9 December 2020

Company Update | Sector: Telecom

Bharti Airtel

Buy

BSE SENSEX

46,104

S&P CNX

13,529

CMP: INR503

TP: INR650 (+29%)

Earnings outlook steady; price hike likely soon

Gaining competitive ground

The swift ~20% recovery in the stock after the recent fall has triggered

deliberations on its earnings outlook, the possibility of a tariff hike, and capex

intensity. Based on our recent channel checks, we note that:



BHARTI's earnings outlook remains strong, given the steady 4G subscriber

additions, which are likely to see 2-3% QoQ ARPU growth, and strong EBITDA

growth.



A price hike, which looked uncertain in the last 6-9 months, has now started

to look imminent with the weakening of industry subscriber growth.



Our recent interactions with industry experts indicate a potential price hike

of 15-20% in the next two months. Competitive pricing in postpaid and FTTH

segment by peers have had a limited impact on earnings.



Capex could reduce by ~15% in FY21E. Spectrum auction, which could entail

investments of INR130b, looks unlikely to happen by 4QFY21E.



We continue to remain bullish on BHARTI (with a TP of INR650), given its

strong earnings outlook, potential tariff hikes soon, well-capitalized Balance

Sheet, potential FCF generation, and strong competitive position.

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

12M Avg Val (INR M)

Free float (%)

BHARTI IN

5,456

2744.4 / 37.3

612 / 381

-2/-47/-1

10782

43.8

Financials & Valuations (INR b)

FY20 FY21E FY22E

Y/E March

Sales

875.4 1,012.5 1,058.4

EBITDA

366.1 464.6 545.6

Adj. PAT

-40.7

9.6

24.3

EBIT Margin (%)

41.8

45.9

51.5

Adj. EPS (INR)

-7.5

1.8

4.5

EPS Gr. (%)

-14.6 -123.5 153.9

BV/Sh. (INR)

141.4 114.7 119.2

Ratios

Net D:E

1.5

2.0

1.9

RoE (%)

-5.5

1.4

3.8

RoCE (%)

3.6

15.2

6.8

Payout (%)

0.0

0.0

0.0

Valuations

EV/EBITDA (x)

11.3

8.7

7.4

P/E (x)

NM 289.6 114.1

P/BV (x)

3.6

4.4

4.3

Div. Yield (%)

0.0

0.0

0.0

Shareholding pattern (%)

As On

Sep-20 Jun-20 Sep-19

Promoter

56.2

56.2

62.7

DII

21.7

18.4

13.2

FII

17.6

20.2

22.4

Others

4.5

5.2

1.7

FII Includes depository receipts

Stock Performance (1-year)

See India wireless revenue/EBITDA QoQ growth steady at 2-3%/4-

5%



4G subscriber additions to remain healthy:

Our channel checks

indicate that BHARTI continues to gain competitive ground, adding

strong 4G subscribers in the festive season, after the recent healthy

additions in 2QFY21. The company should be able to maintain its 35-

40% incremental 4G subscriber market share. This would turn out to be

3-4m monthly 4G subscriber additions in 3QFY21E.

ARPU to grow through mix benefit:

In line with the last two quarters

(1Q and 2QFY21), we expect an improvement in the subscriber mix to

generate ~2% ARPU growth.

Our channel checks indicate that BHARTI saw a limited impact from the

recently launched competitive postpaid tariffs by its peers, given the

sticky nature of its customer profile and follow-up price cuts in FTTH.

IDEA’s recent INR50 tariff rise could support industry tariff hikes.





Price hike on the anvil



A price hike, which looked uncertain in the last 6-9 months due to the

challenging economic scenario, has started to look imminent with

weakening subscriber growth across players. Our recent interactions

with industry experts indicate a potential price hike of 15-20% in the

next two months.

Research Analyst: Aliasgar Shakir(Aliasgar.Shakir@motilaloswal.com)

Suhel Shaikh

(Suhel.Ahmad@MotilalOswal.com)

Anshul Aggarwal

(Anshul.Aggarwal@motilaloswal.com)

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

3 September 2019

Investors are advised to refer through important disclosures made at the last page of the Research Report.

1

Bharti Airtel



IDEA could take the lead:

Reducing subscriber growth, weak liquidity

position, and requirement for fund raising is likely to compel it to hike prices.

BHARTI has indicated it may follow tariff hikes by its peers. RJio’s may follow its

peers by maintaining its discount intact. However, a steep churn, post the

previous price hike, may restrain RJio from taking the lead in price hikes.

We see low likelihood of a TRAI floor price regulation as tapering competitive

intensity and market consolidation in the last four years may leave limited

justification for a floor price now, though it may compel telcos to take the lead

in price hikes.

IDEA’s recent postpaid price increase creates a positive environment. However,

we have received mixed indications from our channel checks as we understand

telecos are offering price discounts selectively to restrict the churn in certain

large circles. This makes us slightly cautious as there exists a risk of it spreading

to more circles if players prioritize market share over pricing. Though we see

limited possibility for it, given the current consolidated market construct and

need for price hike across telcos. We have not build in any material price hike

into our model.





FY21E capex to be lower than FY20



FY21E capex down ~15%:

We expect capex in 2HFY21E to be similar to 1H

capex of ~INR90b/INR110b at the India/consolidated level. Thus, FY21E capex

should stand at INR180b/INR220b, which is ~15% lower when compared to FY20

levels.

Spectrum is expected to expire by 2QFY22 and would require an early auction,

which was agreed upon during our recent regulatory channel checks.

Delay in the auction process:

However, our channel checks suggest mixed

reviews about the progress of the auction. The Cabinet’s approval, and issue of

Notice Inviting Application (NIA) required before the auction, is running behind

schedule for the auctions to happen during Mar’21. To complete the auction by

Mar’21, the government needs to expedite the process and should roll out NIA’s

by Dec’20 or early Jan’21.

Our workings indicate that BHARTI could incur a one-time capex of INR130b for

spectrum renewal at the reserve price.







FTTH is gaining traction on the back of increased targets. New partnership

model with LCOs to increase home passes



Smaller players witnessing healthy growth:

Recent wired broadband

subscriber additions indicate that smaller players are still a competing force in

the industry as they added ~75% of total subscribers (i.e. 1.4m) during 1HFY21.

These smaller cable operators have better regional and local connectivity than

the bigger players.

New LCO model gaining traction:

BHARTI’s recent partnering with LCOs is

gaining traction and should see an acceleration in subscriber growth (potentially

10-20% annualized) in the coming quarters. LCOs can use BHARTI’s fiberized

tower backhaul and build last mile connectivity to increase home passes. In this

model, last mile connectivity would be owned by the LCO. However, the

customer would use BHARTI’s interface, billing and OTT (Airtel Xstream)



9 December 2020

2

Bharti Airtel





platform and service, thus allowing it to reach customers and increase its brand

presence with lower capex.

Increased focus on smaller cities:

Initially, BHARTI restricted its target to

reaching the top 100 cities, given the high investment and low business viability.

However, the low investment requirement in the LCO model allows it to expand

to additional cities. It has thus increased its target market to 150 cities. RJio has

a mammoth target to reach 1,600 cities. However, its current subscriber base of

a mere ~1m explains that its focus is limited to top cities.

ARPU cuts to be offset by subscriber growth:

The recent cut in home

broadband ARPUs may have an insignificant impact on BHARTI as it contributes

lower single digits to its earnings. The ARPU cut is likely to be offset by

accelerating subscriber growth in the smaller cities through the LCO model.

Valuation and view





We continue to remain bullish on BHARTI given its strong earnings outlook (even

without a price hike) and improving RoCE and FCF generation potential. We

expect it to generate post-interest FCF of INR64b in FY22E after factoring in the

spectrum renewal cost of INR130b.

We value BHARTI on a SoTP basis to arrive at our target price of INR650/share –

we assign an FY22E EV-to-EBITDA of 11x to the Indian business and 6x to the

African business. Our higher target multiple for the India Wireless business

captures expected gains from any potential ARPU increase or higher market

share gains – both of which are not fully captured in our model.

Exhibit 1: FY22E based SoTP

EBITDA

(INR b)

India standalone business

(excluding towers)

Tower business (15% discount

to its fair value)

Africa business

Less: Net debt

Total value

Shares outstanding (b)

CMP

Upside (%)

352

Ownership

100%

53.5%

55.2%

Proportionate EBITDA

(INR b)

352

EV-to-EBITDA

11

Fair value

(INR b)

3,870

235

509

1,074

3,540

Value per

share

709

43

93

197

650

503

29

Source: MOFSL

154

85

6

5.5

9 December 2020

3

Bharti Airtel

Key Exhibits

Exhibit 2: Revenue in FY22E to be over INR1t

Consol revenue (INR b)

Consol EBITDA margin (%)

42

32

46

52

34

30

34

Exhibit 3: India wireless to clock 7% CAGR over FY20-22E

India mobile revenue (INR b)

India mobile EBITDA margin (%)

37

39

40

33

23

37

45

55

33

30

32

34

35

37

36

715 769 857 920 963 955 826 808 875 1012 1058

403 431 467 520 561 566 463 416 460 533 528

Source: Company, MOFSL

Source: Company, MOFSL

Exhibit 4: Post-interest FCF to be INR64b

FCF (INR b)

88

0%

66

0%

-4%

-77

-187

-62

-9%

-3%

-215

-1%

-24

FCF yield (%)

4%

101

2%

64

Exhibit 5: Capex to be high in FY22 due to spectrum renewal

Capex (INR b)

40%

20%

175

23%

28%

32%

Capex/Sales (%)

38%

29%

22%

33%

210

271

384

267

305

254

222

344

-11%

FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E

Source: company, MOFSL

Source: company, MOFSL

Exhibit 6: Added healthy broadband subscribers during 1HFY21

2.6

2.5

2.5

2.5

2.4

2.5

2.4

Mar-20

Apr-20

May-20

Jun-20

Jul-20

Aug-20

Sep-20

Source: TRAI

9 December 2020

4

Bharti Airtel

Financials and valuations

Consolidated - Income Statement

Y/E March

Total Income from Operations

Change (%)

Total Expenditure

% of Sales

EBITDA

Margin (%)

Depreciation

EBIT

Int. and Finance Charges

Other Income

PBT bef. EO Exp.

EO Items

PBT after EO Exp.

Total Tax

Tax Rate (%)

Minority Interest

Reported PAT

Adjusted PAT

Change (%)

Margin (%)

Consolidated - Balance Sheet

Y/E March

Equity Share Capital

Total Reserves

Net Worth

Minority Interest

Total Loans

Lease liabilities

Deferred Tax Liabilities

Capital Employed

Net Fixed Assets

Right of use assets

Total Investments

Curr. Assets, Loans & Adv.

Inventory

Account Receivables

Cash and Bank Balance

Loans and Advances

Curr. Liability & Prov.

Account Payables

Provisions

Net Current Assets

Appl. of Funds

E: MOFSL estimates

FY14

857

11.5

581

67.7

277

32.3

156

120

48

6

78

1

79

48

61.6

2

28

28

43.0

3.2

FY14

20

578

598

42

759

-46

1,353

1,406

155

208

1

62

50

94

416

405

12

-209

1,353

FY15

920

7.3

608

66.1

312

33.9

155

157

48

7

115

-8

107

54

50.4

1

52

56

102.7

6.1

FY15

20

600

620

49

807

-44

1,431

1,501

170

227

1

67

12

146

468

459

8

-241

1,431

FY16

965

4.9

625

64.8

340

35.2

174

165

69

11

107

22

128

60

46.3

8

61

49

-12.0

5.1

FY16

20

648

668

55

1,005

-34

1,693

1,780

120

311

2

55

37

217

518

508

10

-207

1,693

FY17

955

-1.1

601

63.0

353

37.0

198

156

77

10

89

-12

77

35

45.1

4

38

44

-9.5

4.7

FY17

20

655

675

69

1,073

-17

1,799

1,891

182

234

0

47

13

173

507

497

10

-273

1,799

FY18

826

-13.4

526

63.6

301

36.4

192

108

81

13

41

-8

33

11

33.2

11

11

14

-68.6

1.7

FY18

20

675

695

88

1,113

-22

1,875

1,589

180

327

1

59

48

219

602

577

25

-275

1,875

FY19

808

-2.2

550

68.1

258

31.9

213

44

96

5

-47

29

-17

-34

197.4

13

4

-35

-350.3

-4.3

FY19

20

694

714

135

1,254

-83

2,021

1,684

176

382

1

43

62

276

641

621

20

-259

2,021

FY20

875

8.4

509

58.2

366

41.8

277

89

124

9

-26

-402

-428

-122

28.4

15

-322

-41

16.6

-4.7

FY20

27

744

771

250

1,176

306

-263

2,241

1,690

259

278

724

2

46

136

541

1,097

621

476

-373

2,241

FY21E

1,012

15.7

548

54.1

465

45.9

305

160

140

18

38

-118

-80

55

-68.8

10

-146

10

-123.5

0.9

FY21E

27

599

626

260

1,391

306

-263

2,320

1,994

259

141

1,048

1

57

410

580

1,121

645

476

-73

2,320

(INR b)

FY22E

1,058

4.5

513

48.5

546

51.5

347

198

142

22

78

0

78

31

40.0

22

24

24

153.9

2.3

(INR b)

FY22E

27

623

650

283

1,220

306

-263

2,197

1,990

259

141

924

2

51

279

593

1,117

639

478

-193

2,197

9 December 2020

5

Bharti Airtel

Financials and valuations

Ratios

Y/E March

Basic (INR)

EPS

Cash EPS

BV/Share

DPS

Payout (%)

Valuation (x)

P/E

Cash P/E

P/BV

EV/Sales

EV/EBITDA

Dividend Yield (%)

Return Ratios (%)

RoE

RoCE

RoIC

Working Capital Ratios

Asset Turnover (x)

Debtor (Days)

Leverage Ratio (x)

Net Debt/Equity

Consolidated - Cash Flow Statement

Y/E March

OP/(Loss) before Tax

Depreciation

Interest & Finance Charges

Direct Taxes Paid

(Inc)/Dec in WC

CF from Operations

Others

CF from Operating incl EO

(Inc)/Dec in FA

(Pur)/Sale of Investments

Others

CF from Investments

Issue of Shares

Inc/(Dec) in Debt

Interest Paid

Dividend Paid

Others

CF from Fin. Activity

Inc/Dec of Cash

Opening Balance

Closing Balance

Less Bank OD

Closing Cash Balance (with OD)

E: MOFSL estimates

FY14

6.9

46.0

149.5

1.8

30.2

73.9

11.1

3.4

3.2

9.9

0.4

5.0

3.8

4.2

0.6

27

0.9

FY14

79

156

59

-35

18

276

-14

262

-175

-37

-28

-240

68

14

-38

-7

-12

26

48

1

50

10

40

FY15

14.0

52.8

155.0

2.2

19.9

36.5

9.6

3.3

3.1

9.1

0.4

9.2

5.8

6.5

0.6

27

1.0

FY15

107

155

73

-46

-2

288

-12

276

-210

-12

14

-207

0

-72

-34

-21

31

-97

-28

40

12

13

-1

FY16

12.3

55.9

168.8

1.4

10.8

41.4

9.1

3.0

3.1

8.8

0.3

7.6

6.1

6.4

0.6

21

1.3

FY16

128

174

85

-47

-4

338

-58

279

-271

68

61

-142

1

-118

-33

-15

47

-118

19

-1

37

-19

18

FY17

11.1

60.6

168.8

1.0

12.7

45.8

8.4

3.0

3.2

8.8

0.2

6.6

5.3

5.4

0.5

18

1.3

FY17

77

198

95

-32

-27

311

-19

292

-384

-1

69

-316

1

9

-59

-9

53

-4

-28

18

13

-23

-10

FY18

3.5

51.6

173.9

1.0

43.8

145.7

9.9

2.9

3.8

10.3

0.2

2.0

4.6

4.5

0.4

26

1.3

FY18

33

192

93

-14

6

311

-12

299

-267

-33

40

-260

0

40

-44

-33

56

19

58

-10

48

-19

28

FY19

-8.7

44.7

178.7

0.0

0.0

NM

11.4

2.8

4.0

12.5

0.0

NM

NM

NM

0.4

19

1.4

FY19

-17

213

110

-12

-55

239

-39

201

-305

1

28

-277

99

106

-76

-47

13

95

19

41

62

-8

54

FY20

-7.5

43.3

141.4

0.0

0.0

NM

11.8

3.6

4.7

11.3

0.0

NM

3.6

3.7

0.4

19

1.4

FY20

-428

277

137

-23

-166

-203

384

181

-221

-88

10

-300

462

-180

-110

-18

37

191

73

54

136

-5

131

FY21E

1.8

57.6

114.7

0.0

0.0

289.6

8.8

4.4

4.0

8.7

0.0

1.4

15.2

15.2

0.4

21

1.8

FY21E

-80

305

140

-55

-25

284

0

284

-222

138

5

-79

0

214

-140

0

0

74

279

131

410

-5

405

FY22E

4.5

68.1

119.2

0.0

0.0

114.1

7.5

4.3

3.8

7.4

0.0

3.8

6.8

6.7

0.5

17

1.7

(INR b)

FY22E

78

347

142

-31

-11

525

0

525

-344

0

5

-339

0

-170

-142

0

0

-312

-126

405

279

-5

274

9 December 2020

6

Bharti Airtel

Explanation of Investment Rating

Investment Rating

Expected return (over 12-month)

BUY

>=15%

SELL

< - 10%

NEUTRAL

< - 10 % to 15%

UNDER REVIEW

Rating may undergo a change

NOT RATED

We have forward looking estimates for the stock but we refrain from assigning recommendation

*In case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall within

following 30 days take appropriate measures to make the recommendation consistent with the investment rating legend.

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Motilal Oswal Financial Services Limited (MOFSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under

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Specific Disclosures

1 MOFSL, Research Analyst and/or his relatives does not have financial interest in the subject company, as they do not have equity holdings in the subject company.

2 MOFSL, Research Analyst and/or his relatives do not have actual/beneficial ownership of 1% or more securities in the subject company

3 MOFSL, Research Analyst and/or his relatives have not received compensation/other benefits from the subject company in the past 12 months

4 MOFSL, Research Analyst and/or his relatives do not have material conflict of interest in the subject company at the time of publication of research report

5 Research Analyst has not served as director/officer/employee in the subject company

6 MOFSL has not acted as a manager or co-manager of public offering of securities of the subject company in past 12 months

7 MOFSL has not received compensation for investment banking/ merchant banking/brokerage services from the subject company in the past 12 months

8 MOFSL has not received compensation for other than investment banking/merchant banking/brokerage services from the subject company in the past 12 months

9 MOFSL has not received any compensation or other benefits from third party in connection with the research report

10 MOFSL has not engaged in market making activity for the subject company

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The associates of MOFSL may have:

- financial interest in the subject company

- actual/beneficial ownership of 1% or more securities in the subject company

- received compensation/other benefits from the subject company in the past 12 months

- other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the

specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOFSL even

though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report.

- acted as a manager or co-manager of public offering of securities of the subject company in past 12 months

- be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the

company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies)

- received compensation from the subject company in the past 12 months for investment banking / merchant banking / brokerage services or from other than said services.

The associates of MOFSL has not received any compensation or other benefits from third party in connection with the research report

Above disclosures include beneficial holdings lying in demat account of MOFSL which are opened for proprietary investments only. While calculating beneficial holdings, It does not

consider demat accounts which are opened in name of MOFSL for other purposes (i.e holding client securities, collaterals, error trades etc.). MOFSL also earns DP income from

clients which are not considered in above disclosures.

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The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the

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This report has been prepared by MOFSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and

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customers by virtue of their receiving this report.

Disclaimer:

The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or

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in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances.

The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment

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securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of

the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and

should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make

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time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to

perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a

separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of

information that is already available in publicly accessible media or developed through analysis of MOFSL. The views expressed are those of the analyst, and the Company may or

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expenses that may be suffered by the person

accessing this information due to any errors and delays.

Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022 71934200/ 022-71934263;

Website

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Registration Nos.: Motilal Oswal Financial Services Limited (MOFSL)*: INZ000158836(BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research Analyst:

INH000000412. AMFI: ARN - 146822; Investment Adviser: INA000007100; Insurance Corporate Agent: CA0579;PMS:INP000006712. Motilal Oswal Asset Management Company

Ltd. (MOAMC): PMS (Registration No.: INP000000670); PMS and Mutual Funds are offered through MOAMC which is group company of MOFSL. Motilal Oswal Wealth

Management Ltd. (MOWML): PMS (Registration No.: INP000004409) is offered through MOWML, which is a group company of MOFSL. Motilal Oswal Financial Services Limited is

a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs,Insurance Products and IPOs.Real Estate is offered through Motilal Oswal Real Estate Investment Advisors II Pvt.

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Research & Advisory services is backed by proper research. Please read the Risk Disclosure Document prescribed by the Stock Exchanges carefully before investing. There is no

assurance or guarantee of the returns. Investment in securities market is subject to market risk, read all the related documents carefully before investing. Details of Compliance

Officer: Name: Neeraj Agarwal, Email ID: na@motilaloswal.com, Contact No.:022-71881085.

* MOSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National

Company Law Tribunal, Mumbai Bench.

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