Event update: Bharti Airtel (Outperformer) - Key highlights from FY18 annual report
Bharti Airtel’s (Bharti) FY18 annual report reflects focus on high-ARPU sub market share. India’s wireless market remains competitive, but management believes that rapid consolidation is structural positive. While Africa EBITDA performance is the highlight of FY18, we note that metrics around distribution, Airtel money adoption, rollout of 4G services too are encouraging. Our positive view on Bharti Airtel remains as we think that Bharti will benefit from industry consolidation. Maintain Outperformer with an unchanged March 2019 target price of Rs515 (set at 8x FY20E EBITDA).
Focus on customer stickiness and defend market share: Bharti’s wireless strategy is to increase the share of high ARPU customers and improve stickiness. Content service (like Jio) remains an important aspect and Airtel TV (50m + installs) had 25m+ active users. Wynk music reached 100m installs in June 2018. Average time spent per customer per day on Wynk music was 48mins and 18.8mins on Airtel TV. Airtel has also introduced bundling of all home products (One Home, One Bill) (Broadband, direct to home (DTH), Fixedline and Postpaid) and introduced a single bill, which offers an aggregate discount of 10%. Further, the company has created a dedicated Homes channel to sell postpaid and DTH to Airtel’s existing broadband customers.
Africa – The bright spot: The company as part of its strategy will continue to focus on efficiency in Africa, in a bid to securing the Top-2 position in every market. Smartphone penetration is low at 20% and this along with low banking penetration provides headroom for growth. Bharti’s modernized network comprises rollout of 4G in 8 countries (6 rolled out in FY18). To increase subscribers, the company increased its KYC locations by 50% in FY18. Airtel money had 11.4m active subscribers. Strong margin performance helped the Africa business record a full-year of positive PAT, first time since acquisition. Most regulators in Africa have provided a glide path for Mobile Termination Rate (MTR) rate cuts.
Contingent and other liabilities: Contingent liabilities stood at Rs126bn, down from Rs134bn in FY17. However, commitments on contracts to be executed but not paid for stood at Rs137bn versus Rs102bn in FY17 – reflecting upcoming capex. Other financial liabilities saw a sharp increase from Rs105bn to Rs185bn in FY18, mainly on account of mergers (including Rs4.1bn payable to Qualcomm). Additionally, this includes an advance of Rs26bn received against an agreement to sell certain investment at a future date
Bharti Airtel provides telecommunication systems and services to individuals and businesses in India with operations in 20 countries across Asia and Africa. In India, Co.'s product offerings include 2G, 3G and 4G wireless services, mobile commerce, fixed line services, high speed DSL broadband, IPTV, DTH, enterprise services including national & international long distance services to carriers. In the rest of the geographies, it offers 2G, 3G wireless services and mobile commerce. Co. had nearly 287 million customers across its operations at the end of Dec 2013.
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