Motilal Oswal Financial Services

5 February 2020

3QFY20 Results Update | Sector: Telecom

Bharti Airtel

Buy

Estimate change

TP change

Rating change

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

12M Avg Val (INR M)

BHARTI IN

5,455

2909.7 / 40.8

538 / 269

18/34/76

4603

CMP: INR534

TP: INR620 (+16%)

Improving ARPU drives earnings



Lower network costs drive margins



The recent price hike, along with healthy 4G subscriber adds, improved

ARPU, which in turn led to an increase in EBITDA. Further, moderating

network opex and capex resulted in healthy annualized FCF.

We maintain our consol. revenue and EBITDA estimate for FY20/21. We

build in 16%/24% ARPU increase in FY20/21 to capture the recent price

hikes and the 4G subscribers-driven mix improvements.

Consol. revenue was up 4% QoQ at INR219.5b (in-line), led by growth in

both India/Africa business. Consol. EBITDA grew 5% QoQ to INR92.7b (in-

line) led by lower network cost; margin improved 30bp QoQ to 42.2%.

BHARTI reported a loss of INR10.4b at the PAT level. Excluding exceptional

items, PAT was at INR10.8b (our estimate: -INR4b) v/s INR11.2b in 2QFY20.

India wireless revenue grew 2% QoQ to INR109b, while EBITDA was flat

QoQ at INR40.1b. In 3QFY20, BHARTI reorganized its business and

transferred assets and liabilities of optics fiber to Mobile Services India,

Airtel Business and Homes Services segments (these were previously part of

Mobile Services).

Excluding reclassification, revenue grew 5% QoQ (in-line), led by bundled

net additions, 4G penetration and partial realization of price increase in

Dec’19; EBITDA grew 7% QoQ on lower network cost. SG&A cost increased

primarily due to Airtel Xtream product launch and aggressive promotion to

gain 4G subscribers, but it should moderate in the coming quarter.

Subscribers increased by 3.6m to 283m (+1% QoQ) with ARPU of INR135

(+5.5% QoQ) v/s VIL/RJio’s ARPU at INR119/INR128.

Net debt reduced by INR33.6b to INR848b (excluding lease liability). The

company generated operating FCF of INR41.7b.

Tariff hike has provided relief to the ailing telecom industry. Management

believes that industry ARPU has to reach a level of INR300 for making

investments in 5G and maintaining a healthy balance sheet.

Incremental capex will likely go down, but capacity addition should remain

strong through spectrum refarming across 900mhz/2,100mhz and

2,300mhz TDD deployment, along with backhaul debottlenecking.

Benefit of price hike should be realized by Mar’20. ARPU hike post FY20

could be a result of three factors: customer uptrading to 4G, an increase in

postpaid customer base, and another tariff hike.

BHARTI has already turned FCF positive (post-interest cost), which, in our

view, is its major strength. Increasing EBITDA, declining capex and

subsequent deleveraging should improve valuation. Further, it has raised

INR210b through QIP/FCCBs which should cushion the risk of AGR liability.

We assign EV/EBITDA of 11x to India wireless biz and 6x to Africa biz on

FY22E to arrive a TP (SOTP) of INR620 (prior: INR575).

Maintain Buy.

Our

higher multiple to India wireless biz captures expected gains from growing

market share (given VIL’s weak position) and potential government relief.

Financials & Valuations (INR b)

FY20E FY21E FY22E

Y/E March

Sales

871.9 1,018.2 1,111.8

EBITDA

365.8 457.5 508.4

Adj. PAT

3.6

21.2

27.2

EBIT Margin (%)

42.0

44.9

45.7

Adj. EPS (INR)

0.7

3.9

5.0

EPS Gr. (%)

-107.7 479.7

28.5

BV/Sh. (INR)

161.0 164.9 169.9

Ratios

Net D:E

1.2

1.0

0.8

RoE (%)

0.5

2.4

3.0

RoCE (%)

3.1

4.3

5.1

Payout (%)

0.0

Valuations

EV/EBITDA (x)

11.2

8.6

7.4

P/E (x)

801.8 138.3 107.6

P/BV (x)

3.3

3.2

Div. Yield (%)

0.0

FCF Yield (%)

-7.8

7.9

8.2

Shareholding pattern (%)

As On

Dec-19 Sep-19

Promoter

62.7

DII

14.1

13.2

FII

16.5

22.4

Others

6.7

1.7

FII Includes depository receipts



Highlights from management commentary



Dec-18

67.1

13.9

17.2

1.8



Valuation and view



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

+91 22 6129 1565

Suhel Shaikh

(Suhel.Ahmad@MotilalOswal.com); +91 22 5036 2611;

Anshul Aggarwal

(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.

5 February 2020

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

Capital.

Bharti Airtel

Consolidated - Quarterly Earning Model

Y/E March

Revenue

YoY Change (%)

Total Expenditure

EBITDA

YoY Change (%)

Depreciation

Net Finance cost

Other Income

PBT before EO expense

Extra-Ord expense

PBT

Tax

Rate (%)

Minority Interest & P/L of Asso. Cos.

Reported PAT

Adj PAT

YoY Change (%)

E: MOFSL Estimates

201

-8.6

134

-13.3

-3

-6

-11

174.1

-3

-174.0

(INR b)

FY20E

Est

FY20E Var (%)

872

219

0.1

7.9

8.3

506

126

0.7

366

-0.6

41.7

49.9

-87

277

-5.7

120

-14.4

-43.7

-22

-12

332

-354

-12

-100

-5

28.2

40.0

-25

-3

-230

-4

-110.4 -60.1

FY19

204

202

206

207

-6.2

-0.4

6.2

3.3

142

140

125

-21.2 -16.7

-4.3 23.1

-19

-12

-13

-15

-14

-20

-30

-22

-2

-6

112.5 -91.1

19.3 20.2

-29

-10

-12

-14

-304.3 -339.7 -1,524.1 366.1

FY20

FY19

2Q 3Q

4QE

211 219

234

808

3.5 8.5

13.4

-2.2

123 127

132

550

89 93

102

258

41.9 49.0

53.4 -14.2

69 69

213

29 30

-6

-5

-47

307 11

-29

-313 -15

-17

-85 -10

-34

27.1 69.1

40.0 197.4

-37

-230 -10

-11 -11

-35

16.4 3.8 -434.0 -350.3

Key Performance Indicators

Bharti India Wireless

ARPU (INR)

Total Subscribers (m)

Data Subscribers (m)

Monthly churn (%)

Data Traffic (b MB)

Data usage/sub (MB)

Airtel Africa

Mobile Subs (m)

ARPUs (USD)

EBITDA Margins (%)

EBIT Margin (%)

Adj. PAT Margins (%)

E:MOFSL Estimates

105

345

2.0

2,151

7,864

33.5

7.9

-1.5

FY19

100

333

4.1

2,660

9,221

30.6

4.9

-4.7

4QE

FY20

3QE

FY19

4QE

115

283

115

4.0

11,733

9,718

32.0

5.5

-4.3

FY20E

104

284

108

7.3

3,217

10,528

30.7

3.7

-5.1

123

129

128

135

149

283

277

279

283

285

115

120

124

138

150

2.8

2.6

3,705 4,192 4,829 5,547 6,318

11,048 11,930 13,116 13,928 14,627

32.2

5.5

-5.8

100

39.9

7.3

-6.8

104

41.9

9.1

-5.3

107

42.2

10.6

-4.9

109

43.5

13.5

17.0

134

285

281

150

134

2.6

20,886 5,300

13,152 13,704

109

42.0

10.2

0.4

106

42.5

8.9

-1.9

Other financial highlights



Excluding the reclassification, wireless EBITDA was up 7% QoQ (in line). This

could be attributed to optimization of employee and network cost, partly offset

by high SG&A cost to gain subscribers and promote launch of Airtel Xtream.

Net finance cost dropped 9% QoQ to INR29.1b on recent deleveraging efforts.

Exceptional charge was at INR10.5b. Of this, (a) INR10.5b was interest due to

provision of AGR liabilities, (b) INR4b was toward accelerated depreciation on

3G network equipment/re-farming, (c) INR17b regulatory charge was paid

earlier under protest and (d) credit of INR19b (provision write-back) was for full-

and-final settlement of Africa IPO indemnity and INR1.9b toward Africa

customer acquisition cost.

For the last two quarters, the Africa IPO indemnification settled with INR19b

write-back.

Network opex and capex slowing down, which is driving healthy annualized FCF

of INR100-120b. This should allow deleveraging. 3QFY20 operating FCF at

INR41.7b, which supports INR33.6b deleveraging.

5 February 2020

Bharti Airtel

Key performance indicators



4G subs saw strong addition of 21 to 124m v/s previous quarterly run rate of 8-

10m on RJio’s IUC price-plan launch.

Data traffic jumped 15% QoQ to 5.5b GB with 13.9 GB/user. BHARTI’s data

usage is about one-third of RJio with similar capacity, highlighting better

network experience and room for improvement.

MOU was up 6% to 898min.

Airtel Africa



Africa revenue grew 6% QoQ to INR62.7b (2% beat).

EBITDA grew 8% QoQ to INR28.3b (6% beat).

Other segments excluding the reclassification



Enterprise revenue/EBITDA was flat QoQ at INR33.2b/INR9.4b.

Home revenue/EBITDA was up 1%/12% QoQ at INR5.5b/INR2.8b.

Passive revenue/EBITDA was down 0%/5% QoQ at INR16.7b/INR8.8b.

Digital revenue/EBITDA was flattish QoQ at INR7.9b/INR5.4b.

Capex reducing



Total capex stood at INR51.8b, with 9MFY20 capex at INR140b. This is lower v/s

our full-year capex estimate of INR210b and much below FY19 capex of

INR287b.

Added 12k base stations (54% below 1QFY20 run-rate) to reach 474k (similar to

RJio). Unique broadband towers at 189k, up 7k (RJio at ~220k sites).

Fund raise



BHARRI has raised INR210b recently through QIPs/FCCBs to cushion the risk of

INR343b AGR liability; overhang of AGR liabilities continues.

Valuation and view



FCF yield to improve to 6%:

BHARTI reached FCF break-even (post-interest) in

3QFY20, which, in our view, is its key strength. Further, BHARTI’s capex is

expected to reduce by ~35% to INR203b in FY20. Also, the recent deleveraging

measures (rights issue of INR250b and stake sale in Airtel Africa of USD2b),

along with positive FCF (in 3QFY20), helped reduce its debt to INR847b. In

addition, the benefit of recent price hike is expected to be realized by 1QFY21.

This will likely drive EBITDA CAGR (FY19-22) of 20% to reach INR447b (on pre

Ind-AS 116) with FCF of INR172b. This has the potential to garner an FCF yield of

6% for BHARTI, with continued EBITDA growth from increasing 4G penetration.

Steady market share explains competitive position:

Despite the commercial

launch of RJio three years ago, BHARTI has consistently maintained its revenue

market share of ~30%, as against ~15pp loss by VIL in the past two years. Of

monthly 12-14m industry MBB subs adds, BHARTI has garnered a healthy 30%

market share, excluding estimated 3-4m Jiophone adds. However, during this

quarter, the company added strong 21m 4G customers due to RJio’s move of

charging off-net calls. We believe the market has settled down and should move

back to its earlier trend of MBB subscriber addition. In our opinion, BHARTI is

well positioned to add MBB subscribers at healthy pace.

5 February 2020

Bharti Airtel



Best hedged against AGR ruling:

If the recent SC ruling on AGR liabilities

prevails, it could impact BHARTI by INR444b (INR343b for AGR liability after

including license and spectrum charges and INR100b estimated erosion in

valuation of Bharti Infratel). The company has already raised USD3b – USD2b

through QIP and USD1b through FCCBs – to service AGR liability. However, its

net debt is unlikely to rise above INR1.1t – i.e. net debt to EBITDA of below 3x.

However, this could pose risk to the survival of VIL (as stated by the promoter

group), creating a favorable market structure for BHARTI and RJio. Assuming,

BHARTI acquires just 30% of VIL’s customers at INR100 ARPU and 70%

incremental EBITDA margin, it would lead to an additional EBITDA gain of

INR78b. At 10x EV/EBITDA, BHARTI’s net gain works out to INR339b.

Valuation and view:

Given the in-line result, we maintain our revenue estimates

for FY20/21. We have not built in the INR10-15b spectrum renewal cost into our

models; however, BHARTI could use FCF to renew spectrums. Although we have

captured AGR liabilities in our SOTP model, we have not built in any

consequential benefit arising from AGR verdict: (a) government relief toward

industry repair and (b) market share gain resulting from weakening third player.

Incrementally, we have merely factored in mix-driven ARPU improvement of 2%

quarterly but not further any price hike needed to maintain industry viability.

Subsequently, we have captured it in higher multiple in our SOTP-based model,

wherein we assign 11x EV/EBITDA to BHARTI’s India wireless business and 6x

EV/EBITDA to its Africa business on FY22E. Our TP is revised up to INR620 (v/s

INR575 earlier). Maintain

Buy.

Exhibit 1: Bharti Airtel — SOTP-based on Sep21

EBITDA

(INR b)

India SA business (excl. towers)

Tower business (15% discount to fair value)

Africa business

Less net debt

AGR Liability

Total Value

Shares o/s (b)

CMP

Upside (%)

329

132

Ownership

(%)

100%

53.5%

55.2%

Proportionate

EBITDA

(INR b)

329

EV/

EBITDA (x)

Fair Value

(INR b)

3,759

235

462

737

343

3719

Value/

Share (INR)

689

135

620

534

Source: Company, MOFSL

5.5

5 February 2020

Bharti Airtel

Exhibit 2: BHARTI: One-year forward EV/EBITDA

EV/EBITDA (x)

Min (x)

Avg (x)

+1SD

Max (x)

-1SD

15.5

11.4

9.1

4.6

6.7

6.8

Source: MOFSL, Company

Highlights from management commentary

Key Highlights



Tariff hike has provided relief to the ailing telecom industry. However,

management believes that industry ARPU will have to reach a level of INR300

to make investments in 5G and maintain a healthy balance sheet.

Capex should go down, but it could increase on an immediate basis (but lower

than peak) due to increased data users.

Benefit of price hike should be realized by Mar’20. ARPU hike post FY20 could

be a result of three factors: customers uptrading to 4G, an increase in postpaid

customer base, and another tariff hike.

Capacity utilization was 70%-72%. Incremental capacity addition would come

from 2,100mhz and 900mhz band refarming, 2,300mhz TDD deployment,

increased sectorization, massive MIMO and fiber rollout. Thus, it may not

need to spend heavily on capex.

Market has settled on even base, after Oct-Nov subscriber shift and SIM

consolidation; IUC ratios have changed post RJio started to charge off net calls.

Operational performance



ARPU increased INR7 to reach INR135; ARPU is calculated on customer centric

revenues. Exit ARPU stood at INR140.

The company added highest ever 4G customers of 21m, mainly due to RJio’s

move of charging off net calls; of total 138m data customers, 120m are on 4G.

There is significant opportunity for growth in this number.

BHARTI’s music streaming app was the most popular in Oct with highest active

users.

Digital TV’s customer base grew by 100,000; Enterprise business showed muted

performance due to seasonality.

Airtel Xtreme has gained good uptake and management is hopeful of scaling up.

Net finance cost was slightly higher than last quarter as gross debt was higher,

despite lower net debt.

Airtel Africa reported double-digit revenue growth for eighth consecutive

quarter and improving EBITDA margin.

94.5% of total customers are on prepaid.

5 February 2020

Bharti Airtel

ARPU drivers



Postpaid pricing is substantially higher than prepaid, but arbitrage has come

down post-price hike; the company began to add postpaid customers in Dec-Jan

post tariff hike.

ARPU increases by INR60-INR70 when a customer upgrades from 2G to 4G.

The company has meaningful subscribers on the minimum recharge plan of

INR49 and looks for an opportunity to shift these customers to higher plans.

Network capacity



The company added more than 4,200 sites and 12,000 MBB sites. Further, it

added capacities through additional sectorization and massive MIMO.

It shutdown 3G in 11 circles and refarmed those sites to 4G; capacity utilization

reached 70%-72% post refarming.

BHARTI was the first operator to provide WIfi over voice facility and witnessed

huge uptake.

Incremental capacity addition would come from 2,100mhz and 900mhz band

refarming; 2,300mhz TDD deployment, increased sectorization, massive MIMO

and fiber rollout. So it may not need to spend heavily on capex.

Government and regulatory



BHARTI filed a modification plea (still pending) post rejection of review petition

by SC.

The government is cognizant of the problems in sector and therefore provided

an option for deferment of renewal spectrum payments for two years.

Fund raise



The company has raised USD2b through QIP (1.57% discount to SEBI floor price)

and USD1b through FCCB at 1.5% coupon (conversion premium at 20% of QIP

price).

These funds would be utilized to strengthen BS and for business requirement

besides AGR liability.

Industry outlook



Tariff hike has provided relief to the ailing industry, but management believes

that industry ARPU should a reach level for INR300 for investment in 5G and

healthy balance sheet.

Tariff has been always been at forbearance but it has reached at such a low level

that the regulator has to intervene.

Market has settled on even base, after Oct-Nov subscriber shifts and SIM

consolidation; IUC ratios have changed post RJio started to charge off net calls.

Management believes that industry prospective would be better if VIL survives.

Management expects regulatory support going forward

Outlook



Benefit of price hike should be realized by March’20.

Capex should go down, but it could increase on immediate basis (but lower than

peak) due to increased data users.

5 February 2020

Bharti Airtel



The company is looking to grow in SME segment in Enterprise business. BHARTI

partnered with Google cloud to boost collaboration by offering G suite to small

and medium enterprise.

The company would focus on chasing quality customers.

ARPU hike post FY20 could because of three factors: customer uptrading to 4G,

increase in postpaid customer base and another tariff hike.

The company will start to provide RoCE on ARPU of INR200; at INR300 ARPU

RoCE would be 15%.

Management looks for growth opportunity in rural areas by moving customers

from 2G to 4G.

Management might consider stake sale in its tower business post-merger

completion.

At the current estimated price of INR50b for 100MHz band of 5G spectrum, the

company will not bid for it.

The company began to see momentum on postpaid. It would need to wait and

see the absorption of this tariff hike to ensure market share.

5 February 2020

Bharti Airtel

Exhibit 3: Consolidated segment-wise performance (INR m)

3QFY19

Revenue

Mobile India

Telemedia

Enterprise

Passive Infrastructure

Digital TV

South Asia

Others

Africa

Eliminations

Consolidated Revenue

EBITDA

Mobile India

Telemedia

Enterprise

Passive Infrastructure

Digital TV

South Asia

Africa

Eliminations

Consolidated EBITDA

Consolidated EBITDA (Adj. for Ind-As 116)

EBITDA margin (%)

Mobile India

Telemedia

Enterprise

Passive Infrastructure

Digital TV

Mobile South Asia

Africa

Consolidated EBITDA margin

Depreciation and amortization

Operating income

Other income and share of JV/Associate

Net finance cost

Pro forma Profit Before Taxes

Exceptional Items

Pro forma Tax

Effective Tax Rate (%)

Pro forma Profit After Tax

Pro forma Minority Interest

Pro forma Net Profit

Pro forma Adj. Net Profit

1,01,892

5,503

31,117

17,326

10,330

1,130

224

56,154

-21,364

2,02,312

19,498

2,583

9,874

8,510

3,826

24,343

-6,495

62,180

19.1

46.9

31.7

49.1

37.0

3.7

43.3

30.7

54,723

7,457

-144

19,448

-12,135

-14,137

-1,824

15.0

3,826

2,964

862

-10,407

2QFY20

1,09,813

5,475

33,312

16,673

7,893

1,105

-1

59,157

-22,114

2,11,313

39,913

2,471

9,396

9,268

5,607

26,076

-4,212

88,603

73,215

36.3

45.1

28.2

55.6

71.0

7.6

44.1

41.9

69,351

19,252

3,601

29,083

-6,230

3,07,110

-85,039

1365.0

-2,28,301

2,148

-2,30,449

-11,229

3QFY20

1,11,654

5,546

33,177

16,662

7,922

1,155

116

62,692

-19,456

2,19,471

40,109

3,302

12,125

8,782

5,441

105

28,268

-5,463

92,669

77,281

35.9

59.5

36.5

52.7

68.7

9.1

45.1

42.2

69,408

23,261

2,057

29,846

-4,528

10,500

-10,379

229.2

-4,649

5,704

-10,353

-10,805

YoY%

9.6

0.8

6.6

-3.8

-23.3

2.2

-48.2

11.6

-8.9

8.5

105.7

27.8

22.8

3.2

42.2

151.5

16.1

-15.9

49.0

24.3

1679bps

1260bps

481bps

359bps

3164bps

540bps

174bps

1149bps

26.8

211.9

-1528.5

53.5

-62.7

-174.3

469.0

21418.7

-221.5

92.4

-1301.0

QoQ%

1.7

1.3

-0.4

-0.1

0.4

4.5

-11700.0

6.0

-12.0

3.9

0.5

33.7

29.0

-5.2

-3.0

25.4

8.4

29.7

4.6

5.6

-42bps

1442bps

834bps

-288bps

-236bps

151bps

101bps

29bps

0.1

20.8

-42.9

2.6

-27.3

-96.6

-87.8

-113577.4

-98.0

165.5

-95.5

3QFY20E

1,15,446

5,512

33,812

16,948

7,925

1,128

61,244

-22,938

2,19,157

43,722

2,460

9,537

9,420

5,630

26,774

-4,432

93,209

77,821

37.9

44.6

28.2

55.6

71.0

8.7

43.7

42.5

73,641

19,569

3,652

34,849

-11,628

-4,651

40.0

-6,977

-2,828

-4,149

v/s Est (%)

-3.3

0.6

-1.9

-1.7

0.0

2.4

42.2

2.4

-15.2

0.1

-8.3

34.3

27.1

-6.8

-3.4

7.7

5.6

23.3

-0.6

-0.7

-195bps

1492bps

834bps

-288bps

-236bps

45bps

137bps

-31bps

-5.7

18.9

-43.7

-14.4

-61.1

Source: MOFSL, Company

Exhibit 4: Segment wise EBITDA on Pre Ind AS 116 (INR m)

Mobile India

Telemedia

Enterprise

Passive Infrastructure

Digital TV

South Asia

3QFY19

19,498

2,583

9,874

8,510

3,826

2QFY20

26,355

2,942

11,368

8,042

5,287

-3

3QFY20

28,302

3,154

11,373

7,556

5,121

YoY%

45.2

22.1

15.2

-11.2

33.8

-56.6

QoQ%

7.4

7.2

0.0

-6.0

-3.2

-677.1

Source: MOFSL, Company

5 February 2020

Bharti Airtel

Exhibit 5: Summary of estimate change

FY20E

Revenue consolidated (INRb)

Old

New

Change (%)

EBITDA consolidated (INRb)

Old

New

Change (%)

EBITDA margin consolidated (%)

Old

New

Change (bp)

India Mobile Revenue (INRb)

Old

New

Change (%)

India Mobile EBITDA (INRb)

Old

New

Change (%)

India ARPU (INR)

Old

New

Change (%)

Adj. EPS (INR)

Old

New

Change (%)

Africa Mobile Revenue (INRb)

Old

New

Change (%)

Africa Mobile EBITDA (INRb)

Old

New

Change (%)

867

872

365

366

42.1

42.0

-12

458

454

-1

172

170

-1

132

134

1.0

-2.9

0.7

-123.0

238

242

1.6

105

108

3.1

FY21E

1004

1018

456

457

45.4

44.9

-49

565

561

-1

243

245

162

165

2.3

-0.9

4.1

-561.8

264

274

3.7

118

126

6.1

Source: Company, MOFSL

5 February 2020

Bharti Airtel

Story in charts

Exhibit 6: Consol revenue increased 4% QoQ; Consol EBITDA margin expanded 60bp (INR b, %)

Consol revenue (INR b)

Consol EBITDA margin (%)

Source: MOFSL, Company

Exhibit 7: India mobile revenue grew 2% QoQ

Revenue (INR b)

EBITDA margin (%)

Exhibit 8: Africa margin improved 100bp QoQ

Revenue (INR b)

EBITDA margin (%)

Exhibit 9: India mobile subs base stood at 283m

Subs (m)

India Mobile ARPU (INR)

Exhibit 10: Africa ARPU was flat QoQ

Subs (m)

Mobile ARPU (USD)

5 February 2020

Bharti Airtel

Exhibit 11: India mobile total cell site base and quarterly

additions

Cell sites ('000)

QoQ Sites added ('000)

5.8

1.9 1.7

3.0

2.9

3.7

1.9

1.3 1.8

0.3 0.6 0.9

1.9 1.6

4.3

1.5

7.3

4.5

15.1 27.9

14.4

9.6

8.110.37.8

7.2

4.5 4.7 6.8

4.1

2.6 2.4 3.0 3.3 3.4 3.0

1.7

Exhibit 12: India mobile broadband sites base and quarterly

additions

Broadband sites ('000)

QoQ Sites added ('000)

1.1

Source: Company, MOFSL

Exhibit 13: Bharti Africa — PBT in constant currency (USD m)

Exhibit 14: Bharti Airtel – segmental capex trend (INR b)

India Wireless (%)

Other segments (%)

150%

100%

50%

Africa (%)

Total capex (INR b)

14 27 49 92 130 106 113 115 121 134 120 143 175

(22) (20)

Source: Company, MOFSL

Exhibit 15: Telemedia business revenue stood flat QoQ

Revenue (INR b)

EBITDA margin (%)

Exhibit 16: Digital TV business trend

Revenue (INR b)

EBITDA margin (%)

Source: Company, MOFSL

Exhibit 17: Enterprise business revenue trend

Revenue (INR b)

EBITDA margin (%)

Exhibit 18: Passive Infra business revenue trend

Revenue (INR b)

EBITDA margin (%)

Source: Company, MOFSL

5 February 2020

Bharti Airtel

Exhibit 19: Business mix

Revenue (INR b)

Mobile

Telemedia

Enterprise

Passive Infrastructure

Others (incl South Asia)

Africa

Total revenue

Eliminations and others

Consolidated revenue

YoY%

EBITDA (INR b)

Mobile

Telemedia

Enterprise

Passive Infrastructure

Others (incl South Asia)

Africa

Total EBITDA

Eliminations and others

Consolidated EBITDA

YoY%

Consolidated EBITDA margin (%)

Capex (INR b)

Consolidated capex

YoY%

Capex/Sales (%)

FY14

467

272

934

-77

857

158

259

-6

254

32.3

175

FY15

520

269

998

-77

920

194

292

-5

287

33.9

210

FY16

561

251

1039

-76

963

219

347

-7

340

35.2

271

FY17

566

109

220

1032

-78

955

-1

227

364

-11

353

37.0

384

FY18

463

113

191

904

-78

826

-13

151

315

-14

301

-15

36.4

267

-30

FY19

416

125

215

892

-84

808

-2

284

-26

258

-14

32.0

305

FY20E

454

132

242

955

-83

872

170

108

387

-21

366

42.0

203

-34

FY21E

561

142

274

1111

-92

1018

245

126

484

-27

457

44.9

203

FY22E

621

153

296

1213

-101

1112

278

138

538

-30

508

45.7

203

Source: Company, MOFSL

5 February 2020

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 (%)

FY14

8,57,461

11.5

5,80,865

67.7

2,76,596

32.3

1,56,496

1,20,100

48,381

6,385

78,104

538

78,642

48,449

61.6

2,467

27,726

27,519

43.0

3.2

FY15

9,20,394

7.3

6,08,118

66.1

3,12,276

33.9

1,55,311

1,56,965

48,463

6,588

1,15,090

-7,960

1,07,130

54,047

50.4

1,248

51,835

55,779

102.7

6.1

FY16

9,65,321

4.9

6,25,479

64.8

3,39,842

35.2

1,74,498

1,65,344

69,135

10,513

1,06,722

21,741

1,28,463

59,533

46.3

8,163

60,767

49,101

-12.0

5.1

FY17

9,54,683

-1.1

6,01,386

63.0

3,53,297

37.0

1,97,730

1,55,567

76,974

10,336

88,929

-11,697

77,232

34,819

45.1

4,416

37,997

44,421

-9.5

4.7

FY18

8,26,388

-13.4

5,25,597

63.6

3,00,791

36.4

1,92,431

1,08,360

80,715

12,956

40,601

-7,931

32,670

10,835

33.2

10,845

10,990

13,960

-68.6

1.7

(INR m)

FY19

FY20E

FY21E

FY22E

8,07,802 8,71,853 10,18,199 11,11,764

-2.2

7.9

16.8

9.2

5,49,613 5,06,038 5,60,702 6,03,392

68.0

58.0

55.1

54.3

2,58,189 3,65,815 4,57,497 5,08,372

32.0

42.0

44.9

45.7

2,13,475 2,76,649 3,11,962 3,33,784

44,714

89,166 1,45,535 1,74,588

95,894 1,20,134 1,13,532 1,09,240

4,574

8,930

8,160

-46,606

-22,038

40,163

73,508

29,288 -3,32,304

-17,318 -3,54,342

40,163

73,508

-34,193

-99,880

11,647

21,317

197.4

28.2

29.0

12,780

-24,683

7,357

24,999

4,095 -2,29,780

21,159

27,191

-34,943

3,650

21,159

27,191

-350.3

-110.4

479.7

28.5

-4.3

0.4

2.1

2.4

Consolidated - Balance Sheet

Y/E March

Equity Share Capital

Total Reserves

Net Worth

Minority Interest

Total Loans

Deferred Tax Liabilities

Capital Employed

Net Fixed 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

19,987

5,77,573

5,97,560

42,102

7,58,958

-45,777

13,52,843

14,06,145

1,55,308

2,07,692

1,422

62,441

49,808

94,021

4,16,302

4,04,533

11,769

-2,08,610

13,52,843

FY15

19,987

5,99,577

6,19,564

48,525

8,06,839

-44,392

14,30,536

15,01,440

1,70,357

2,26,519

1,339

67,252

11,719

1,46,209

4,67,781

4,59,472

8,309

-2,41,262

14,30,536

FY16

19,987

6,47,706

6,67,693

54,981

10,04,526

-34,226

16,92,974

17,79,948

1,19,671

3,10,876

1,692

55,039

37,087

2,17,058

5,17,520

5,07,838

9,682

-2,06,645

16,92,974

FY17

19,987

6,54,576

6,74,563

68,750

10,72,877

-16,766

17,99,424

18,90,736

1,81,552

2,34,170

488

47,402

12,817

1,73,462

5,07,034

4,97,348

9,686

-2,72,865

17,99,424

FY18

19,987

6,75,357

6,95,344

88,139

11,13,335

-22,118

18,74,700

15,89,357

1,80,406

3,26,564

693

58,830

47,886

2,19,155

6,01,786

5,77,285

24,501

-2,75,222

18,74,700

FY19

19,987

6,94,235

7,14,222

1,35,258

12,54,283

-82,556

20,21,207

16,83,662

1,76,044

3,81,895

884

43,006

62,121

2,75,884

6,41,389

6,21,206

20,183

-2,59,494

20,21,207

FY20E

27,273

8,51,169

8,78,442

1,10,575

16,53,293

-82,556

25,59,755

22,81,985

1,29,812

8,03,194

818

52,540

4,47,577

3,02,259

6,55,236

6,27,192

28,044

1,47,958

25,59,755

FY21E

27,273

8,72,328

8,99,601

1,17,932

16,34,900

-82,556

25,69,876

21,73,023

1,29,812

9,43,233

1,170

59,044

5,94,409

2,88,610

6,76,191

6,47,913

28,278

2,67,042

25,69,876

(INR m)

FY22E

27,273

8,99,519

9,26,792

1,42,931

16,14,667

-82,556

26,01,834

20,42,238

1,29,812

11,07,395

1,001

62,793

7,40,972

3,02,629

6,77,612

6,44,392

33,220

4,29,784

26,01,834

5 February 2020

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

FY14

6.9

46.0

149.5

1.8

30.2

77.9

11.7

3.6

3.3

10.3

0.3

5.0

3.8

4.2

0.6

0.9

FY15

14.0

52.8

155.0

2.2

19.9

38.4

10.2

3.5

3.2

9.4

0.4

9.2

5.8

6.5

0.6

1.0

FY16

12.3

55.9

168.8

1.4

10.8

43.7

9.6

3.2

9.2

0.3

7.6

6.1

6.4

0.6

1.3

FY17

11.1

60.6

168.8

1.0

12.7

48.3

8.9

3.2

3.4

8.8

0.2

6.6

5.3

5.4

0.5

1.3

FY18

3.5

51.6

173.9

1.0

43.8

153.6

10.4

3.1

3.9

10.4

0.2

2.0

4.6

4.5

0.4

1.3

FY19

-8.7

44.7

178.7

0.0

-61.4

12.0

3.0

4.1

12.6

0.0

-5.0

-2.5

-2.6

0.4

1.4

FY20E

0.7

51.4

161.0

0.0

801.8

10.4

3.3

4.7

11.2

0.0

0.5

3.1

3.5

0.3

1.2

FY21E

3.9

61.1

164.9

0.0

138.3

8.8

3.3

3.9

8.6

0.0

2.4

4.3

5.4

0.4

1.0

FY22E

5.0

66.2

169.9

0.0

107.6

8.1

3.2

3.4

7.4

0.0

3.0

5.1

6.9

0.4

0.8

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

Free Cash Flow

(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

E: MOFSL Estimates

(INR Million)

FY14

FY15

FY16

FY17

FY18

FY19

FY20E

FY21E

FY22E

78,643 1,07,130 1,28,463

77,233

32,670

-17,318 -3,54,342

40,163

73,508

1,56,496 1,55,311 1,74,498 1,97,730 1,92,431 2,13,475 2,76,649 3,11,962 3,33,784

58,788

73,252

85,461

95,466

93,255 1,10,134 1,33,095 1,47,364 1,44,366

-35,039

-46,111

-46,836

-31,587

-13,723

-11,706

99,880

-11,647

-21,317

17,533

-1,639

-3,955

-27,429

5,906

-58,196

-21,996

27,748

-16,179

2,76,421 2,87,943 3,37,631 3,11,413 3,10,539 2,36,389 1,33,286 5,15,590 5,14,162

-14,095

-11,925

-58,208

-19,104

-12,001

-38,509

2,62,326 2,76,018 2,79,423 2,92,309 2,98,538 1,97,880 1,33,286 5,15,590 5,14,162

-1,74,659 -2,09,786 -2,70,967 -3,84,045 -2,67,262 -3,05,270 -4,53,977 -2,03,000 -2,03,000

87,667

66,232

8,456

-91,736

31,276 -1,07,390 -3,20,691 3,12,590 3,11,162

-36,886

-11,649

68,115

-817

-33,322

924

46,232

-27,955

14,088

60,595

69,308

40,326

44,143

24,806

-2,39,500 -2,07,347 -1,42,257 -3,15,554 -2,60,258 -2,60,203 -3,82,939 -1,78,194 -1,78,194

67,956

984

1,245

98,932 3,94,000

14,252

-72,451 -1,17,833

9,353

40,073 1,05,883 3,99,010

-18,394

-20,233

-37,620

-33,887

-32,890

-58,566

-44,041

-76,171 -1,33,095 -1,47,364 -1,44,366

-6,735

-21,399

-15,304

-9,168

-32,652

-46,617

-12,182

31,210

46,925

52,866

56,085

12,611

25,671

-96,527 -1,18,118

-4,270

19,486

94,638 6,59,915 -1,65,758 -1,64,599

48,497

-27,856

19,048

-27,515

57,766

32,315 4,10,262 1,71,638 1,71,369

1,311

39,575

-1,413

17,635

-9,880

28,468

37,315 4,22,771 5,69,603

49,808

11,719

37,087

12,817

47,886

62,121 4,47,577 5,94,409 7,40,972

5 February 2020

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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located in Hong Kong & are not conducting Research Analysis in Hong Kong.

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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

5 February 2020

Bharti Airtel

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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

research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.

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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.

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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

modifications and alternations to this statement as may be required from time to time without any prior approval. MOFSL, its associates, their directors and the employees may from

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

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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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The person accessing this information specifically agrees to exempt MOFSL or any of its

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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

www.motilaloswal.com.CIN

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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.

Ltd. which is a group company of MOFSL. Private Equity is offered through Motilal Oswal Private Equity Investment Advisors Pvt. Ltd which is a group company of MOFSL.

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.

5 February 2020