airtel: Airtel revenue growth over FY22-24 expected to grow 22% annually: Goldman

Bharti Airtel’s India wireless business is estimated to deliver 22% and 37% growth in revenue and operating income respectively, compounded annually over FY22-24, with prospects of strong 2G to 4G/5G conversions and the likelihood of annual tariff hikes, say analysts.

They added that Airtel’s 4% qoq / 25% yoy India mobile business revenue growth in tge September quarter compares favourably with Jio’s 3% qoq / 20% yoy levels as the latter includes home broadband customers, which Airtel reports separately under the homes segment.

“Bharti’s wireless segment has been consistently (for 11 quarters) growing revenues at 20%+ YoY, driven by share gains, mix improvement and tariff increases, and we expect this trend to sustain for the foreseeable future,” Goldman Sachs said in a note.

The global brokerage expects Airtel to raise tariffs once annually – the next hike before end of CY22 — and coupled with continued 2G to 4G/5G conversions, it forecasts the telco’s wireless revenues to grow at a 22% FY22-24E CAGR (18% at a consolidated level).

Analyst forecasts come a day after Airtel’s consolidated net profit for the fiscal second quarter rose by 89% to Rs 2,145.2 crore, on the back of strong addition of 4G users who consumed more data, lower spectrum usage charges (SUC) and a one-time gain.

Airtel, though, missed street estimates amid slowing overall customer additions, higher forex fluctuations, and lower profits from associates and the telco’s managing director Gopal Vittal has said that low ROCE (return on capital employed) remained a matter of concern, and that there was a need for tariff correction.

Airtel shares initially rose around 1% on BSE but soon fell, and eventually recovered ground again. The stock was marginally up 0.23% to Rs 833.95 in Tuesday post-noon trade on the exchange.

Jefferies said Airtel’s September quarter PAT missed estimates due to higher forex losses but the near 4% sequential ARPU growth was a key positive surprise, possibly due to improving subscriber mix (4G adds at over 5 million) and potential up-trading among data subscribers as data usage has crossed 20GB a month.

“Airtel’s 2QFY23 revenues at Rs 345 billion (+22% YoY) beat estimates due to higher India-mobile ARPUs, higher growth in India-Enterprise and higher revenues in Africa,” Jefferies said in a note.

Airtel’s average revenue per user or ARPU – a key performance parameter – grew 3.8% sequentially to Rs 190 in July-September period.

Jefferies said Airtel’s Ebitda at Rs 176 billion (+27% YoY) also beat estimates despite higher network costs/S&M expenses due to the revenue beat and lower SUC (spectrum usage charges).

It, though, said Airtel’s net profit was below estimates due to the Rs 8.1bn forex losses and lower share of JV profits due to a sharp fall in (associate) Indus Towers‘ profits in 2Q.

Analysts, however, said Airtel’s non-mobile businesses in India had a strong quarter with homes and enterprise segments growing by 17-39% year-on-year, beating estimates. The beat in the homes segment, they said, was led by higher subscriber additions of 0.42 million. Airtel Business too grew 17% on-year, the highest in 4 years, while Africa revenues (up 19% on-year) were slightly ahead due to higher than expected subscriber additions.

JP Morgan, in turn, said Airtel’s consistent share gains from superior network quality, improving ARPU from increased data consumption and 4G upgrades coupled with impressive digital metrics should drive a re-rating.

Goldman Sachs forecasts $1.2 billion in FCF (free cash flow) for Airtel’s India business in FY23, rising to $3 billion in FY24, given no spectrum payments and higher Ebitda.

It added that Airtel’s 2QFY23 wireless revenue growth was marginally higher vs that reported by Jio, resulting in revenue market share for Bharti expanding by 40 bps qoq — or 160 bps over the last 4 quarters — to 38.2%.

Morgan Stanley said Airtel’s consolidated capex came in at Rs 70.5bn (20.4% of revenues) while its India business capex at Rs56.8bn – vs Rs52.9bn in 1Q — didn’t increase as much as anticipated.

It, though, said Airtel’s digital TV services business continued to see weakness, in that, while subscribers stabilised in 2Q, the ARPUs and revenues continued to see sequential decline.

Citi Research said Airtel’s net debt rose qoq from Rs 1.7 trillion to Rs 2.1trillion following the 5G spectrum auction and forex translation impact, with net debt/Ebitda correspondingly up sequentially from 2.5x to 3x.

Airtel — in which SingTel owns around 29.7% — has started 5G services from October 1 in eight markets — Delhi, Mumbai, Chennai, Bengaluru, Hyderabad, Siliguri, Nagpur and Varanasi. It plans to expand 5G coverage across urban India by December 2023 and the entire country by March 2024.



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