What's new: Bharti Airtel delivered a faster topline and EBITDA growth supported by the mobile tariff hike, with both marginally ahead of consensus. Mobile continued to outperform against Jio whilst Enterprise appears to be picking up again. Although India’s mobile upside has largely been baked into the stock, the accelerated home connections over the last two quarters coupled with the positive read-across from Jio’s FWA disclosure is encouraging to us. When deployed at scale, we see the potential for 5G FWA to be a material growth driver although this is still early. We stay Neutral at this point with a INR 1,500 price target.
Key points: Revenue and EBITDA trend were marginally ahead of consensus, by 0.4% and 0.9% respectively. Group revenue rose by 12% YoY versus 2.8% last quarter led by the domestic tariff hike and the easing Naira devaluation coupled with improvements in Africa.
The Group’s EBITDA growth also improved to 12% YoY from 1% prior, holding its margin steady at 53.1% unchanged from last year. Excluding exceptionals, underlying net profit was up 32% YoY from 0.8%.
Indian Mobile better on tariff hike, still marginally ahead of Jio: Topline trended faster, up 18.5% YoY from 10.5% YoY but was marginally ahead of Reliance Jio (+18%). Domestic mobile EBITDA posted faster growth, up 23% YoY from 12% (Jio +17.8%). As result, margins expanded by 2.1pp YoY to 57.1%. Against expectations, Indian mobile revenue was a touch lower (-0.5%) while EBITDA was 1.4% ahead.
Strong mobile ARPU as expected. Mobile ARPU rose by 14.9% YoY from 5.4% to INR 234, in line with consensus. Similar to Jio (-3m), its mobile subscriber base suffered a 2.9m loss likely due to SIM consolidation as a result of the tariff hike effective since July. For the full FY, we expect mobile ARPU to rise by 11%, behind what consensus has baked in (15%).
Enterprise appears to be picking up. Beyond mobile, Airtel Business (14% of revenue) improved to +10% YoY from +8.4% and was up 3.3% sequentially. We believe this was likely on the back of continued momentum in the domestic demand as past trends have suggested a slowdown in global account spending. In our view, the Indian Enterprise space remains full of opportunities where Bharti has been at the forefront although there appears to be rising competition from Jio in recent quarters. In addition, management had earlier echoed positive commentary around the push for cloud solutions to Indian enterprises as they digitalise.
Despite Jio’s increasing focus on Enterprise, we still believe Bharti has a relatively open goal in capturing the lion’s share of a high growth market going forward.
Uplift in Home net additions as FWA rollout accelerates. On Home Services, revenue growth kept steady at 17.3% YoY versus 17.6% prior, underpinned by an acceleration in net additions. Home customer base rose by 583k (Q1: 348k) to 8.6m, partly driven by Bharti’s accelerated FWA rollout. The company has yet to disclose FWA figures, but we believe the trend should accelerate further as the company is in the midst of upgrading its 5G network to standalone. We had earlier highlighted how we believe the India’s overall Fiber and FWA penetration can triple from 12% penetration today to over 30% by 2030 as household income rises and 5G FWA gets deployed at scale. Given the pace of Jio’s 5G FWA rollout, we begin to see a strong case for upside potential in our earlier forecasts.
Capex continues to moderate, down by another 16% YoY to INR 77bn. YTD capex is now down 20% YoY as lower mobile capex offset the rise in capex in Home and Enterprise. If it were to continue at this rate, capex has the potential to undershoot against expectations. Based on management’s earlier commentary, Bharti had targeted an average of annual spend of INR 250 bn between FY2023 and FY2025.
Conclusion: Numbers were largely in line with expectations and given how much consensus is baking into mobile ARPU for this FY (+15% vs us at 11%), we see little upside for Mobile. On the other hand, it was encouraging to see a pickup in Enterprise and the accelerated home broadband additions. The former highlights the structural digitalisation trend in India we think while the read-across from Jio’s FWA numbers are likely to bode very well for the Indian broadband space. At this juncture, we remain at Neutral on the stock with a INR 1,500 price target.
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