Q3FY23 Review: Bharti Airtel: Higher rural thrust; outlook robust

9 Feb 2023 , 10:59 AM

After reporting a robust Q3 with 5.5% QoQ underlying Ebitda growth, Bharti management attributed the healthy 4G net adds to improved rural coverage. It has identified 40k high-potential rural clusters where it targets profitable market share gains. While encouraging results in two circles led Bharti to extend its entrylevel plan price hike to 15 more circles, management sees the timing of 4G prepaid tariff hikes to be dictated by market forces.

Key takeaways from the earnings call: 1) over 15% of subs (>50mn) are on the entry-level plan though their revenue contribution is much lower; 2) The healthy 4G sub adds despite slowdown in smartphone shipments is due to thrust on rural areas where Bharti has recently become the second telco offering 4G; 3) Bharti reiterated that its annual India capex over three years (FY23-25) would average the same as earlier (Rs250bn pa) but with a front-loaded profile; 4) 20-35% 4G traffic has been offloaded to 5G network in some areas, resulting in some capacity debottlenecking; 5) Bharti’s renewed efforts on war-on-waste should partly offset higher NW costs on 5G rollout; and 6) Bharti has witnessed strong traction in its top enterprise accounts.

Analysts of IIFL Capital Services largely maintain Ebitda estimates though FY24/25 PAT sees 4%/3% downgrade on lower profitability at Indus. They project 19% Ebitda Cagr over FY22-25 on healthy RMS gains and tariff hikes; the stock trades at 8.6x 1YF EV/Ebitda. Healthy FCF should aid steady deleveraging despite higher capex intensity. Bharti remains their top pick.

Analysts of IIFL Capital Services maintain buy with target price of Rs 922.