Bharti Airtel (Airtel) is India’s second largest telecom operator with a revenue market share of ~37%. The company has ~32.3 crore wireless customers in India and ~12.6 crore subscribers across operations in 14 African countries. It enjoys industry leading ARPU in the wireless business
Airtel saw partial benefits of tariff hikes during the quarter.
Airtel share price has been up ~123% over the past five years.
We value Airtel SOTP target price of ₹ 860
Besides Airtel, we like Tata Communications in our telecom coverage
|Particulars||FY19||FY20||FY21E||5 Year CAGR(FY16-FY21)||FY22E||FY23E||FY24E||3 Year CAGR (FY21-FY24E)|
|Net Sales (| crore)||80,780.2||87,539.0||100,616.0||0.8||117,548.4||135,141.6||146,906.0||13.4|
|EBITDA (| crore)||25,629.5||36,482.0||45,372.0||5.9||58,371.0||69,640.5||76,530.9||19.0|
|Net Profit (| crore)||409.5||-32,183.0||-15,084.0|
|Adjusted PAT (| crore)||-2,519.3||-4,075.0||-1,300.0||-||4,352.0||15,312.0||20,340.0||-|
|Price / Book (x)||4.0||5.1||6.7||-||5.0||4.1||3.4||-|
The partial pass through of tariff hike was seen driving the ARPU higher to | 163, up 5.9% QoQ (tad better than ~5.5% growth seen for peers). Key highlight was relative stickiness of customer base for Airtel vs. its peers. Overall sub base saw a decline of ~0.56 mn QoQ at 322.9 mn, due to impact of SIM consolidation amid tariff hike (~20-25% in Nov end) seen across all operators. However, we highlight that subscriber decline is much lower in contrast to its peers Jio/VIL which lost 8.5/8.2 mn subs, respectively, in Q3FY22. It witnessed a modest 4G Net adds of ~3 mn during the quarter, with 4G data sub base at 195.5 mn. Over the last two quarters, all telcos including Airtel have undertaken measure to boost APRU by taking 20-25% tariff hike across packs and increase in post-paid tariff especially moving the minimum corporate pack up to | 299/month to | 199/month in Q2. We highlight that management indicated that tariff remain abysmally low and another hike is likely in 2022 when current wave of SIM consolidation eases. It, therefore, expects ARPU to reach | 200 in CY22 itself. We, however, conservatively expect monthly ARPU to reach | 200 in FY24 vs. current levels of | 163, driven by tariff hike pass through, 4G addition and higher wallet share of premium subscribers. We do not build any further step up tariff hikes in our estimates.
Broadband segment witnessed strong net adds of 341k subs during the quarter. Notably, company’s accelerated LCO partnerships in non-wired cities continues to drive growth. It has taken up the LCO partnership model live in 586 cities (~436 cities in Q2) and it has added ~1.1 million home passes in the quarter. The company would continue to step up investments to take the network to 2,000 towns across India with 35 million home passes in the next three years. We note that company had also earlier outlined robust opportunity in Enterprise side (total market size of ~| 40k crore) and adjacent areas like Cloud communication, cyber security, IOT with market size of ~| 50k crore. It indicated that in the Cyber security and IOT segment, it is currently the leader. SD-WAN is another area of growth and its acquisition of 25% stake in Lavelle Networks, a Bengaluru-based company will aid it. In its data centre business – Nextra, it has added 28 MW capacity across 4 locations in Q3.
Quarterly Performance Variance Table
|Q3FY22||Q3FY22E||Q3FY21||Q2FY22||YoY (%)||QoQ (%)||Comments|
|EBITDA Margin (%)||49.2||49.7||45.5||48.8||378 bps||47 bps|
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