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BL Research Bureau
In the quarter ended June 2021, Bharti Airtel (Airtel) reported revenue of Rs 26,853 crore and EBITDA of Rs 13,189 crore that were approximately 2 and 4 per cent above consensus estimates, respectively (Bloomberg). EBITDA margins at 49.1 per cent improved sequentially and was well above the 43.4 per cent reported in the same quarter last year. Year-on-year revenue and EBITDA growth at 15 per cent and 30 per cent respectively (India business growth on the same metrics at 11 per cent and 28 per cent) were better than that reported by Jio Platforms at 10 per cent and 21 per cent.
Operational performance
The company's mobile customer base in India, at 321 million, was largely flat on a sequential basis as net additions were marginally down for the quarter. ARPU inched up marginally by close to 1 per cent as the data customer base increased to 60 per cent of the total subscriber base vs 58.7 per cent at the end of the March 2021 quarter. While Airtel’s mobile net subscriber additions for the quarter were weaker than Jio’s net additions at 14.3 million, this is not a cause for concern. Airtel had reported good additions in earlier months and can claw its way back.
Airtel’s Africa business which accounts for around 30 per cent of consolidated revenue also fared well, reporting 33 per cent and 46 per cent revenue and EBITDA growth. respectively, in constant currency.
Together with India mobile business and entire Africa business including mobile, account for a little over 80 per cent of consolidated revenue for Airtel and are the key drivers for the company.
Stock view
We had recommended a 'buy' on Airtel stock in the edition dated April 11, considering its strong positioning in the Indian telecom market. The recent news from Vodafone Idea is not very positive and the chances of the market tending towards duopoly are increasing. Airtel’s long-term prospects appear better, considering this aspect. Airtel is India’s only surviving telecom player over the last two decades. It has proved its resilience and emerged stronger versus peers who either went bankrupt, sold out, or merged (Vodafone and Idea) for several reasons, including Jio’s aggressive pricing. It has successfully tided over the adjusted gross revenue (AGR) crisis. The recent decision by Supreme Court to dismiss pleas about arithmetic errors in AGR calculation has no negative bearing on the stock. The company has already provided for the dues and can comfortably meet its obligations.
We continue to recommend a buy on the stock for the above reasons and the discounted valuation versus Jio Platforms. Airtel is trading at an EV/EBITDA (FY22 - Blomberg Consensus) of 8.7 times. Jio stake sales were at a valuation of around 10.5x FY22 EBITDA, and the current market valuation implies an even higher multiple for Jio. Airtel's valuation is not expensive given its FY20-22 EBITDA CAGR expectation of 18 per cent with the possibility of the upward revision, thanks to the booming digitisation trends and the possible establishment of a duopoly in the Indian telecom space.
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