus 5 million by Reliance Jio) 4G data subscribers

• India operations grew 5.5% quarter-on-quarter, while Africa revenue grew 6.7%

• Postpaid subscriber net addition at 0.7 million also surprised positively after similar gains in the prior quarter

• Airtel Business continued leveraging new product launches like Airtel Cloud for B2B subscribers

• Bharti Airtel’s 4G penetration at 54% of its own mobile subscribers will help data growth. ARPU can rise to Rs 191 by FY23

Credit Suisse

• Rates ‘outperform’

• Second consecutive quarter of outperformance by Bharti Airtel over Reliance Jio Infocomm Ltd. in terms of net subscriber additions as well as sequential mobile revenue growth

• In the home broadband segment, the company entered another 74 cities in Q3 FY21, taking its total geography of operations to 219 cities

• Partnership model with local cable operators led to accelerated growth in the home broadband segment

• Airtel Africa and Airtel enterprise segments reported 6.7%/1.1% quarter-on-quarter revenue growth and 10.5%/4.8% sequential Ebitda growth, respectively

Jefferies

• Maintains ‘hold’ and raises target price from Rs 625 to Rs 675 apiece

• Limited positive catalysts in the absence of tariff hikes

• Reliance Jio’s potential steps to arrest its subscriber churn and a potential capital raise by Vodafone Idea Ltd. could negatively impact the stock

• Strong 4G additions drove the ARPU increase in Q3

• Free cash flow fell 52% quarter-on-quarter to Rs 3,200 crore despite stable cash flow from operations due to 35% rise in cash capex and Rs 1,600 crore of interest costs

• Bharti Airtel’s market share gains continue but tariff hikes unlikely

JPMorgan

• Rates ‘overweight’

• Consistent strong execution on market share gains and margin/capex efficiency makes it a key winner in continued industry pricing recovery

• Continues to gain a greater share of the VIL consolidation across higher ARPU data subscribers and voice subscribers

• A combination of upgrades from voice to data (2G to 4G) and new 4G customers drove up ARPU without tariff increases

• Capex intensity was at 28% of sales, up 1% quarter-on-quarter due to 51% sequential increase in home broadband cities

Macquarie

• Reiterates ‘outperform’ rating

• Despite the impact of tower deconsolidation, the company’s core business continues to show a strong improvement

• Strong improvement with subscriber net adds, ARPU uplift, led to Ebitda/EBIT improvement for both India and Africa regions

• Steady increase in mobile subscribers and ARPU continues for Africa mobile. 119 million subscribers in third quarter versus 116 million in second quarter. ARPU of Rs 214 in third quarter against Rs 205 in second quarter

Motilal Oswal

• Rates ‘buy’

• Data traffic grew 11% quarter-on-quarter to 8.5 billion GB (16.8 GB/user). The capacity gap was much lower compared to Jio that indicates healthy network capacity

• Digital revenue grew 5% to Rs 790 crore

• 4G base stations/towers continue to see strong 31,000/8,000 additions to 5,68,000/2,07,000, in addition to a healthy 4,000 km ramp-up in fiber

• Free cash flow slowed due to high capex that rose to Rs 6,790 crore compared to Rs 3,980 crore in Q1 FY21

• Deconsolidation of Bharti Infratel raises net debt, interest cost. The interest cost increased 5%, taking the net debt to Ebitda to more than three times

Morgan Stanley

• Rates ‘overweight’

• Continued to show improvement in operational parameters in third quarter

• Continues to recalibrate Xstream bundles with more content and unlimited Internet, and signed more local cable operators to penetrate into non-wired cities

• Reported consolidated revenue and Ebitda rose 4.3% and 8.2% quarter-on-quarter

• Adjusting for tower business deconsolidation and resultant impact on eliminations, results were ahead of estimates with strong performance in the African business

Ambit

• Rates ‘buy’

• The company continues to invest aggressively in creating capacity, which is likely to be linked to 4G upgrades as data usage/subscriber is stabilising

• Management highlighted pan-India sub-Ghz spectrum and renewals in the supra-Ghz bands are key goals of current spectrum auction

• Increased non-wireless business investments are to capitalise on digitisation/work from home trends and are at the cusp of growth

• Expects 23% FY20-23 Ebitda CAGR, driven by 28%/18% growth in wireless/non-wireless businesses

BofA Securities

• Rates ‘neutral’ as risk-rewards are balanced

• Most of the good news factored in the price at these levels

• With expected low-cost Google phones by May-June 2021, “we see Jio net adds traction picking up at expense of other telecom companies”

• Competitive pressures would likely force Bharti Airtel to front-load the 5G capex investment

• Given lack of clear return on investment on 5G, telecom operators that are heavily investing in 5G globally are underperforming. Rising gearing risks remain

HSBC

• Maintains ‘buy’ rating

• India mobile ARPU is well-positioned to rise at 13% CAGR, driven by acquisition of high-value subscribers, subscribers’ migration from 2G to 4G, and potential tariff hikes during FY22

• Expects 4G subscriber penetration to surge to 80% by FY23, which would support ARPU improvement

• Cloud services could provide further impetus to enterprise services growth and will be key to watch in future