RESULT

Bharti Airtel (BHARTI) ADD

Telecommunication Services
CMP(₹): 775 Fair Value(₹): 875 Sector View: Attractive NIFTY-50: 17,872 February 08, 2023

Strong 3Q; market share gains likely to continue Company data and valuation summary
Bharti’s 3Q results were slightly ahead of our estimates, led largely by better
Stock data
performance in the Indian wireless and African business. The company
CMP(Rs)/FV(Rs)/Rating 775/875/ADD
continued to report broad-based growth, with likely market share gains
52-week range (Rs) (high-low) 861-629
across segments. Bharti continued to grow ahead of peers for five out of the
Mcap (bn) (Rs/US$) 4,474/54
past six quarters, driven by subscriber mix improvements in the Indian
ADTV-3M (mn) (Rs/US$) 4,369/53
wireless business. Reiterate ADD with FV of Rs875, as we believe it remains
well-placed to compete with R-Jio on 5G rollouts, despite a likely front-loaded Shareholding pattern (%)
capex.
3.7
1.8
6.8
3Q slightly ahead; net debt declines sequentially, despite elevated capex
10.7
Consolidated revenue at Rs358 bn (+4% qoq, +20% yoy) was 1% ahead on better
55.1
performance in the Indian wireless and African business. EBITDA, at Rs185 bn, 21.9
inched up 5% qoq (+26% yoy), with further ~60 bps qoq margins expansion,
driven by 1) higher operating leverage, and 2) residual benefit of lower SUC in
the Indian wireless business. Despite elevated capex of Rs93 bn (+32% qoq, Promoters FPIs MFs BFIs Retail Others

+53% yoy, 8% above our estimate), consolidated net debt (excluding leases)
Price performance (%)

Private Circulation Only. This document may only be distributed to QIBs (qualified institutional buyers) as defined under rule 144A of the Securities Act of 1933
declined ~Rs25 bn and FCF improved to Rs57 bn (from negative Rs44 bn qoq).
Nifty BHARTI
200
Subscriber mix improvements drive further market share gains in Indian wireless
160
After two quarters of subdued net adds, Bharti reported healthy 4.4 mn wireless
120
net adds in 3Q (versus ~4.8 mn for R-Jio and our estimate of 3.5 mn). Wireless
80
ARPU inched up further 1.9% qoq (versus 0.6% qoq for R-Jio, including FTTH)
to Rs193 and was 1% ahead of our estimate, likely driven by subscriber mix 40

improvements. Bharti’s subscriber mix continues to improve, with rising share 0

Mar-22

Aug-22
Feb-22

May-22

Nov-22

Feb-23
Jun-22

Jan-23
Oct- 22
Apr-22

Sep-22

Dec -22
Jul-22
of postpaid users (+4% qoq) and robust 6.4 mn 4G net adds.

Indian wireless revenue inched up 2.6% qoq (versus 2.1% qoq for R-Jio,
Forecasts/Valuations 2023E 2024E 2025E
including FTTH) and was 1% above us, and EBITDA was up 4.5% qoq, as margins EPS (Rs) 16.5 27.1 43.1
expanded by a further ~140 bps qoq to 53.8% on residual benefits of lower SUC. EPS growth (%) 260.6 64.1 59.3
Bharti’s consistent focus on quality customers and recent tariff intervention at P/E (X) 47.0 28.6 18.0
the lower end should drive further market share gains, in our view. P/B (X) 5.7 4.6 3.8
EV/EBITDA (X) 8.3 6.6 5.4
Steady growth continued in Homes, Enterprise and African business RoE (%) 13.1 18.0 23.2
Div. yield (%) 0.3 0.5 0.8
Homes broadband revenue grew 5% qoq (30% yoy) on continued strong traction
Sales (Rs bn) 1,395 1,612 1,841
in subscriber net adds (432k versus our estimate of 390k), with the rollout of
EBITDA (Rs bn) 714 851 994
the LCO model. Airtel Business revenue inched up 2% qoq (on strong base) and Net profits (Rs bn) 95 161 257
16% yoy, with further 65 bps qoq margin improvement. Airtel Africa continued Source: Bloomberg, Company data, Kotak Institutional Equities estimates
to deliver double-digit yoy constant currency revenue and EBITDA growth, with Prices in this report are based on the market close of
healthy growth across voice, data and mobile money. Airtel DTH also reported February 08, 2023
healthy subscriber net adds (+214k versus 66k qoq and our estimate of 100k)
Related Research
in a contracting industry.
→ Bharti Airtel: On strong footing
→ Bharti Airtel: Minimum recharge plans hiked
→ Reliance Industries: 3QFY23 in line

Full sector coverage on KINSITE

Aditya Bansal Anil Sharma

[email protected] [email protected]
+91-22-4336-0876 +91-22-4336-0875

akash-valuequest.in
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Reiterate ADD rating with revised FV of Rs875

Our EBITDA changes are modest, as ARPU uptick from minimum recharge plan hike is offset by lower
wireless net adds. We revise our FV to Rs875 (from Rs900), driven by marginally lower Indian wireless
EBITDA, higher capex and recent cut in our FV for Indus Towers to Rs165 (from Rs195). We reiterate our
ADD rating, as we believe Bharti remains on a strong footing with a long runway for growth. Despite GoI’s
recent equity conversion, we believe Vodafone Idea’s revival requires a large expedited fund raise, which
could prove challenging. We expect the company to continue gaining market share at Vi’s expense,
especially among premium data subscribers. GoI’s intent to protect the 3+1 market construct also
ensures more frequent tariff hikes are likely, which in our view should benefit Bharti (and R-Jio).

3Q slightly ahead on better-than-anticipated performance in Indian wireless and African business

 Consolidated revenue at Rs358 bn (+3.7% qoq, +19.9% yoy) was ~1% ahead of our estimates, driven
largely by better performance in the African and Indian wireless businesses.

 Consolidated EBITDA at Rs185 bn (+4.9% qoq, +25.5% yoy) was also marginally ahead of our
estimates. Reported EBITDA margin improved by a further ~60 bps qoq to 51.5% (+230 bps yoy),
largely driven by residual impact of lower Spectrum Usage Charges (SUC) in the Indian wireless
business.

 Consolidated adjusted PAT at Rs20.9 bn (-2.6% qoq, ~2.65x yoy) was in line with our estimates, as a
lower-than-anticipated increase in depreciation and lower net interest cost was offset by lower
contribution from Indus Towers (reported loss in 3Q).

 Consolidated reported PAT of Rs15.9 bn was impacted by Bharti, accounting prior period license fee
payments in DTH business.

 Consolidated capex inched up sharply to Rs93.1 (+32% qoq, +53% yoy) and was 8% ahead of our
estimates, on accelerated 5G rollouts.

Indian wireless: Subscriber mix improvements drive further market share gains
 Wireless ARPU inched up further 1.9% qoq (versus 0.6% for R-Jio, including FTTH) to Rs193.4 (up 19%
yoy, versus Rs178 reported by R-Jio) and was ~1% ahead of our estimate of Rs192, likely driven by
subscriber mix improvements.

 After two quarters of subdued wireless net adds, Bharti reported 4.4 mn net adds in 3Q (versus our
estimate of 3.5mn and ~4.8mn wireless net adds for R-Jio).

 Bharti’s subscriber mix continues to improve, with a rising share of postpaid users (up ~4% qoq) and
healthy 6.4 mn 4G net adds. Proportion of data subscribers in Bharti’s subscriber mix improved further
to ~68% (versus ~63% yoy).

 Bharti’s Indian wireless revenue was up 2.6% qoq (versus 2.1% qoq for R-Jio, including FTTH) to Rs194
bn (+19.4% yoy), and was marginally above our estimate, driven by slightly better ARPU and higher net
adds.

 EBITDA improved 4.5% qoq (similar to R-Jio) to Rs104 bn (+26.5% yoy), and was ~1% above our
estimate as the margin inched up ~140 bps qoq to 53.8% (versus our estimate of 53.6%, +440 bps
yoy and 52.2% for R-Jio).

 Bharti reported healthy incremental margin of 123% (versus 81% qoq and 109% for R-Jio) likely on
residual benefits of spectrum usage charges.

 With acceleration in 5G rollouts, Indian wireless capex was up 63% qoq to Rs64 bn (+53% yoy) and
was 8% above our estimate.

Bharti Airtel
Telecommunication Services India Research

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Homes: Higher net adds offset by weaker ARPU

 Bharti continued to see strong traction in Homes broadband, with 432k net adds (versus 417k net
adds qoq and our estimate of 390k net adds) to reach 5.6 mn subs (+36% yoy).

 However, reported ARPU declined further 3% qoq to Rs624/month (-5% yoy) and was ~3% below our
estimate of Rs640.

 Homes revenue was up 4.5% qoq to Rs10.3 bn (+30% yoy), but was 2% below our estimate as weaker
ARPU offsets higher net adds.

 Homes EBITDA at Rs5.2 bn (+4% qoq, +19% yoy) was 6% below our estimate, with margin moderating
a further 30 bps qoq to 50%. However, adjusted for the Telesonic and Nettle consolidation, the Homes
segment’s margin improved ~35 bps qoq on a like-for-like basis.

Airtel DTH: Subscriber net adds recover, but margins weaker on higher license fee payments
 Airtel DTH subscriber trends improve with 214k active net adds (versus 66k net adds in 2Q and our
estimate of 100k net adds).

 Reported ARPU was largely in line with our estimate at Rs154 (-0.6% qoq, -4% yoy).

 DTH revenue was up a modest 1% qoq to Rs7.4 bn (-7% yoy) and was 1% above our estimate on higher
net adds.

 However, DTH EBITDA declined 5% qoq to Rs4.1 bn (-22% yoy) and was 9% below, as margins
contracted sharply to 55.9% (-380 bps qoq). The sharp margin contraction was due to Bharti paying a
license fee on overall DTH revenue, including the content revenue (pass-through after NTO
implementation).

 Bharti had also paid-up license fee on content revenue for past periods and reported Rs6.7 bn under
exceptional items.

Airtel Business: Steady growth continues; consolidation of fiber assets impacted margin
 Airtel Business (Enterprise) revenue at Rs48 bn (+16% yoy, 1% below us) was up 2% qoq (on strong
2Q base).

 EBITDA at Rs19 bn (+20% yoy, 4% below us) was up 4% qoq, with a further 65 bps qoq margin
improvement to 39.9% (~+130 bps yoy).

 The slight miss on our estimates was driven by consolidation of fiber assets under Telesonic. On a
like-for-like basis, Airtel Business’ EBITDA margin was up a further 100 bps qoq

Airtel Africa: Double-digit constant currency growth continued

 Airtel Africa (AAF) continued to deliver double-digit yoy constant currency revenue and EBITDA growth,
with healthy growth across voice, data and mobile money.

 Reported revenue at US$1.35 bn (+3% qoq, +11% yoy) was 2% ahead of our estimate, and reported
EBITDA at US$658mn (+4% qoq, +9% yoy) was also 2% ahead of our estimate on higher net adds and
better ARPU.

Other highlights
 Data volume in the Indian wireless business inched up ~3% qoq (similar to R-Jio, including FTTH) and
was up ~23% yoy, with data usage per sub steady qoq at 20.3 GB/month (versus 18.3 GB yoy and 22.4
GB reported by R-Jio, including FTTH).

 Voice usage on network in Indian wireless was up ~2% qoq (versus 3% qoq for R-Jio) and 5% yoy, with
minute of usage per subscriber improving further to the industry-best 1,093min/month (versus 1,082
qoq and 984 for R-Jio).

 Bharti’s consolidated net debt (ex-leases) moderated by ~Rs25 bn qoq to Rs1.55 tn. Including the
impact of leases, its consolidated net debt to EBITDA (annualized) stood at 2.82x (versus 2.96x qoq).
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Telecommunication Services India Research

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 Consolidated free cash flow improved to Rs57 bn in 3QFY23 (versus negative Rs44 bn in 2Q on
spectrum payouts), despite a sharp increase in capex, as cash flow from operations improved to
Rs190 bn (from Rs129 bn qoq) on higher EBITDA and working capital release of Rs11 bn (versus Rs45
bn build qoq).

Key takeaways from earnings webinar

 Capex: Bharti’s management reiterated that there could be some front-loading of 5G capex, as the
company aims to complete the urban 5G rollout by March 2024. However, it maintained that on a
three-year basis overall capex for the Indian business should remain within the earlier guided range
of ~Rs750 bn. Management also noted that capacity offload is likely to be the biggest use case for
5G at the moment, and the company will look to squeeze out 4G capex to 5G now.

 Minimum recharge plan hikes: Management highlighted that a hike in the minimum recharge plan
was a calculated move on the company’s part, as new plans provide more value compared to metered
plans. According to management, the initial subscriber trends were better than anticipated, which led
to Bharti rolling out minimum recharge plan hikes to 17 circles now. Management highlighted that
revenue contribution from non-data subscribers is slightly upwards of 15% (versus 30%+ share in
subscriber mix).

 Smartphone tariff hikes: Management continued to highlight that tariffs need to inch up to Rs300 for
telcos to make a respectable return on capital. However, unlike entry-level plans, where direct
competition is low, Bharti would not take unilateral tariff hike on smartphone plans.

 5G: Bharti has rolled out 5G in ~70 cities and should touch 300 cities by March 2023. Management
highlighted that non-standalone 5G is able to deliver 30% higher coverage (versus SA) and initial 5G
experience has been good with consistent speed of 300-400 Mbps. The pace of 5G rollouts beyond
urban India will depend on 5G device penetration (likely to remain sub-25% by March 2024).

 War on waste: Bharti has relaunched their war on waste program to tackle rising energy costs and
sharp increase in SG&A. Management noted that they are looking to lower costs over the next 6-9
months through initiatives such as optimizing higher cost legacy sites and squeezing out 4G capex to
5G.

 Homes Broadband: Bharti’s homes passed stands at ~25mn homes currently, and management has
set a target to increase homes passed to 30 mn by 2024 through the LCO model.

 Enterprise: Management highlighted that Bharti has seen over 300% growth in its top-50 accounts
over the past year, with the change in their go-to market strategy; it will look to replicate it for the top-
500 accounts. Adjacencies such as CPaaS, Datacentres and IoT are seeing good traction and driving
continued improvement in Enterprise revenue growth.

 Fixed wireless access (FWA): Management highlighted that FWA router cost has to come down
significantly, as FWA router costs remain high at US$180-200 as compared with the cost of ~US$100
per connected house using fiber. Bharti is currently evaluating their strategy for FWA.

 Pending calls on rights issue: As organic free cash flow generation remains healthy for the company,
pending calls on rights issue may not be needed immediately.

Bharti Airtel
Telecommunication Services India Research

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Exhibit 1: Bharti’s 3QFY23 results, March fiscal year-ends (Rs mn)

Change (%)
3QFY23 3QFY23 3QFY22 2QFY23 KIE est. yoy qoq 9MFY23 9MFY22 (% chg.) FY2023E
Consolidated results
Revenues 358,044 354,772 298,666 345,268 0.9 19.9 3.7 1,031,358 850,466 21.3 1,394,618
Access charges (19,352) (19,842) (17,232) (19,310) (2.5) 12.3 0.2 (57,360) (50,106) 14.5 (76,721)
License and spectrum fee (28,421) (27,716) (27,298) (29,511) 2.5 4.1 (3.7) (89,238) (80,547) 10.8 (117,745)
Network operating costs (73,284) (74,155) (64,986) (71,303) (1.2) 12.8 2.8 (211,415) (184,747) 14.4 (288,940)
Employee costs (12,353) (12,130) (11,336) (12,086) 1.8 9.0 2.2 (35,674) (32,691) 9.1 (46,774)
SG&A expenses (40,102) (37,158) (30,786) (37,120) 7.9 30.3 8.0 (111,907) (87,439) 28.0 (150,582)
Total costs (173,512) (171,000) (151,638) (169,330) 1.5 14.4 2.5 (505,594) (435,530) 16.1 (680,761)
EBITDA 184,532 183,773 147,028 175,938 0.4 25.5 4.9 525,764 414,936 26.7 713,857
EBITDA margin (%) 51.5 51.8 49.2 51.0 (26)bps 231 bps 58 bps 51.0 48.8 219 bps 51.2
Depreciation and amortization (92,977) (97,471) (85,472) (89,468) (4.6) 8.8 3.9 (270,259) (245,081) 10.3 (366,385)
EBIT 91,555 86,302 61,556 86,470 6.1 48.7 5.9 255,505 169,855 50.4 347,472
EBIT margin (%) 25.6 24.3 20.6 25.0 124 bps 496 bps 53 bps 24.8 20.0 480 bps 24.9
Net finance cost (44,280) (48,870) (41,700) (47,384) (9.4) 6.2 (6.6) (134,851) (120,412) 12.0 (180,848)
PBT 47,275 37,432 19,856 39,086 26.3 138.1 21.0 120,654 49,443 144.0 166,624
Tax provision (10,756) (12,353) (9,908) (12,864) (12.9) 8.6 (16.4) (34,853) (26,744) 30.3 (49,654)
PAT before minority interest 36,519 25,079 9,948 26,222 45.6 267.1 39.3 85,801 22,699 278.0 116,970
Share of associates / JVs (3,684) 4,694 6,161 3,567 (178.5) (159.8) (203.3) 1,511 17,096 (91.2) 10,734
Minority interest (10,255) (8,700) (8,211) (8,337) 17.9 24.9 23.0 (27,211) (23,431) 16.1 (32,722)
Extraordinary items (6,698) — 398 - (6,698) 6,107 (6,698—)
Reported net income 15,882 21,073 8,296 21,452 (24.6) 91.4 (26.0) 53,403 22,471 137.7 88,284
Adjusted net income 20,894 21,073 7,898 21,452 (0.9) 164.6 (2.6) 58,415 16,364 257.0 94,982
Reported EPS (Rs) 2.8 3.7 1.5 3.8 (24.4) 84.7 (25.7) 9.4 4.1 128.8 15.3
Adjusted EPS (Rs) 3.7 3.7 1.5 3.8 (0.5) 155.2 (2.3) 10.3 3.0 243.7 16.5

Source: Company, Kotak Institutional Equities estimates

Bharti Airtel
Telecommunication Services India Research

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Exhibit 2: Bharti’s key operating metrics, March fiscal year-ends

Change (%)
3QFY23 3QFY23E 3QFY22 2QFY23 KIE est. yoy qoq 9MFY23 9MFY22 (% chg.) FY2023E
Operating metrics
India wireless
Wireless ARPU 193.4 191.7 162.5 189.8 0.9 19.0 1.9 188.0 154.1 22.0 191.2
EoP reported subs (mn) 332.2 331.3 322.9 327.8 0.3 2.9 1.4 332.2 322.9 2.9 328.2
Net adds (mn) 4.4 3.5 (0.6) 0.5 6.2 1.5 2.2
EoP prepaid subs 313.3 312.6 305.3 309.5 0.2 2.6 1.2 313.3 305.3 2.6 308.8
EoP post paid subs 19.0 18.7 17.6 18.3 1.8 7.9 3.6 19.0 17.6 7.9 19.5
EoP data subs (mn) 225.3 225.1 203.0 219.1 0.1 11.0 2.8 225.3 203.0 11.0 232.8
Data net adds (mn) 6.2 6.0 2.9 5.8 16.8 14.3 24.3
Data subs proportion (%) 67.8 67.9 62.8 66.8 (14)bps 496 bps 97 bps 67.8 62.8 496 bps 70.9
EoP 4G subs (mn) 216.7 216.3 195.5 210.3 0.2 10.8 3.1 216.7 195.5 10.8 224.7
4G net adds (mn) 6.4 6.0 3.0 5.0 15.9 16.2 23.9
Data volume (bn MBs) 13,853 14,027 11,312 13,485 (1.2) 22.5 2.7 39,900 33,354 19.6 54,396
Data usage per data sub (GB/month) 20.3 20.6 18.3 20.3 (1.3) 11.0 0.1 20.0 18.5 8.0 20.1
Average data realization (Rs/GB) 14.1 13.8 14.3 14.2 2.2 (1.0) (0.1) 14.3 13.7 4.2 14.1
Voice usage on network (bn mins) 1,082 1,071 1,030 1,063 1.0 5.1 1.8 3,224 3,052 5.6 4,307
Minute of usage per sub (min/month) 1,093 1,083 1,061 1,082 0.9 3.0 1.0 1,088 1,053 3.4 1,097
Network towers ('000) 262.6 230.6 254.0 13.9 3.4 262.6 230.6 13.9
MBB network towers ('000) 261.8 229.8 253.3 13.9 3.3 261.8 229.8 13.9
MBB sites ('000) 806.2 748.3 787.5 7.7 2.4 806.2 748.3 7.7
Revenue per tower (Rs/month) 246,976 232,010 248,848 6.5 (0.8) 243,528 221,882 9.8
Homes
Cities covered (#) 1,140 672 1,060 69.6 7.5 1,140 672 69.6
Reported ARPU (Rs/month) 624 640 657 646 (2.6) (5.1) (3.4)
Calculated ARPU (Rs/month) 635 653 666 660 (4.6) (3.7) 648 665 (2.6) 642
EoP reported subs (mn) 5.6 5.6 4.2 5.2 35.6 8.3 5.6 4.2 35.6 6.0
Net adds ('000) 432 390 341 417 1,159 1,094 1,559
DTH*
ARPU (Rs/month) 154.0 154.4 160.8 155.0 (0.2) (4.2) (0.6) 153.8 164.4 (6.4) 152.9
EoP active DTH subs (mn) 16.0 15.9 16.2 15.8 0.7 (1.4) 1.4 16.0 16.2 (1.4) 16.1
Net adds ('000) 214.2 100.0 (119.5) 65.8 (42.6) (0.0) 57.4
Airtel Business
M2M subs (mn) 13.5 8.9 13.2 51.9 1.9 13.5 8.9 51.9
Net adds ('000) 250 1,473 2,101 3,537 2,423
Airtel Africa
Reported ARPU (US$) 3.1 3.0 3.3 3.1 3.7 (4.2) 2.1 3.0 3.2 (4.0)
EoP subscriber base (mn) 138.5 137.8 125.8 134.7 0.5 10.1 2.9 138.5 125.8 10.1 142.0
Net adds (mn) 3.8 3.1 3.1 3.1 10.1 7.6 13.6
EoP data subscriber base (mn) 51.3 45.1 48.6 13.7 5.6 51.3 45.1 13.7 53.9
Net adds (mn) 2.7 1.2 2.1 4.6 4.5 7.2
Data subs proportion (%) 37.0 35.9 36.1 118 bps 95 bps 37.0 35.9 118 bps 38.0
EoP mobile money subs base (mn) 31.4 25.7 29.7 22.2 5.7 31.4 25.7 22.2 33.0
Net adds (mn) 1.7 1.8 2.1 5.2 4.0 6.8

Notes:
Bharti has started disclosing DTH ARPU and subs based on active customers from 2QFY23

Source: Company, Kotak Institutional Equities estimates

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Telecommunication Services India Research

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Exhibit 3: Bharti’s 3QFY23 segmental performance, March fiscal year-ends (Rs bn)
Change (%)
3QFY23 3QFY23E 3QFY22 2QFY23 KIE est. yoy qoq 9MFY23 9MFY22 (% chg.) FY2023E
Segmental revenue (Rs bn)
India 250 249 209 243 0.4 19.4 2.6 726 596 21.8 979
Wireless 194 193 161 190 0.4 20.3 2.1 565 456 24.0 761
Homes 10.3 10.6 8.0 9.9 (2.3) 29.8 4.5 30 22 36.4 41
DTH 7.4 7.3 7.9 7.3 0.9 (6.6) 1.4 22 24 (7.6) 29
Airtel Business 48 48 41 47 (1.0) 16.4 2.4 138 119 16.1 186
South Asia 0.8 0.7 1.0 0.7 10.2 (20.4) 11.8 2 3 (25.9) 3
Africa 111 109 91 104 2.1 21.8 6.2 312 259 20.7 425
Consolidated 358 355 299 345 0.9 19.9 3.7 1,031 850 21.3 1,395
Eliminations (13) (13) (11) (13) (38) (32) 21.0 (51)
Segmental EBITDA (Rs bn)
India 132 132 104 126 (0.2) 26.5 4.5 377 295 27.5 508
Wireless 104 103 79 99 0.8 31.1 4.9 297 224 32.2 401
Homes 5.2 5.5 4.4 5.0 (5.6) 18.7 3.8 15 11 32.7 21
DTH 4.1 4.5 5.3 4.4 (9.0) (22.3) (5.0) 13 16 (17.4) 17
Airtel Business 19 20 16 18 (3.8) 20.4 4.1 54 46 17.1 73
South Asia (0.1) (0.2) (0.2) (0.1) 16.9 37.2 6.8 (0) (0) (17.6) (1)
Africa 54 53 45 51 2.3 20.5 6.3 153 126 21.3 211
Consolidated 185 184 147 176 0.4 25.5 4.9 526 415 26.7 714
Eliminations (2) (2) (3) (2) (6) (9) (9)
Segmental EBITDA margin (%)
India 52.7 53.1 49.8 51.8 (34)bps 299 bps 95 bps 51.9 49.5 232 bps 51.9
Wireless 53.8 53.6 49.4 52.4 20 bps 444 bps 144 bps 52.5 49.2 324 bps 52.7
Homes 50.0 51.8 54.7 50.3 (174)bps (467)bps (33)bps 51.1 52.6 (143)bps 51.4
DTH 55.9 62.0 67.2 59.7 (605)bps (1,131)bps (379)bps 59.9 66.9 (708)bps 58.9
Airtel Business 39.9 41.0 38.5 39.2 (116)bps 133 bps 65 bps 39.4 39.0 32 bps 39.4
South Asia (16.9) (22.4) (21.4) (20.3) 550 bps 452 bps 337 bps (17.8) (16.0) (179)bps (18.0)
Africa 49.1 49.0 49.6 49.1 12 bps (51)bps 6 bps 49.0 48.8 24 bps 49.5
Consolidated 51.5 51.8 49.2 51.0 (26)bps 231 bps 58 bps 51.0 48.8 219 bps 51.2
Segmental capex (Rs bn)
India 81.0 72.2 46.5 56.8 12.1 74.0 42.4 190.7 161.7 17.9 266.2
Wireless 63.8 54.0 29.7 39.1 18 115 63 139.8 119.8 16.8 198.6
Homes 5.0 6.4 4.1 5.9 (22) 22 (16) 17.5 11.5 52.4 23.0
DTH 4.5 3.2 4.4 3.1 41 4 48 10.1 9.9 1.8 13.7
Airtel Business 7.7 8.7 8.4 8.8 (12) (8) (13) 23.3 20.6 13.4 31.0
South Asia 0.1 0.2 0.5 0.1 (41) (80) (20) 0.5 2.9 (84.3) 0.6
Africa 12.1 14.1 14.0 13.5 (14) (14) (11) 36.5 32.1 13.7 57.4
Consolidated 93.1 86.5 61.0 70.5 8 53 32 227.6 196.6 15.7 324.2

Source: Company, Kotak Institutional Equities estimates

Despite elevated capex, Bharti’s net debt to EBITDA improved to 2.8x (versus ~3x qoq)
Exhibit 4: Bharti’s gross debt, cash and leverage trend, March fiscal year-ends, June 2021 onward
Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22
Debt and cash trends
Reported gross debt 1,355 1,453 1,331 1,328 1,301 1,655 1,672
LT debt 451 404 416 425 405 407 414
ST debt (inc. current maturities) 116 156 156 194 167 173 172
Deferred payment liabilities 788 893 759 709 729 1,075 1,086
Cash and Cash Equivalents 90 140 91 92 106 83 123
Net Debt excluding Lease Obligations 1,265 1,313 1,239 1,235 1,195 1,573 1,548
Lease Obligation 331 349 352 368 478 524 549
Net Debt including Lease Obligations 1,596 1,662 1,591 1,603 1,673 2,096 2,097
Net debt (including leases) to EBITDA 3.0 3.0 2.7 2.5 2.5 3.0 2.8

Source: Company, Kotak Institutional Equities estimates

Bharti Airtel
Telecommunication Services India Research

akash-valuequest.in
 8

FCF after lease and interest payment inched up to Rs57 bn from negative ~Rs44 bn in 2QFY23
Exhibit 5: Bharti's quarterly FCF calculation, March fiscal year-ends, 1QFY22 onward (Rs bn)
1QFY22 2QFY22 3QFY22 4QFY22 1QFY23 2QFY23 3QFY23
Cashflow from operations 122 127 157 144 179 129 190
Lease payments (18) (16) (20) (22) (21) (19) (19)
Capex in tangible assets (72) (61) (68) (50) (70) (54) (64)
Capex in intangible assets (4) (8) (132) (39) (4) (88) (32)
Paid finance cost (19) (11) (41) (60) (18) (12) (17)
FCF, post lease and interest payment 11 30 (104) (28) 67 (44) 57

Source: Company, Kotak Institutional Equities estimates

Share of data subs in Bharti’s mix on rising trend However, ~32% of Bharti’s subs are still non-data subs
Exhibit 6: Bharti’s subscriber base segmental split, June 2018 Exhibit 7: Bharti’s quarterly subscriber mix, June 2018 onward
onward (mn) (%)

(mn) Non-data subs Prepaid data subs Postpaid subs (%) Non-data subs Prepaid data subs Postpaid subs
350
100

5
5
5

5
5
5

5
5
5
5
6
6
6
300
18
17
17
17
16
15
15
15

80
14

250

38
14

39
76 15

14
79 14
14

44
14

47
48
50
52
54
55
56
57
58
60
172
176

61
183
134

185
159

62
147

200
134
124

60
110
106
89
97

150
40
100
57
161

56
155
145

51
135

133
133
132

48
131

128

47
123

45
120
118

43
114

20

41
109
107

40
38
37
36
50

35
33
32
0 0
Dec-19

Dec-20

Dec-21

Dec-22
Jun-19

Jun-20

Jun-21

Jun-22
Mar-20

Mar-21

Mar-22
Sep-19

Sep-20

Sep-21

Sep-22

Dec-19
Mar-20

Mar-21

Dec-21
Mar-22
Dec-20

Dec-22
Jun-19

Jun-21
Jun-20

Jun-22
Sep-19

Sep-20

Sep-21

Sep-22
Source: Company, Kotak Institutional Equities estimates Source: Company, Kotak Institutional Equities estimates

Bharti continues to gain market share driven by subscriber mix improvements

Bharti’s market share gains likely continued in 3QFY23, driven by continued subscriber mix improvement.
We note that the company has grown ahead of peers in 5 out of the past 6 quarters now, driven by
segmented tariff hikes. As highlighted earlier, Bharti has been the biggest beneficiary of market repair,
with the highest increase in ARPU since December 2019 tariff hikes. Besides tariff hikes, the company
has also benefited from non-data to data upgrades. Despite a largely stable subscriber base over the
past several quarters, Bharti’s subscriber mix has improved significantly, with a rising share of data
subscribers. With accelerated 5G rollouts, we expect Bharti to gain further market share, especially
among premium data subscribers.

Bharti Airtel
Telecommunication Services India Research

akash-valuequest.in
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Despite steady subs base, Bharti’s subs market share has Bharti’s wireless net adds recovered to 4.4 mn after two
inched up in past few quarters as R-Jio cleaned up inactive subs quarters of subdued net adds
Exhibit 8: Wireless subs trends across three private telcos Exhibit 9: Wireless net adds trends across three private telcos

mn Bharti Vi R-Jio wireless mn Bharti Vi R-Jio wireless

460 30
R-Jio inactive
subs clean-up 25 COVID wave
420 R-Jio inactive
20 1 impact subs clean-up
380 COVID wave 15
1 impact
10
340
5
300 0
-5
260
-10
220 -15
Jun-19

Jun-20

Jun-21

Jun-22

Jun-20

Jun-21

Jun-22
Sep-22
Sep-19

Sep-20

Sep-21

Sep-22

Sep-20

Sep-21
Dec-19

Dec-20

Dec-21

Dec-22

Dec-19

Dec-20

Dec-21

Dec-22
Mar-22
Mar-19

Mar-20

Mar-21

Mar-22

Mar-20

Mar-21
Note: Note:
December 2022 subscribers for Vi based on KIE estimates December 2022 net adds for Vi based on KIE estimates

Source: Companies, Kotak Institutional Equities estimates Source: Companies, Kotak Institutional Equities estimates

Bharti has been biggest beneficiary of tariff hikes due to Bharti has grown ahead of peers in 5 out of past 6 quarters,
continued improvements in subscriber mix driven by segmented tariff hikes
Exhibit 10: Wireless ARPU trends across three private telcos Exhibit 11: Wireless revenue qoq change for three telcos

Rs/month R-Jio Bharti Bharti India wireless

% Vi wireless
Vi R-Jio wireless 20
200 R-Jio wireless
Dec'21 tariff
Dec'19 tariff hikes 15
180 hikes
10
160
5
140
0
120 -5

100 IUC regime -10

change impact
80 -15
Sep-19

Sep-20

Sep-21

Sep-22
Jun-19

Jun-21

Jun-22
Jun-20
Dec-19

Dec-20

Dec-22
Dec-18

Dec-21
Mar-19

Mar-20

Mar-22
Mar-21
Sep-19

Sep-20

Sep-21

Sep-22
Jun-19

Jun-20

Jun-22
Jun-21
Dec-19

Dec-21

Dec-22
Dec-20
Mar-20

Mar-22
Mar-19

Mar-21

Note: Note:
December 2022 ARPU for Vi based on KIE estimates December 2022 wireless revenue for Vi based on KIE estimates

Source: Companies, Kotak Institutional Equities estimates Source: Companies, Kotak Institutional Equities estimates

Bharti Airtel
Telecommunication Services India Research

akash-valuequest.in
 10

R-Jio and Bharti’s wireless revenue has inched up on tariff Bharti and R-Jio’s margins have been on an uptrend driven by
hikes, Vi’s revenue impacted by subscriber losses market repair, lower SUC and more
Exhibit 12: Wireless revenue trend across three private telcos Exhibit 13: EBITDA margin trend across three private telcos
Bharti India wireless
Rs bn Vi wireless % Bharti India wireless Vi R-Jio
250 R-Jio wireless 55
230
210 50

190
45
170
150
40
130
110 35
90
70 30

Jun-20

Jun-21

Jun-22
Sep-19
Dec-19

Dec-20

Dec-21

Dec-22
Sep-20

Sep-21

Sep-22
Mar-20

Mar-21

Mar-22
Sep-19

Sep-20

Sep-21

Sep-22
Jun-19

Jun-20

Jun-22
Jun-21
Dec-19

Dec-22
Dec-18

Dec-20

Dec-21
Mar-20

Mar-22
Mar-19

Mar-21

Note: Note:
December 2022 wireless revenue for Vi based on KIE estimates December 2022 EBITDA margin for Vi based on KIE estimates

Source: Companies, Kotak Institutional Equities estimates Source: Companies, Kotak Institutional Equities estimates

Bharti’s data volume was up ~3% qoq (similar to R-Jio, including Bharti’s data usage per sub stood at 20.3GB/month (versus 22.4
FTTH) GB/month for R-Jio) in 3QFY23
Exhibit 14: Data consumption across three private telcos Exhibit 15: Data usage per subs across three telcos

bn MBs GB/sub/month R-Jio Bharti Vi

R-Jio Bharti Vi
35,000 25.0

30,000
20.0
25,000

20,000 15.0

15,000
10.0
10,000
5.0
5,000

- -
Jun-18

Jun-20

Jun-21
Jun-19

Jun-22
Dec-18

Sep-19
Dec-19

Sep-20
Dec-20

Dec-21

Dec-22
Sep-18

Sep-21

Sep-22

Jun-22
Jun-18

Jun-19

Jun-20

Jun-21
Sep-21

Sep-22
Sep-18

Sep-19

Sep-20
Dec-18

Dec-19

Dec-20

Dec-21

Dec-22
Mar-19

Mar-22
Mar-20

Mar-21

Mar-22
Mar-19

Mar-20

Mar-21

Note: Note:
R-Jio’s reported data consumption also includes contribution from FTTH R-Jio’s reported data usage per sub also includes contribution from FTTH
subs
Source: Companies, Kotak Institutional Equities estimates
Source: Companies, Kotak Institutional Equities estimates

Bharti Airtel
Telecommunication Services India Research

akash-valuequest.in
 11

Voice usage on Bharti’s network was up ~2% qoq (versus 3% Bharti is the market leader in MoU per sub with 1,093min/month
qoq for R-Jio) (versus 984 for R-Jio)
Exhibit 16: Voice usage on network trends across Indian telcos Exhibit 17: Minutes of Use (MoU) trends across Indian telcos

bn mins MoU/sub/month R-Jio Bharti Vi

R-Jio Bharti Vi
1400 1200

1200 1000

1000
800
800
600
600
400
400
200
200
0
0

Jun-18

Jun-20

Jun-21
Jun-19

Jun-22
Sep-20

Sep-22
Sep-18
Dec-18

Sep-19
Dec-19

Dec-20

Sep-21
Dec-21

Dec-22
Mar-19

Mar-21

Mar-22
Mar-20
Jun-18

Jun-20

Jun-21
Jun-19

Jun-22
Sep-20

Sep-22
Sep-18

Sep-19

Sep-21
Dec-18

Dec-19

Dec-20

Dec-21

Dec-22
Mar-19

Mar-21

Mar-22
Mar-20

Source: Companies, Kotak Institutional Equities estimates

Source: Companies, Kotak Institutional Equities estimates

Exhibit 18: Key changes to Bharti’s earnings model, March fiscal year-ends, 2023-25E
Revised Earlier Change (%)
2023E 2024E 2025E 2023E 2024E 2025E 2023E 2024E 2025E
Consolidated
Revenues (Rs mn) 1,394,618 1,612,226 1,841,493 1,393,323 1,611,918 1,847,070 0.1 0.0 (0.3)
EBITDA (Rs mn) 713,857 850,647 994,258 711,819 853,542 1,005,829 0.3 (0.3) (1.2)
EBITDA margin (%) 51.2 52.8 54.0 51.1 53.0 54.5 9 bps -19 bps -47 bps
EBIT (Rs mn) 347,472 441,293 556,798 350,030 450,477 575,932 (0.7) (2.0) (3.3)
Recurring EPS (Rs/share) 16.5 27.1 43.1 18.5 28.3 45.5 (10.7) (4.4) (5.2)

India/SA wireless
Revenues (Rs mn) 763,945 884,742 1,036,562 761,428 898,231 1,060,747 0.3 (1.5) (2.3)
EBITDA (Rs mn) 400,534 485,669 586,243 397,246 492,482 602,665 0.8 (1.4) (2.7)
EBITDA margin (%) 52.4 54.9 56.6 52.2 54.8 56.8 25 bps 6 bps -26 bps
Capex (Rs mn) 629,416 239,079 232,510 615,233 214,268 235,275 2.3 11.6 (1.2)
EOP subscribers base (mn) 328 329 345 335 351 365 (2.0) (6.3) (5.5)
ARPU (Rs/sub/month) 191.2 221.1 253.3 188.2 214.5 243.3 1.6 3.1 4.1

Africa wireless
Revenues (US$ mn) 5,305 5,937 6,437 5,316 5,855 6,260 (0.2) 1.4 2.8
EBITDA (US$ mn) 2,626 2,964 3,235 2,608 2,896 3,115 0.7 2.4 3.9
EBITDA margin (%) 49.5 49.9 50.3 49.1 49.5 49.8 45 bps 47 bps 49 bps
Capex (US$ mn) 716 831 837 717.7 761.2 782.5 (0.2) 9.2 6.9

Source: Kotak Institutional Equities estimates

Bharti Airtel
Telecommunication Services India Research

akash-valuequest.in
 12

Exhibit 19: Key assumptions for Bharti, March fiscal year-ends, 2019-25E
2019 2020 2021 2022 2023E 2024E 2025E
India wireless business
Paying subscriber base ('000s) 282,640 283,667 321,374 326,043 328,244 328,744 344,744
Net monthly additions ('000s) (1,796) 86 3,142 389 183 42 1,333
Data subscribers ('000s) 115,147 148,578 188,635 208,448 232,792 256,792 274,792
Net monthly additions ('000s) 2,422 2,786 3,338 1,651 2,029 2,000 1,500
Wireless ARPU (Rs/sub/month) 116 136 153 160 191 221 253
Change (%) (12.2) 16.6 12.9 4.3 19.8 15.7 14.5
Data volumes (bn MB) 11,733 21,020 32,541 45,228 54,396 65,260 78,284
Change (%) 200.7 79.2 54.8 39.0 20.3 20.0 20.0
Data consumption (MB/sub/month) 9,718 13,284 16,083 18,984 20,547 22,216 24,544
Change (%) 114.4 36.7 21.1 18.0 8.2 8.1 10.5
Voice traffic (bn mins) 2,811 3,035 3,603 4,104 4,307 4,371 4,568
Change (%) 44.4 7.9 18.7 13.9 4.9 1.5 4.5
MOU (min/sub/month) 798 893 992 1,056 1,097 1,109 1,130
Change (%) 42.2 11.9 11.1 6.4 3.8 1.1 1.9
Homes business
EoP subscriber base ('000s) 2,270 2,414 3,067 4,483 6,042 7,442 8,742
Net monthly additions ('000s) 8.2 12.0 54.4 118.0 129.9 116.7 108.3
Implied ARPU (Rs/month) 840 799 710 671 642 631 632
Change (%) (14.2) (4.9) (11.1) (5.5) (4.3) (1.7) 0.2
Airtel DTH*
EoP subscriber base ('000s) 15,392 16,613 17,716 16,028 16,085 16,385 16,585
Net monthly additions ('000s) 99.4 101.7 92.0 (140.7) 4.8 25.0 16.7
Implied ARPU (Rs/month) 231 152 148 156 153 154 155
Change (%) (0.5) (34.1) (2.5) 5.0 (1.8) 1.0 0.1
Capex (Rs mn)
India (ex-spectrum) 233,793 198,003 192,570 204,433 266,197 315,325 314,868
As % of revenues 39.1 31.0 26.1 24.9 27.2 27.8 23.9
Consolidated (ex-spectrum) 286,872 252,224 237,918 253,324 324,201 383,876 384,572
As % of revenues 35.5 28.8 23.6 21.7 23.2 23.8 20.9
Consolidated overall 336,872 252,224 237,918 436,399 755,051 383,876 384,572
As % of revenues 41.7 28.8 23.6 37.4 54.1 23.8 20.9
Notes:
(a) India wireless subs reporting changed to paying subs from 2019
(b) DTH subs reporting changed to active subs from 2022
(c) DTH ARPU net of content cost from 2020

Source: Company, Kotak Institutional Equities estimates

Bharti Airtel
Telecommunication Services India Research

akash-valuequest.in
 13

Exhibit 20: Segment-wise revenue, EBITDA, margin and capex trends and forecasts, March fiscal year-ends

2019 2020 2021 2022 2023E 2024E 2025E

Segmental revenue (Rs bn)
India 599 639 737 821 979 1,135 1,318
Wireless 416 460 556 632 761 882 1,033
Homes 22 22 23 30 41 51 61
DTH 41 29 31 32 29 30 31
Airtel Business 125 132 144 161 186 214 241
Passive infra 68 67 — — — — —
South Asia 4 5 4 4 3 3 3
Africa 215 242 289 351 425 487 533
Consolidated 808 875 1,006 1,165 1,395 1,612 1,841
Eliminations (84) (82) (40) (44) (51) (55) (61)
Segmental EBITDA (Rs bn)
India 179 263 339 410 508 612 730
Wireless 94 170 243 314 401 486 587
Homes 11 11 13 16 21 28 35
DTH 16 20 21 21 17 17 17
Airtel Business 41 43 55 63 73 85 96
Passive infra 32 37 — — — — —
South Asia 0 0 0 (1) (1) (1) (1)
Africa 84 107 133 172 211 243 268
Consolidated 258 366 454 575 714 851 994
Eliminations (15) (22) (11) (10) (9) (7) (8)
Segmental EBITDA margin (%)
India 29.9 41.2 46.1 49.9 51.9 53.9 55.4
Wireless 22.7 36.9 43.7 49.6 52.7 55.2 56.8
Homes 48.3 50.4 57.6 53.1 51.4 54.6 56.9
DTH 38.3 68.3 68.0 66.6 58.9 55.7 54.8
Airtel Business 32.6 32.2 38.2 39.1 39.4 39.6 39.9
Passive infra 47.6 55.1
South Asia 2.8 9.4 3.1 (16.0) (18.0) (17.9) (17.1)
Africa 38.9 44.3 46.1 49.1 49.5 49.9 50.3
Consolidated 32.0 41.8 45.1 49.4 51.2 52.8 54.0
Segmental Capex ex-spectrum (Rs bn)
India 242 207 196 204 266 315 315
Wireless 201 151 147 146 199 239 233
Homes 8 6 11 16 23 27 31
DTH 11 11 13 13 14 13 13
Airtel Business 14 30 22 29 31 36 39
Passive infra 9 9 — — — — —
South Asia 1 1 4 3 1 0 0
Africa 44 46 45 49 57 68 69
Consolidated 287 254 245 257 324 384 385

Source: Company, Kotak Institutional Equities estimates

Bharti Airtel
Telecommunication Services India Research

akash-valuequest.in
 14

We expect Bharti’s net debt to EBITDA to improve Bharti’s capex likely to remain elevated in near term
Exhibit 21: Bharti’s gross debt build-up, March fiscal year-ends Exhibit 22: Bharti’s capex and capex to sales, March fiscal
year-ends
Net debt including leases (LHS)
(Rs bn) (X)
Net debt to EBITDA (RHS) Spectrum capex (LHS)
(Rs bn) Capex (ex-spectrum) (LHS) (X)
2,000 5
Capex (ex-spectrum) as % of sales (RHS)
1,000 40
1,500 4
800 35

1,000 3 600 30

400 25
500 2
200 20
- 1
- 15
2023E

2025E
2024E
2019

2020

2022
2018

2021

2023E

2024E

2025E
2018

2022
2019

2020

2021
Source: Company, Kotak Institutional Equities estimates
Source: Company, Kotak Institutional Equities estimates

Our SoTP-based fair value of Bharti is Rs875

Exhibit 23: Bharti’s sum-of-the-parts valuation based on December 2024 estimates
Valuation base (Rs bn) Multiple (X) Valuation
EBITDA Other EBITDA Other (Rs bn) (Rs/share)
India business
India wireless 562 8 4,493 754
Homes 33 7.5 249 42
DTH 17 4 67 11
Enterprise 93 7.5 700 118
Indus Towers attributable value 213 0.75 160 27
Other investments 79 1 79 13
India business enterprise value 5,748 965
India business net debt 1,411 237
Network I2I perps 123 21
India business equity value (a) 4,213 707
International business
Airtel Africa 262 4.5 1,178 198
Airtel Africa net debt 168 28
Airtel Africa attributable value 424 71
Robi Axiata attributable value 26 0.75 19 3
International business equity value (b) 444 75
Optional value for duopoly (c) 1,109 0.50 555 93
Bharti Airtel Fair Value (d) = (a) + (b) + (c) 5,212 875

Source: Kotak Institutional Equities estimates

Exhibit 24: We ascribe Rs93/share optional value for duopoly scenario in Indian wireless industry in our
base case

Optional value from duopoly scenario (c)

Vi's FY25E projected revenue (Rs bn) 448
Assumed Bharti's revenue share incase Vi shuts shop (%) 45
Incremental annual revenue upside from Vi's closure (Rs bn) 202
Incremental annual EBITDA upside from Vi's closure (Rs bn) 151
Incremental Enterprise value accretion for India wireless business (Rs bn) 1,209
Incremental capex requirement (Rs bn) (100)
Incremental equity value accretion for India wireless business (Rs bn) 1,109
Assigned probability for duopoly (%) 50
Incremental equity value acceretion for India wireless (Rs/share) 93

Source: Kotak Institutional Equities estimates

Bharti Airtel
Telecommunication Services India Research

akash-valuequest.in
 15

Bharti’s consolidated EBITDA could change by ~3% for Rs10 change in ARPU and by ~1% for 10mn change
in end-period subs
Exhibit 25: Sensitivity of FY2024E consolidated EBITDA to ARPU and end-period subscriber base
FY24E India wireless ARPU (Rs)
201 211 221 231 241
309 784 809 833 858 883
FY24E India 319 792 817 842 867 892
wireless paying 329 799 825 851 876 902
subs (mn) 339 807 833 859 885 911
349 815 841 868 894 921

Source: Kotak Institutional Equities estimates

Our fair value for Bharti could change by ~4% for Rs10 change in ARPU and by ~1% for 10mn change in
end-period subs
Exhibit 26: Sensitivity of Bharti’s Fair Value to ARPU and end-period subscriber base
FY24E India wireless ARPU (Rs)
201 211 221 231 241
309 785 818 852 885 919
FY24E India 319 796 830 863 897 931
wireless paying 329 806 841 875 909 944
subs (mn) 339 817 852 887 922 956
349 827 863 898 934 969

Source: Kotak Institutional Equities estimates

After recent correction, Bharti is trading ~10% below its LT average 12-month forward EV/EBITDA
Exhibit 27: Bharti rolling 12-month forward EV/EBITDA

(X) 12-month forward EV/EBITDA for Bharti (X)

18 LT average (X)
+1 standard deviation (x)
16 -1 standard deviation

14

12

10

4
Apr-08

Apr-11

Apr-14

Apr-19

Apr-22
Apr-05

Apr-06

Apr-07

Apr-09

Apr-10

Apr-12

Apr-13

Apr-15

Apr-16

Apr-17

Apr-18

Apr-20

Apr-21

Apr-23

Source: Bloomberg, Company, Kotak Institutional Equities estimates

Bharti Airtel
Telecommunication Services India Research

akash-valuequest.in
 16

Airtel Africa (ex-Mobile money) trades at attractive 2.5x FY24E EV/EBITDA

Exhibit 28: Implied EV/EBITDA valuation for Airtel Africa and Airtel Africa (ex-Mobile Money)
Airtel Africa implied valuation
Current market price GBP 122
Market cap US$ mn 5,548
Net debt US$ mn 3,620
Implied Enterprise value US$ mn 9,168
Annualized 3QFY23 EBITDA US$ mn 2,644
Implied EV/EBITDA X 3.5
FY24E EBITDA US$ mn 2,906
Implied FY24E EV/EBITDA X 3.2

Airtel Africa valuation (ex-Mobile money)

Enterprise value ascribed to Mobile money US$ mn 2,650
Enterprise value (ex- Mobile money) US$ mn 6,518
Annualized 3QFY23 EBITDA (ex - Mobile money) US$ mn 2,380
Implied EV/EBITDA X 2.7
FY24E EBITDA (ex-Mobile money) US$ mn 2,566
Implied FY24E EV/EBITDA (ex-Mobile money) X 2.5

Source: Bloomberg, Company, Kotak Institutional Equities estimates

Bharti’s premium valuation to global telcos’ is justified, given its superior EBITDA growth and margin profile
Exhibit 29: Global telcos valuation comparables
Enterprise EBITDA CAGR
Market cap
Value EV/EBITDA (X) Net debt/EBITDA (X) EBITDA margin (%) EV/sales (x) RoE (%) (%)
Global Telco comps (US$ bn) (US$ bn) 2023 2024 2023 2024 2023 2024 2023 2024 2023 2024 2022-25E
Bharti Airtel 77 54 8.9 7.4 2.8 2.1 51.2 52.8 4.5 3.9 8.9 13.4 20.0
Vodafone Idea 34 3 16.5 15.8 12.6 13.2 39.7 40.0 6.5 6.3 n/a n/a 2.9
Indian telcos average (a) 12.7 11.6 7.7 7.7 45.5 46.4 5.5 5.1 8.9 13.4 11.5
Verizon Inc 345 170 7.2 7.2 3.7 3.6 34.7 34.7 2.5 2.5 20.6 18.8 0.8
AT&T 297 137 7.0 6.8 3.7 3.6 34.8 35.3 2.4 2.4 16.1 14.8 nm
T-Mobile 284 176 9.7 9.0 3.7 3.4 35.9 37.6 3.5 3.4 12.9 18.7 18.4
US telcos average 8.0 7.6 3.7 3.6 35.1 35.9 2.8 2.8 16.6 17.4 9.6
Deutsche Telecom 297 108 7.4 6.8 4.9 4.5 34.7 37.0 2.6 2.5 13.2 14.4 n/a
Vodafone Plc 92 30 6.1 6.3 4.5 4.6 32.4 31.5 2.0 2.0 5.4 5.0 (9.0)
Orange 69 27 5.1 5.0 3.1 3.0 29.8 29.9 1.5 1.5 8.8 9.3 5.8
Telefonica 69 22 5.4 5.4 3.8 3.8 32.1 32.0 1.7 1.7 8.2 7.2 n/a
Telenor 27 15 6.3 6.2 2.7 2.6 41.9 42.3 2.7 2.6 27.4 33.6 n/a
European telcos average 6.1 5.9 3.8 3.7 34.2 34.5 2.1 2.1 12.6 13.9 (1.6)
China Mobile 108 157 2.2 2.0 (1.5) (1.5) 35.4 34.9 0.8 0.7 10.2 10.6 5.9
China Unicom 60 63 3.1 2.9 (0.6) (0.6) 27.3 26.9 0.8 0.8 6.5 7.1 6.6
China Telecom 16 21 1.1 1.0 (0.6) (0.6) 28.4 27.8 0.3 0.3 5.0 5.5 3.7
China telcos average 2.1 2.0 (0.9) (0.9) 30.4 29.9 0.6 0.6 7.2 7.7 5.4
SK Telecom 15 8 3.6 3.6 1.8 1.8 31.2 30.7 1.1 1.1 9.3 9.8 4.0
KT Corp 13 7 3.0 2.9 1.4 1.4 21.5 21.5 0.7 0.6 7.6 7.8 3.4
LG Uplus 8 4 3.0 3.0 1.7 1.7 25.4 25.5 0.8 0.8 8.9 9.0 2.9
Korea telcos average 3.2 3.2 1.7 1.6 26.0 25.9 0.9 0.8 8.6 8.9 3.4
Axiata 15 6 5.6 5.8 3.3 3.4 44.7 44.9 2.5 2.6 6.9 7.5 0.4
Maxis 9 7 10.5 10.2 2.3 2.3 41.1 40.9 4.3 4.2 19.1 22.1 2.6
Digi 13 12 17.9 14.3 1.5 1.2 46.9 54.6 8.4 7.8 n/a n/a 6.2
Malaysia telcos average 11.3 10.1 2.4 2.3 44.2 46.8 5.1 4.9 13.0 14.8 3.0
Chungwa Telecom 30 29 10.1 9.9 0.2 0.2 40.0 40.1 4.0 4.0 10.3 10.5 n/a
SingTel 37 32 12.8 12.3 2.0 1.9 25.8 26.3 3.3 3.2 8.2 9.3 1.5
Telekom Indonesia 29 25 5.5 5.2 0.7 0.7 53.6 54.2 2.9 2.8 19.6 20.6 3.8
XL Axiata 5 2 4.8 4.5 2.7 2.5 49.2 49.8 2.4 2.2 6.3 7.4 n/a
Indosat 6 3 5.0 4.6 2.5 2.3 41.3 42.5 2.1 1.9 20.9 8.8 3.9
Other regional telcos average 7.6 7.3 1.6 1.5 42.0 42.6 2.9 2.8 13.1 11.3 3.1
Global telcos average 7.0 6.6 2.6 2.6 36.6 37.2 2.7 2.6 11.8 12.3 4.7

Notes:
a) KIE estimates for India telcos, Bloomberg consensus estimates for other telcos

Source: Bloomberg, Kotak Institutional Equities estimates

Bharti Airtel
Telecommunication Services India Research

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 17

Airtel Africa is trading at discount to peers, despite its better margin and growth profile
Exhibit 30: African telcos valuation comps
Enterprise EBITDA CAGR
African Telco comps Value Market cap EV/EBITDA (X) Net debt/EBITDA (X) EBITDA margin (%) EV/sales (x) RoE (%) (%)
(US$ bn) (US$ bn) 2023 2024 2023 2024 2023 2024 2023 2024 2023 2024 2022-25E
Airtel Africa 9 6 3.6 3.4 1.8 1.7 48.1 47.3 1.7 1.6 17.8 18.7 9.3
Vodacom 17 15 6.5 5.3 0.8 0.7 38.1 39.1 2.5 2.1 20.4 21.3 14.1
Safaricom 9 8 7.6 6.6 0.9 0.8 45.5 47.6 3.4 3.1 38.5 37.8 7.4
MTN 20 15 3.8 3.7 0.9 0.8 45.4 44.9 1.7 1.6 18.0 17.3 n/a
African telcos average 5.4 4.7 1.1 1.0 44.3 44.7 2.3 2.1 23.7 23.8 10.3

Source: Bloomberg, Kotak Institutional Equities

Exhibit 31: Bharti’s condensed financials, Ind AS, March fiscal year-ends, 2018-25E (Rs mn)
2018 2019 2020 2021 2022 2023E 2024E 2025E
Profit and loss statement
Revenues 826,388 807,802 875,390 1,006,158 1,165,469 1,394,618 1,612,226 1,841,493
EBITDA 300,791 258,189 366,095 453,717 575,339 713,857 850,647 994,258
EBIT 108,360 44,714 89,199 159,673 244,431 347,472 441,293 556,798
PBT 29,992 (50,162) (32,731) 15,191 83,613 166,624 262,180 401,595
Recurring PAT 18,921 (25,193) (36,390) (28,758) 25,563 94,982 161,207 256,752
Recurring EPS (Rs/share) 4.7 (6.3) (6.7) (5.2) 4.6 16.5 27.1 43.1
Balance sheet
Total equity 783,483 849,480 1,021,295 812,266 919,350 1,068,048 1,333,214 1,576,424
Borrowings 1,141,676 1,254,283 1,176,190 1,297,899 1,329,145 1,599,995 1,374,995 1,149,995
Other liabilities 580,657 648,212 1,410,305 1,350,113 1,388,065 1,578,656 1,664,844 1,749,435
Total equity and liabilities 2,505,816 2,751,975 3,607,790 3,460,278 3,636,560 4,246,700 4,373,053 4,475,853
Net fixed assets 758,168 903,661 917,545 901,711 948,111 1,005,563 1,090,985 1,148,997
Net intangibles 1,211,348 1,200,996 1,158,784 1,102,233 1,229,983 1,561,196 1,450,297 1,339,397
Cash and equivalents 135,684 127,287 296,606 175,442 143,557 152,558 213,052 268,098
Other assets 400,616 520,031 1,234,855 1,280,892 1,314,909 1,527,382 1,618,719 1,719,361
Total assets 2,505,816 2,751,975 3,607,790 3,460,278 3,636,560 4,246,700 4,373,053 4,475,853
Net debt (including leases) 1,003,748 1,129,813 1,209,372 1,552,290 1,620,214 2,005,812 1,756,878 1,519,332
Cash flow statement
Operating cash flow 232,153 124,531 71,294 410,756 418,575 378,249 498,185 605,217
Capex (267,262) (306,495) (222,592) (335,816) (433,689) (755,051) (383,876) (384,572)
Other income 16,039 16,286 4,748 27,370 3,964 5,624 5,727 6,268
Free cash flow (19,070) (165,678) (146,550) 102,310 (11,150) (371,178) 120,036 226,913
Key ratios
Avg. RoAE (%) 1.4 0.5 NM NM 4.9 8.9 13.4 17.6
Avg. RoACE (%) 3.8 0.7 3.0 NM 5.9 10.6 12.4 15.8
Net debt to EBITDA (X) 3.3 4.4 3.3 3.4 2.8 2.8 2.1 1.5
CRoCI (%) 10.1 8.2 11.0 NM 11.9 13.2 14.1 14.8
Notes:
(a) Pro forma numbers for FY2021, adjusted for de-consolidation of Bharti Infratel

Source: Company, Kotak Institutional Equities estimates

Bharti Airtel
Telecommunication Services India Research

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0%
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