19 May 2020
4QFY20 Results Update | Sector: Telecom
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
3268.7 / 38.8
603 / 322
CMP: INR 599
TP: INR 710(+19% )
Improving ARPU drives earnings; higher capex derails FCF
Financials & Valuations (INR b)
FY20 FY21E FY22E
875.4 1,011.9 1,134.8
366.1 451.3 532.6
EBIT Margin (%)
Adj. EPS (INR)
EPS Gr. (%)
-14.6 -139.8 115.7
141.4 144.4 150.8
Div. Yield (%)
FCF Yield (%)
Shareholding pattern (%)
FII Includes depository receipts
The price hikes taken in Dec’19 and healthy 4G subscriber adds improved
ARPU, which in turn led to an increase in EBITDA. However, capex doubled
QoQ to INR113b, which resulted in operating FCF turning negative. Further,
the QIP amount was utilized to partly pay AGR liabilities.
We largely maintain our FY21E consol. EBITDA estimates building ARPU
increase of 8% on favorable 4G subscriber mix. We increase our FY22E
EBITDA by 5% with higher ARPU increase of 14%, after building in some
Higher network cost drags incremental EBITDA margin to 60%
Consol. revenue/EBITDA on post Ind-AS 116 basis was up 8%/10% QoQ (in-
line) to INR237.2b/INR102b due to strong ARPU growth in the India wireless
business. EBITDA margin expanded 80bp to 43% (40bp below est.).
Adjusting for reclassification in the DTH business, consol. revenue/EBITDA
Reported net loss stood at INR52.4b due to higher interest cost (up 11%
QoQ) of INR33.1b and an exceptional charge of INR70b. Excluding the
exceptional charge, adj. net loss stood at INR4.7b (v/s INR10.8b QoQ and
India wireless revenue grew 16% QoQ to INR129.5b (5% beat), which can be
attributed to the strong ARPU increase. EBITDA rose 27% QoQ to INR50.8b
with incremental EBITDA margin of 60% (compared to the anticipated 70%)
due to 7% increase in total opex (excl. license fee) on high network cost.
ARPU jumped 14% QoQ to INR154 (v/s est. INR147) on the recent tariff
hikes and healthy 4G subs addition, which improved ARPU mix. Over the
last two quarters, cumulative ARPU increased 20%, which largely captured
the full benefit of the tariff hikes against our expectation of it spreading out
till 1QFY21. BHARTI’s ARPU growth was better than RJio’s 2% ARPU increase
to INR131. VIL’s ARPU increase is estimated at 9% to INR131.
Subscriber adds were flat QoQ at 284m, but 4G subs grew 10% QoQ to
136m – 12.5m fresh adds, thus leading the estimated incremental 4G
market share over the last two quarters.
Capex surged to INR113b (v/s INR51.8b in 3QFY20 and cumulative capex of
INR140b in 9MFY20; est. INR200b in FY20), primarily due to the India
wireless capex of INR70b (v/s INR25.4b in 3QFY20 and INR81.5b in
9MFY20). This increase in capex led to negative operating FCF of INR10b in
Net debt increased by INR35b to INR883b (excluding lease liability). Further,
QIP of INR144b was utilized to partly repay the AGR liability of INR180b.
Including the balance AGR liability, net debt stood at ~INR1,005b against
FY20 (pre Ind-AS 116) EBITDA of INR305b, i.e. 3.5x. This should further
reduce to below 3x in FY21E.
Research Analyst: Aliasgar Shakir
(Aliasgar.Shakir@motilaloswal.com); +91 22 6129 1565
(Suhel.Ahmad@MotilalOswal.com); +91 22 5036 2611;
(Anshul.Aggarwal@motilaloswal.com); +91 22 5036 2511
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.