Bharti Airtel: FY23 ARA: The juggernaut rolls on

5 Sep 2023 , 10:29 AM

Recommendation: Buy; Target price: 967

 

FY23 was another year of RMS gains and robust Ebitda growth, with Bharti managing to contain India network opex increase to 7%, despite a 13% increase in tower count. In 4G, Bharti’s capacity utilisation was 60-65%. Analysts of IIFL Capital Services expect 4G+5G capacity to be ~3.5x of the Q1FY24 traffic level by FY24-end, led by the ongoing capex programme. While FCF (post spectrum outgo) was at a multiyear high of Rs212bn, net debt-to-Ebitda crossed 3x due to rise in spectrum and lease liabilities. Steady RMS gains and revenue growth should bring this down to 1.5x by FY26. Bharti remains analysts of IIFL Capital Services top pick in the space. Key risks: 1) Potential adverse outcome in the longstanding OTSC case (Rs151bn est. liability). 2) Significantly lower sub-1GHz spectrum holding vs JIO – the network will have to be managed deftly if 2G, 4G and 5G SA services have to be supported simultaneously. 

Tight cost control continues: 

20% revenue growth, 160bps SUC reduction and 13% controllable opex increase drove ~250bps Ebitda margin expansion for Bharti standalone + Hexacom. Network opex rising only in high- single digits despite 13% rise in the average tower count — was a positive, even though S&D expenses rose sharply due to higher MNP payouts (which has shown signs of stabilisation in Q1FY24). 

Elevated capex in FY24 should lead to significant capacity addition: 

Bharti carried 164PB/day traffic in Q1FY24, and stated that its capacity utilisation in 4G is just 60-65%. Analysts of IIFL Capital Services expect capex acceleration to take data capacity by FY24-end, to ~3.5x of the Q1FY24 traffic levels. Bharti’s capex-to-sales should come off to 20% by FY26 from 29% in FY24. Home BB remains a key focus area with FY22+FY23 capex being almost similar to the preceding 5yr period. 

Others: 

1) Bharti’s per-capita home BB data usage was 247GB/month vs JIO’s 280. 2) Airtel Africa saw a decline in FCF to US$230mn due to spectrum payouts. 3) In FY23, consolidated FCF of Rs212bn was also boosted by Rs66bn increase in capex creditors. 3) Bank and market borrowings account for only 19% of Bharti’s net debt. 4) Total liability pertaining to the longstanding OTSC case is Rs151bn, out of which Rs85bn has been provided for and Rs66bn is part of contingent liability