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MOSL: BHARTI AIRTEL (Buy)-Improving ARPU drives earnings

BHARTI AIRTEL: Improving ARPU drives earnings

(BHARTI IN, Mkt Cap USD40.8b, CMP INR534, TP INR620, 16% Upside, Buy)

 

• The recent price hike, along with healthy 4G subscriber adds, improved ARPU, which in turn led to an increase in EBITDA. Further, moderating network opex and capex resulted in healthy annualized FCF.
• We maintain our consol. revenue and EBITDA estimate for FY20/21. We build in 16%/24% ARPU increase in FY20/21 to capture the recent price hikes and the 4G subscribers-driven mix improvements. 

Lower network costs drive margins

• revenue was up 4% QoQ at INR219.5b (in-line), led by growth in both India/Africa business. Consol. EBITDA grew 5% QoQ to INR92.7b (in-line) led by lower network cost; margin improved 30bp QoQ to 42.2%. BHARTI reported a loss of INR10.4b at the PAT level. Excluding exceptional items, PAT was at INR10.8b (our estimate: -INR4b) v/s INR11.2b in 2QFY20.
• India wireless revenue grew 2% QoQ to INR109b, while EBITDA was flat QoQ at INR40.1b. In 3QFY20, BHARTI reorganized its business and transferred assets and liabilities of optics fiber to Mobile Services India, Airtel Business and Homes Services segments (these were previously part of Mobile Services).
• Excluding reclassification, revenue grew 5% QoQ (in-line), led by bundled net additions, 4G penetration and partial realization of price increase in Dec’19; EBITDA grew 7% QoQ on lower network cost. SG&A cost increased primarily due to Airtel Xtream product launch and aggressive promotion to gain 4G subscribers, but it should moderate in the coming quarter.