Private Client Research

Rating

Buy

Sector

Telecommunication - Service Provider

Company

Bharti Airtel Ltd

Telecommunication - Service Provider

March 25, 2020

Sensex: 28535.78

CNX Nifty: 8317.85

NSE: BHARTIARTL

BSE: 532454

Reco Price

Rs. 416

Price Target (1 Year)

Rs. 645

Upside

55.05%

Date

March 25, 2020

Sensex

28535.78

CNX Nifty

8317.85

Exchange

Code

NSE

BHARTIARTL

BSE

532454

Stock Data

CMP (Rs)

429.10

Face value (Rs)

52 Week Range (Rs)

568.85 - 291.75

Market cap (Rs Crores)

234452.58

Price To Book Value (x)

2.14

P/E Ratio (x)

N/A

EV/EBIDTA (x)

16.33

One Year indexed Stock Performance

Bharti Airtel Ltd Sensex

Return (%)

12m

36m

Absolute

-19.73

25.82

43.07

38.26

Sensex

-29.16

-26.06

-24.53

-2.40

Shareholders

(in %)

15-Jan

Promoter

58.98

Public

40.98

Others

0.04

Total

100

+91 22 6639 3000

research@stockaxis.com

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

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

Investment Rationale:

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

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 perUser (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.

Indian Telecom Industry

India is currently the world’s second-largest telecommunications market with a subscriber base of 1.20 billion and has registered strong growth in the past decade and half. The Indian mobile economy is growing rapidly and will contribute substantially to India’s Gross Domestic Product (GDP), according to a report by GSM Association (GSMA) in collaboration with the Boston Consulting Group (BCG). As of January 2019, India has witnessed 165%growth in app downloads in the past two years. 4.8 billion Downloads of mobile applications were registered in India in the first three months of 2019.

The liberal and reformist policies of the Government of India have been instrumental along with strong consumer demand in the rapid growth in the Indian telecom sector. The government has enabled easy market access to telecom equipment and a fair and proactive regulatory framework that has ensured availability of telecom services to consumers at affordable prices. The deregulation of Foreign Direct Investment (FDI) norms has made the sector one of the fastest growing and a top five employment opportunity generator in the country.India ranks as the world’s second largest market in terms of total internet users. The number of internet subscribers in the country increased at a CAGR of 45.74% during FY06-FY19 to reach 636.73 million in 2018-19. Total wireless data usage in India grew 119% year-on-year to 17,940,576 terabytes between April-June 2019. The internet subscribers reached 665.31 million till June 2019. Over the next five years, rise in mobile-phone penetration and decline in data costs will add 500 million new internet users in India, creating opportunities for new businesses.

Growth Drivers for the TelecomIndustry:

The number of internet subscribers in the country is expected to double by 2021 to 829 million and overall IP traffic is expected to grow 4-fold at a CAGR of 30%by 2021.
The Indian Government is planning to develop 100 smart city projects, where IoT would play a vital role in development of those cities.
The National Digital Communications Policy 2018 has envisaged attracting investments worth US$ 100 billion in the telecommunications sector by 2022. The Indian Mobile Value-Added Services (MVAS) industry is expected to grow at a CAGR of 18.3% during the forecast period 2015–2020 to reach US$ 23.8 billion by 2020.
India’s mobile subscriber base is expected to reach 1,420 million by 2024 from 1,200 million in 2018, with 80% users having 4G connections.

Source: Company, IBEF

Profit & Loss Statement:- (Consolidated)

(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. We initiate ‘Buy’ on Bharti Airtel for a target price of Rs.645.

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