Analysts bullish on Bharti Airtel as growth in mobile biz supports outlook

Bharti Airtel's paying subscriber base declined by 0.6 million QoQ versus competitors where Reliance Jio lost 8.5 million subscribers and Vodafone Idea lost 5.8 million subscribers in Q3

Bharti Airtel's December quarter (Q3FY22) results positively surprised the Street as the telecom major reporter higher-than-expected consolidated revenue at Rs 29,867 crore (up 12.6 per cent YoY) and consolidated Ebitda at Rs 14,700 crore (up around 22 per cent YoY).

It's net profit at Rs 830 crore, however, fell short of expectations mainly because of higher tax outgo. According to Bloomberg, analysts had pegged revenues at Rs 29,370 crore, Ebitda (earnings before interest, taxes, depreciation, and amortisation) at Rs 14,574 crore, and net profit at Rs 928 crore.

"Bharti Airtel reported consolidated revenue 2 per cent ahead of both our/Bloomberg consensus estimates, driven by better performance by India wireless, India Homes and Africa. Consolidated Ebitda was in-line with our estimate and 1 per cent ahead of consensus as margin expanded to 49.2 per cent (up 40 basis points QoQ and 370 bps YoY)," highlighted Aditya Bansal and Anil Sharma, research analysts at Nomura.

Nonetheless, analysts have marginally revised their earnings forecast to capture the improved operational performance.

Global brokerage Jefferies, for instance, has raised FY22-24 consolidated revenue and Ebitda estimates by 1-2 per cent to factor the beat. Moreover, it expects Bharti Airtel to deliver 16 per cent CAGR in revenues, and 20 per cent CAGR in Ebitda over FY22-24.

Those at CLSA have lifted revenue and Ebitda forecasts by 1-4 per cent and expect a 15 per cent CAGR growth in consolidated Ebitda by FY24.

Bharti Airtel's operational beat came largely on the back of a solid growth in India mobile business. Revenue from the segment grew 5.9 per cent sequentially at Rs 16,100 crore driven by 2 per cent higher ARPU (average revenue per user), offsetting lower paying subscriber base. Reported ARPU of Rs 163, compared with Rs 153.4 QoQ, was driven by the partial impact of Jul'21 and Nov'21 tariff hikes.

Although Bharti's paying subscriber base declined by 0.6 million QoQ as against expectations of net additions, analysts still lauded the feat. This was because Bharti showed much better performance versus competitors where Jio lost 8.5 million subscribers and Vodafone Idea lost 5.8 million subscribers in Q3.

"We note that, despite a 0.6 million decline in reported wireless subs, Bharti added 0.3 million net post-paid subs (up 10 per cent YoY) and 3 million net 4G data subs (though lower than 8.1 million net adds in Q2). Approximately 61 per cent of subscribers are now using 4G data vs 54 per cent YoY," highlighted Bansal and Sharma of Nomura.

Airtel's results were ahead of peers and its market share gain should continue, in our view. However, at an industry level, subscriber growth is showing signs of moderation as operators have raised tariffs. We see this trend continue for the next 1-2 quarters as the market absorbs the higher tariffs, added Kunal Vora, analyst at BNP Paribas.

Motilal Oswal Financial Services, too, cautioned against this trend as 4G subscriber add run-rate slowed to just 3 million in Q3FY22, from 12–13 million, and net overall subscribers declined.

"This raises the concerns of 4G subscribers reaching maturity or high tariffs risking future growth. Moreover, with 7.8k fresh site adds, the overall network has deepened. However, along with a possible fuel price hike, it has seen a high 6 per cent network cost increase, limiting the incremental Ebitda margin to 53 per cent relative to the expectation of 60–70 per cent," it pointed out.

Analysts at Jefferies have lowered their subscriber estimates by 3-5 per cent but raised their ARPU estimates by 4-5 per cent to factor this.

Meanwhile, Indian non-mobile businesses had a strong quarter with homes and enterprise segments growing by 11-42 per cent YoY, beating estimates. Homes segment delivered strong subscriber additions of 0.34 million led by scale-up of LCO tie-ups to 586 cities.

Airtel Business continued to witness double-digit growth for the third quarter in a row. Africa revenues (up 20 per cent YoY) were ahead of estimates led by ARPU growth and healthy subscriber additions. Africa Ebitda (up 25 per cent YoY) was also ahead of estimates mainly due to higher-than-expected revenues.

The company also generated free-cash flow of Rs 8,803 crore during the quarter (vs Rs 5,314 crore YoY and Rs 7,046 crore QoQ). Net debt was down to Rs 1.59 trillion QoQ. The net debt to Ebitda (annualised basis) at 2.67 times was the lowest in at least five quarters, and the interest coverage ratio at 4.34 times the best in at least five quarters.

"With the Google fund infusion of Rs 5,200 crore and strong operating cash flow from the tariff hike benefit, it should further see healthy deleveraging of Rs 8,000–10,000 crore (6 per cent) and consistent annual deleveraging of Rs 20,000 crore (15–20 per cent) going forward," said MOFSL.

Goldman Sachs, too, believes digital asset scale-up, and improving balance sheet should help multiples re-rate higher in quarters ahead.

Brokerages have ‘Buy’ calls on the stock with target prices ranging from Rs 855 to Rs 950.

On the bourses, shares of the telco rose 2 per cent at Rs 371 per share on the BSE. In comparison, the S&P BSE Sensex ended 1.1 per cent hgiher at 58,466.

Source: Brokerage Reports