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Bharti Airtel - An impressive all round performance - ICICI Securities

Posted On: 2020-10-27 22:34:46

Bharti Airtel's (Bharti) Q2FY21 result shows its superior execution in India mobile, and across other segments. Bharti's India mobile print shows marked improvement in many areas such as growth in total subs without ARPU dilution which shows quality of customer addition; lower churn rate increasing life-time value of customers and continued delivery of 4G net add, which has now likely matched the market leader. Our estimates for FY21 had downside risk on delay in tariff hike; however, robust Q2FY21 performance has offset much of it. We believe higher 4G subs base will enable Bharti to better transfer tariff hike into ARPU whenever it happens (and believe it is matter on 'when' and not 'if'). Maintain BUY with target price of Rs655.

- Why India mobile performance impresses us? 1) Bharti's total subs add at 13.9mn is multi-year high; and more importantly these subs have come at same ARPU as company. This shows high quality subs addition, and not second SIM. 2) Bharti added strong 0.7mn post-paid subs. 3) Bharti's churn rate fell to 1.7%, which is multi-year low, thus, improving life-time value of subs-base. 4) 4G subs net add at 14.4mn implies Bharti continued higher incremental market share in 4G smartphone sales. This conversion is helping organic ARPU growth and 5) incremental India mobile EBITDA margin of 70%.

- All round performance in India business. India mobile revenue grew strong 7.4% QoQ / 26% YoY to Rs138bn (I-Sec: Rs135bn) driven by subs growth of 5% to 294mn, and ARPU rise of 3.4% to Rs162 (I-Sec: Rs157). ARPU rise was driven by strong data / 4G net add of 13.1mn / 14.4mn, respectively. India non-mobile revenue rose 2.0% QoQ / 5.5% YoY to Rs49bn. Home services (FTTH) and Airtel Business (enterprise) have grown steady at 7.3% and 7.5%, respectively. Africa had stellar performance with revenue growth of 13.4% QoQ / 14.3% YoY (and constant currency growth of 19.6% YoY) at US$965mn led by subs and ARPU growth of 12% and 0.6% YoY, respectively.

- India EBITDA beat our estimate by 9.2% at Rs86bn (up 10.3% QoQ / 35.7 YoY) which was driven by India mobile EBITDA growth of 12.8% QoQ / 47.6% YoY to Rs59bn. India non-mobile EBITDA rose 4.2% QoQ and 27% YoY to Rs22bn. This was partly helped by employee and SG&A cost normalisation, down 13% and 6% QoQ; but rose 5% and 11% YoY, respectively. India incremental EBITDA margin also stood at strong 70%. Finance cost rose 40% QoQ to Rs27bn on inclusion of interest on AGR dues. Africa EBITDA rose 15.2% QoQ / 14% YoY to US$424mn.

- FCF (post-interest) was Rs33bn on lower interest payout. Bharti's operating cashflow post-interest was Rs104bn (vs Rs61bn in Q1FY21) on nil interest payout. Adjusted for interest, operating cashflow was up 25% QoQ. Working capital was negative Rs15bn vs positive Rs20bn in Q1FY21. Cash capex was Rs56bn (including spectrum payments); hence, FCFE was at Rs33bn. Accordingly, net debt reduced Rs20bn (adjusted for AGR dues) to Rs1,074bn (ex-lease liability); and Bharti made dividend payment of Rs17bn. Cashflow now covers cash payments including normalised finance cost.

Shares of BHARTI AIRTEL LTD. was last trading in BSE at Rs.433 as compared to the previous close of Rs. 434.05. The total number of shares traded during the day was 540949 in over 12171 trades.

The stock hit an intraday high of Rs. 438.7 and intraday low of 427.55. The net turnover during the day was Rs. 234245829.

Source: Equity Bulls

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