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Bharti Airtel Ltd

Stock Rating

Industry Rank:
4/100
Relative Strength Rating:
97
Outstanding
Acceleration in Earning Rating
21
Negative
Technical Rating
97
Outstanding
Telecommunication - Service Provider
CMP: Rs 490.3
Up
No change
Down

Company details

Market cap:
292,472.43
52-week high/low:
Rs. 568.85 / 314.65
NSE volume: (No of shares)
22,616,585.00
BSE code:
532454
NSE code:
BHARTIARTL

Shareholding

(in %)
15-Jan
Promoter
58.98
Public
40.98
Others
0.04
Total
100

Shareholding

Bharti Airtel Ltd Sensex
Bharti Airtel Ltd

Price performance

Return (%)
1m
3m
12m
36m
Absolute
6.17
-3.70
52.70
55.93
Sensex
5.79
-23.79
-18.11
7.56

+91 22 6639 3000

research@stockaxis.com

Bharti Airtel Ltd

Issues of AGR Dues Over; Survival is assured and a game of probabilities are ahead.

Profile

Bharti Airtel Limited is a leading global telecommunications company with operations in 18 countries across Asia and Africa. Headquartered in New Delhi India, the company ranks amongst the top 3 mobile service providers globally in terms of subscribers. In India, the company's product offerings include 2G, 3G and 4G wireless services, mobile commerce, fixed line services, high speed home broadband, DTH, enterprise services including national & international long distance services to carriers. In the rest of the geographies, it offers 2G, 3G, 4G wireless services and mobile commerce. Bharti Airtel had over 403 million customers across its operations at the end of March 2019. Airtel is a leading global telecommunications company with a portfolio of services that includes voice and data solutions over fixed, wireless and internet platform, DTH and enterprise solutions. As one of the world’s leading integrated providers of telecommunication services, Airtel continues to invest aggressively in deployment of latest network technologies to delight its customers.

Source: Company, Stockaxis Research

Investment Thesis

Price hikes to improve profitability:
Bharti Airtel has increased its tariff plans by 25%-31% for the most popular plans. We believe price hikes taken are well accepted by consumers. Price hikes are in-line with other competitors in the industry. We expect the recent price hikes will help Bharti Airtel to boost its EBITDA by 32% in FY21.

Exhibit No 1: Revised mobile tariff plans

Bharti Airtel Ltd

Source: Company, Stockaxis Research

Funding assures sustainability of business:
As per Supreme Court’s Judgment with respect to Adjusted Gross Revenues (AGR), Telecom companies are required to pay the dues by 17 March 2020. In January 2020, Bharti Airtel successfully raised Rs. 21,502 crores through a combination of Rs.14,400 crores in the form of QIP (Equity) and Rs.7,102 crores in the form of FCCB. While Vodafone Idea Limited is still finding a way to clear its AGR dues, we believe that the fund raising assures that Airtel can survive in tough business environment and Industry headwinds. Bharti Airtel has paid Rs. 10,000 crores of dues to Department of Telecommunications (DoT) and has informed that it will pay the balance payment shortly. According to Bharti Airtel’s self-assessment, total AGR dues to be paid by the company are around Rs.15, 000-18,000 crores.

Uncertainties in telecom industry to be net positive for Bharti Airtel:
As per Supreme Court’s order, Telecom companies are required to pay their AGR dues by 17 March 2020. As per DoT, AGR related dues from Vodafone Idea Limited (VIL) are more than Rs.53, 000 crores and Bharti Airtel are around Rs. 35,500 crores. We believe that cash strapped VIL will not be able to pay its dues to the government within the stipulated deadline; Bharti Airtel can be the biggest beneficiary of this situation. As VIL collapses, Bharti Airtel will be able to capture VIL’s market share and may add more new subscribers. These are still uncertainties which can manifest as an attractive opportunity for Bharti Airtel.

Average Revenue per User (ARPU) to rise gradually:
Recent tariff hikes which are supported by TRAI as well as other competitors will facilitate raising ARPU. Currently, the ARPU is Rs.135 as on Q3 FY20, which was Rs.225 before Jio’s entry into the market. We believe price hikes in the near term will enable gradual rise in ARPU. We expect ARPUs to rise by 20-25% going forward.

Covid 19:
Covid-19 would have a limited impact on Bharti Airtel; as social distancing is implemented we expect people would connect to their families more through telecommunication. We also anticipate that due to lockdown in country there would be a steep increase in data usage per user. Hence we expect boost in revenues for upcoming quarters.

Key Risks

Risk of high capex:
Company would have to incur high capex for 5G and this will lead to burn cash at large in future. Due to less funds company might increase its borrowings which will in turn lead to increase its fixed cost.

Adverse impact of regulations:
Regulations have been a biggest setback for the sector. Regulatory challenges include as AGR liablities.

Currency Risk:
Company is exposed to foreign currency risks as it has one subsidiary overseas.

Financial Highlights

(Rs Crores)

Particulars Mar-18 Mar-19 Mar-20 (E) Mar-21 (E) Mar-22 (E)
Operating Revenues - India
Mobile Services - India 44129.50 39470.70 47264.40 53267.81 59196.59
Broadband 2505.60 2223.50 2295.00 2411.10 2476.80
Airtel Business 9824.40 10323.50 10839.68 11273.26 11724.19
Digital TV Services 3870.40 4180.20 4539.78 5125.50 5985.00
Tower Infrastructure Services 3322.10 3204.70 3525.17 3877.69 4265.46
Operating Revenues - Global
Mobile Services - Africa 19656.50 21033.30 22430.52 22686.00 22914.00
Mobile Services - South Asia 378.30 419.90 440.90 476.17 514.26
Total Operating Income (Net) 82638.80 80780.20 91335.44 99117.52 107076.30
Growth (%) -13.00% -2.00% 13.00% 9.00% 8.00%
Network Operating expenses 20529.10 22823.70 21920.51 22301.44 24627.55
Employee Cost 3977.10 3797.50 4110.09 4658.52 5139.66
Access Charges 9044.60 9352.10 10046.90 9911.75 11778.39
License & Spectrum Charges 7555.80 6942.60 8220.19 8424.99 9422.71
Selling and Distribution Expenses 4527.50 4127.70 4566.77 4460.29 4818.43
Other Expenses 6967.90 9533.10 10046.90 7929.40 7495.34
EBITDA 30036.80 24203.50 32424.08 41431.12 43794.21
Growth (%) -14.66% -19.42% 33.96% 27.78% 5.70%
EBITDAM (%) 36.35% 29.96% 35.50% 41.80% 40.90%
Depreciation 19243.10 21347.50 24549.63 23322.14 22156.04
EBIT 10793.70 2856.00 7874.46 18108.98 21638.17
Other Income 248.80 291.20 285.50 285.50 285.50
Interest 9325.50 11013.40 12114.74 12720.48 12974.89
Profit Before Taxation & EO 1717.00 -7866.20 -3954.78 5674.00 8948.78
Exceptional Income / Expenses -793.10 2928.80 -33230.00 0.00 0.00
Provision for Tax 1083.50 -3419.30 -9940.25 1429.85 2255.09
MI/Profit of Assoc -23.60 -922.40 -600.00 -600.00 -600.00
Profit After Tax 1099.00 409.50 -27844.53 3644.16 6093.69
Adjusted EPS 2.52 0.94 -51.04 6.68 11.17
Source: Stockaxis Research, Company Data

Valuation

Bharti Airtel is the second largest player in the Indian telecom industry in terms of number of subscribers. We believe Bharti Airtel is poised well to retain its market share and improve revenues with the help of tariff hikes. We note that AGR is still a subjudice matter, but we believe Bharti Airtel’s survival is assured with the help of fund raising and tariff hikes. In the recent quarter, Bharti Airtel posted robust performance amid tough times and intense competitiveness; we expect the same momentum to be continued in FY21.