MOSL: BHARTI AIRTEL (Buy)-Stability emerging; Competitive threat in wireline biz subsiding
BHARTI AIRTEL: Stability emerging; Competitive threat in wireline biz subsiding
(BHARTI IN, Mkt Cap USD25.2b, CMP INR349, TP INR420, 20% Upside, Buy)
The Indian telecom industry is continuing to grapple with disruption with changing customer demands and cut-throat competition. Against this backdrop, we met Bharti Airtel’s (BHARTI) management to understand the current industry trends along with the company’s earnings outlook and capex plans. Key takeaways:
- Management mentioned that the impact from downtrading and the minimum recharge plans is now largely behind. Moreover, even though the second quarter is seasonally weak, BHARTI is likely to benefit from TTSL merger revenue contribution and network cost efficiencies (incremental EBITDA margin at 70%). Accordingly, we expect wireless revenue/EBITDA to remain flat in 2QFY20.
- BHARTI has set a target to capture 35-40% of incremental MBB subscriber share. It also aims to pick a similar share from VIL's subscriber churn. Meanwhile, it is benefiting from a healthy upgrade in voice ARPU from ~INR60 to ~INR120.
- The launch of RJio's fiber-to-the-home (FTTH) services has had a limited impact on BHARTI. In fact, the company cited that 35-40% of renewals have been on annual plans over the last few months. In our view, RJio's foray has not been as disruptive for BHARTI as the latter boasts of a strong product portfolio and has a limited price differential with the former.
- There are no plans of Fiber InvIT or Bharti Infratel stake sale over the near term. The company is comfortable with current leverage (net debt-to-EBITDA at 3.2x, incl. Africa IPO funds). Furthermore, capex intensity is likely to remain significantly low with meager 5k new site adds annually.
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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