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MOSL: BHARTI AIRTEL (Buy)-Holding on to its forte-Well-poised to benefit on industry ARPU revival over next 3-4 quarters

Bharti Airtel: Holding on to its forte; Well-poised to benefit on industry ARPU revival over next 3-4 quarters

(BHARTI IN, Mkt Cap USD25.6b, CMP INR349, TP INR405, 16% Upside, Buy)

 

• India wireless margins - a positive surprise: Post conclusion of the rights issue, Bharti reported detailed 4QFY19 operating metrics. Marred by competition for the past several quarters, Bharti's India wireless EBITDA saw a strong turnaround in 4QFY19, up 32% QoQ (31% beat), primarily on the back of 4% QoQ revenue growth coupled with steady cost control. Consequently, margins expanded 500bp QoQ to 24.1% (est. of 19%). Adjusting for the write-back in SG&A, India wireless EBITDA growth is estimated at 23%. On a high base, growth in the Africa business seemed muted; revenue declined marginally by 2% QoQ to INR55b, while EBITDA stood flat QoQ at INR24.2b. Margins at 43.8%, however, expanded 50bp QoQ.
• Minimum recharge strategy delivers: 4QFY19 witnessed full-quarter benefits from the rollout of Minimum Recharge plans. This, coupled with minor tinkering in other price plans led to a steep 19% QoQ increase in ARPU to INR123 (broadly in-line). A key point to note - subscriber base decreased marginally by 1% QoQ to 282.6m, highlighting the stickiness of low ARPU subs on Airtel's network. Cumulatively, the Minimum Recharge strategy led to 23% increase in ARPU in the last two quarters v/s 15% decline in subscriber base, thus showing healthy improvement in revenues.