EUR 120.00 For Business Accounts Only

MOSL: BHARTI AIRTEL: Huge FCF opportunity calls; Strong EBITDA growth and flat capex to translate into robust FCF generation (BHARTI IN, Mkt Cap USD49.1b, CMP INR681, TP INR910, 34% Upside, Buy)

Over the last couple of years, though Bharti's operational performance has been strong, it has lagged in FCF generation and deleveraging that has posed a key concern for the stock. FCF is a key factor in telecom business as technology upgradation continually keeps capex intensity high. However, we believe despite the upcoming investments in 5G, Bharti is witnessing a decadal shift in its FCF generation capability that could translate into healthy deleveraging. We maintain our BUY rating on the stock with a TP of INR910.

Decadal shift in FCF generation capability

• Bharti is entering a phase of high FCF growth. During the last three years (FY19-22), Bharti's EBITDA has jumped over 2x adding INR318b as against an average capex (excluding Spectrum) of INR233b (flat over the period).  This translated into a significant FCF.
• During the last three years, we saw an EBITDA addition of 1.4x of the annual capex of Bharti (excluding Spectrum).
• However, Indus and DTH stake acquisitions, AGR payments and liability et al. have led to limited FCF and deleveraging (refer to Exhibit 2).
• We expect Bharti to generate FCF (post-interest) of INR251b/INR368b, i.e. 22%/47% of its net debt (post Ind-AS 116) in FY23/24E, respectively, (refer to Exhibit 1).