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MOSL: BHARTI AIRTEL (Buy)-Still a lot of juice left! Incremental ARPU growth opportunity not captured

(BHARTI IN, Mkt Cap USD32.5b, CMP INR429, TP INR620, 44% Upside, Buy)

** Currently, the Bharti Airtel (BHARTI) stock is down ~20% from its peak due to the Coronavirus (COVID-19) outbreak and the consequent complete lockdown in India.

** Additionally, both BHARTI and Vodafone-Idea (VIL) are facing the ire of the Supreme Court (SC), which recently dismissed their plea toward self-assessment of AGR liabilities.

** We see limited impact of COVID-19, currency and crude price swings on the BHARTI stock and believe that it is the best hedged to face regulatory woes.

** Through this report, we look at how BHARTI is placed in the current tough environment and the key catalysts at hand for it to deliver.

COVID-19 to have limited impact on earnings
Given the complete lockdown in India due to COVID-19, net subscriber adds (average 2-3 months) have stalled thus impacted by 1-2%. With physical recharges being unavailable, there has been a shift to digital recharges (from 15% in the last 1-2 years to 35-40% currently). In the current environment, more tech-savvy data subscribers with higher ARPUs and longer-term recharges of 90 days may see lower impact. However, the rest of feature phone subscribers doing monthly recharges (one-third the ARPU of data subscribers), could see some marginal impact as to protect these low income subscribers (80m), BHARTI has extended free incoming calls until 17th Apr’20 with additional INR10 talk-time. This could impact 1QFY21 revenue/EBITDA by INR2.2b/INR1.8b i.e. equivalent to meager 1-2%. Against this, increased data consumption should see upgrades in recharge values, thus, mitigating the impact. In 4QFY20/1QFY21, we currently estimate 13%/19% revenue growth on QoQ basis.