Event update: Bharti Airtel (Outperformer) - Takeaways from Analyst Meet

We attended the analyst meet of Bharti Airtel (BHARTI) and the key takeaways 1) Likely trough from ARPU standpoint, 2) network investments and upgrade should drive improved 4G sub addition performance vs. Q2, 3) rapid expansion in DTH and focussed expansion in home broadband business, 4) no capex guidance but heavy lifting such as spectrum done, 5) Focus on using content to drive up ARPU and reduce churn. 

Market outlook: Industry pricing levels are unsustainable and Bharti believes that large part of the downtrading of their subscriber base is behind. Hence, in absence of renewed aggression, we could be close to the bottom for ARPU. Additionally management focus is on getting customers to uptrade through content bundled offerings, and introduction of minimum ARPU should further provide support. Bharti believes that Voda-Idea is a complex merger and provides an opportunity to gain market share. Bharti’s cost structure 

Strategy: Management outlined their strategy around 4 key pillars 1) winning 4G decisively , 2) superior network and customer experience, 3) building new revenues and 4) cost efficiency. Airtel’s been making investments in network upgradation and refarming of 900Mhz for 4G should improve quality. Wynk and Airtel TV has been good with each garnering 100mn and 80mn users respectively. Content bundling is driving reduction in churn and ARPU uplift. Management admitted that they need to improve the 4G sub addition run-rate and believe that network upgrade should improve performance. 

Network investments: Bharti believes that they have sufficient spectrum with potentially phasing out of 3G even 2100Mz becomes available for 4G. Current data network utilisation are below 50%. Airtel expects to compete refarming in 900Mz in all 10 circles by FY19. The company is making investments in VOLTE and expects 60%+ traffic will move to VOLTE over the next 12-14 months. Investment in fiber to continue as they drive focussed expansion in Homes business with fiber homes passed to be around 2m this year and next. While management stopped short of laying out capex guidance, they did indicate that this is near peak and 5G is 3 years away given limited use cases as of now. 

View:  We think that Bharti has been making the investments in network, content offerings and on execution they have done well to hold onto RMS over the past 2 years. However despite this the impact of high competitive intensity is now getting more visible on BS and margins (mostly network expansion led). Africa IPO remains on track and should provide some BS support. Bharti’s analyst day gives us confidence on their own strategic direction but the industry’s revenue recovery still remains the key for share price performance. Outperformer.