Bharti Airtel - Optimistic on profitable growth across segments - ICICI Securities

Bharti Airtel (Bharti) organised an analyst day on 25th Mar'22 to outline its growth plans and opportunities. It remains confident of sustaining strong revenue growth in mobile business and anticipates acceleration in non-mobile revenue growth in coming years. Digital business remains core for growth across both consumer and enterprise segments. Consumer business will benefit from rising adoption of digital properties by mobile users, which Bharti can monetise through ads and cross-selling. Also, enterprise segment looks more solid with CPaaS, data centre, IoT, and security & cloud. Bharti plans to achieve stronger growth in the payment bank business. We come convinced that 5G capex will have limited upside risk. Company plans monetisation of its payment bank and data centre businesses in the future, while digital and other businesses may remain under the Bharti Airtel umbrella. Maintain BUY.

- Big picture. Bharti sees revenue growth to be driven by mobile / non-mobile businesses where it expects growth to accelerate / remain steady. Growth in mobile revenue is well captured in consensus: the big takeaway is company is aiming for another 2-3 tariff hikes apart from premiumisation. Non-mobile business is under-appreciated by consensus despite company belief that fixed broadband customer-base will expand significantly over the next three years, emerging categories in enterprise growing faster and digital & payment bank have just arrived. Bharti is staring at large FCF generation and reduction in 5G capex upside risk. To summarise, the company expects revenue growth momentum to continue in mobile, and accelerate in enterprise and digital (including payment bank), while capex to remain stable. Further, it plans to monetise data centre and payment bank businesses in the future, which should help unlock some value.

- Strategy - quality and experience. Bharti's strategy is built on two pillars: quality of customers, and brilliant experience. Company has changed its customer segmentation. Customers were earlier segregated separately for each business. But, now all customers are pooled across consumer businesses and one customer lifecycle management is applicable and omni channel experience on distribution. Bharti has significantly increased its investment in building infrastructure and enhancing digital analytical tools. Customer complaints have declined by 40% in absolute terms despite rise in sub base.

- Mobile business - tariff hike + premiumisation. Bharti expects mobile revenue growth to continue on the back of more tariff hikes and four layers for premiumsation. It is looking at 2-3 more tariff hikes in the next 2-3 years as existing tariffs deliver RoCE < CoE. Four layers of premiumisation are: 1) subs upgrading to smartphone, and signing up data services on 4G; 2) adding ARPU from digital engagements such as payment bank, wynk music, xstream, Airtel Thanks and others; 3) upgrades to postpaid and use of converged services such as fibre and entertainment; and 4) Airtel Black. Bharti estimates to generate 20% RoCE at ARPU of US$3.3 (Rs250).

- Non-mobile business is under-appreciated by consensus. 1) Bharti expects its fixed broadband subs to grow to 40mn in CY25 from 27mn in CY22 (14% CAGR). Each sub will come with ARPU of Rs650 in a market where Bharti's subs market share is improving. Bharti is planning to expand its home pass from 16mn currently to 40mn in next three years; 2) within enterprise, emerging categories account for Rs363bn in revenue, and are anticipated to grow at a CAGR of 25% to Rs703bn over FY22E-FY25E. Bharti expects to grab good revenue market share in emerging categories. It has strong propositions for CPaaS, ad-tech, cloud and security, and digital marketplace. It is expanding its data centre footprint 2.5x with investment of Rs50bn; and 3) the payment bank business has profitably scaled up with focus on three segments, viz. digital, unbanked rural, and institutions.

- 5G capex upside risk reducing. Our interaction with Bharti CTO suggests that there is not much upside risk from 5G capex. Company plans NSA 5G with likely 1800MHz (uplink) and 3500MHz (downlink) as base bands. The coverage on this configuration should help achieve existing L1800 (4G) coverage. Thus, we don't see requirement of more tower rollouts; NSA 5G network rollout will largely be loading on existing towers. In 4G, the company had spectrum in four bands and three sectors implying 12 radios on each tower. In 5G, it would be single band and three sectors; thus there would be only three 5G additional radios per tower.

Shares of Bharti Airtel Limited was last trading in BSE at Rs. 733.35 as compared to the previous close of Rs. 709.25. The total number of shares traded during the day was 237001 in over 7073 trades.

The stock hit an intraday high of Rs. 737.50 and intraday low of 710.45. The net turnover during the day was Rs. 170929165.00.

Source : Equity Bulls

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