BHARTI AIRTEL LTD Stock Research Report

HIGHEST ARPU IN THE INDUSTRY…

Bharti Airtel (Airtel) is an Indian multinational telecommunications services company headquartered in New Delhi. Operating in 18 countries across South Asia, Africa, and the Channel Islands, Airtel is India’s second-largest telecom operator. The company boasts a robust presence in India, offering a comprehensive digital services portfolio that includes fibre optic cables, desktop telephones, mobile phones, and other offerings.

Key Rationale

◼ Best ARPU in the industry:

Bharti Airtel has the leading ARPU in the industry. Management expects ARPU to improve from the current level of Rs 233 (compared to Reliance’s current ARPU of Rs 189). This improvement is attributed to a richer customer mix and strong customer conversion from 2G to 4G/5G and other services. The company continues on its ARPU growth trajectory and expects it to reach Rs 300 in the future. With a strong focus on customers, Airtel will continue to increase its realizations going forward. Rising data consumption and increasing rural penetration will also contribute to gaining ARPU. Average data usage per customer is healthy at 21.7 GB/month.

◼ Huge revenue and profit growth potential:

The company’s business fundamentals remain strong and continue to improve. Management foresees significant potential for sustained revenue and profit growth, driven by expanding distribution in rural areas, investments in the network, and increasing 4G coverage. Additionally, strategic investment opportunities are available in tower sales, minority, and IPO investments in mobile money, among others. The company’s digital portfolio is gaining momentum, along with market share gains. Airtel maintained a strong share of 4G/5G net ads in the market, with the 4G customer base growing by 7.7 Mn QoQ and 27.2 Mn YoY. This now constitutes 75% of the overall customer base.

◼  Improvement in the Digital/Home Segment:

The management anticipates improvement in the Home Segment by offering multiple solutions in one go. Airtel has adopted a robust strategy of “Hunting” by providing diverse solutions to existing customers (primarily 50 Mn customers with strong financial conditions) and actively acquiring new customers. Enhanced growth in the Home segment is expected to bolster revenue realization and fortify the business model. Management expresses confidence in achieving industry-leading growth supported by robust rural penetration and an enhanced service portfolio.

◼  Moderated Capex and const optimization effort:

The company anticipates no immediate significant capital expenditure despite the rollout of 5G. Management expects Capex levels to remain stable, with investments focused on broadband expansion, enterprise solutions, and data centres. However, Capex related to 4G radio is expected to decline. Airtel has identified over 2,500 sites for network cost reduction initiatives, which will contribute to lowering operating costs in the future.

◼ Valuation & Recommendation:

Our BUY rating on the stock is retained due to the company’s superior margins, impressive subscriber growth, and increased 4G conversions.

◼ Key Risks: a) Competitors may eat market share resulting in loss of sustainable revenue.

Key Financials (Consolidated)