Bharti Airtel (Buy) – Q4 FY24 Quick Take: Improvements across mobile and Enterprise; strong underlying numbers

May 14, 2024

What's new: Bharti posted a strong quarter and while headline numbers were impacted by its African division, underlying numbers were encouraging. Both mobile and Enterprise saw better trends in Q4, whilst underlying net profit was up 14% YoY, if we exclude the large exceptional FX costs. Encouragingly, capex spend continues to moderate and we expect it to continue into the new fiscal year as 5G network capex had peaked. We maintain our Buy, with a INR 1,500 price target.

Bharti Airtel reported Indian revenue which was ahead by 0.8%. Indian mobile performance remained strong with better mobile and ARPU trend. Both Home Services and Digital TV also sustained growth at 20% and 5.5% YoY respectively.

Key points:  Underlying topline gained traction as mobile improved and Enterprise accelerated. Group revenue slowed to 4.4% YoY (Q1: 14.1%, Q2: 7.3%, Q3: 5.9%) as it was impacted by the Naira devaluation in its African business again. Excluding that, Group revenue trended faster, up by 13.3% YoY from 11.7%. This was ahead of consensus by 0.8% as Airtel Business (Enterprise) performed better than expected.

Margin at group level impacted by African weakness. Similarly, reported EBITDA slowed to 4.2% YoY (Q1: 19.3%, Q2: 11%, Q3: 7.8%) as a result of its African business. This blemished Bharti’s strong record in “War on Waste” as headline EBITDA margin fell for the first time in five years, although only down by 0.1pp YoY to 52.1%. The Group had recorded INR 24bn of exceptional charges, comprised mostly of FX losses in relation to its African subsidiaries. As a result, reported net profit to equity holders fell by 51% YoY to INR 20.6bn. Excluding exceptionals, underlying net profit would have grown by 14% YoY to INR 29.5bn.

For the full fiscal year, revenue was up by 7.8% YoY whilst EBITDA was up by 10% YoY. Excluding Africa, they would have grown by 12.3% and 15.6% YoY respectively.

Better trends in Indian Mobile: Although revenue trends were slightly behind Jio (+13.4%) in Q4, it improved to +12.9% YoY from 11.8% driven by a better ARPU trend. Sequentially, mobile revenue was up 2% vs 3.3% last quarter. Meanwhile, domestic mobile EBITDA accelerated to 15.6% YoY from 14.5% (Jio +12.5%), expanding margins by 1.3pp YoY to 55.1%. For the full fiscal year, domestic mobile revenue (+12%) was still ahead of Jio (+11.7%).

Strong net additions, healthy ARPU trend. On the KPIs side, net additions improved to 6.6m from 3.2m, versus 10.9m for Jio. Mobile ARPU rose by 8% to INR 209, up from 7.5% last quarter, against 1.6% for Jio’s blended ARPU. Sequentially, mobile ARPU grew by +0.5% vs. 2.5% last quarter (Jio was flat).

Faster trend in Enterprise. Beyond mobile, Airtel Business (14% of revenue) accelerated to 14% YoY from 8.7%. We believe this was driven by the strong domestic IoT demand as Bharti had announced back in January to deliver over 20m smart meters to Adani Energy Solutions. This is encouraging to us as it suggests that the Indian Enterprise growth thesis remained well intact as the past few quarters slowdown was a function deferred spending by global OTT players.

As Indian enterprises start to digitise, we think Enterprise will be a material leg of growth for the group. Bharti is the leading operator on this front in India and is more exposed to Enterprise than many other EM telcos. We think it has a relatively open goal in capturing the lion’s share of a high growth market going forward.

Capex continues to moderate. Group capex was down by 8% YoY to INR 105bn this quarter.  This was largely driven lower spend in Domestic Mobile, Airtel Business and Africa. For the full year, Indian capex spend (INR 252 bn) was in line with management’s earlier commentary of an average of annual spend of INR 250 bn between FY2023 and FY2025.

Conclusion: We continue to hold a bullish outlook across its key assets: Indian Mobile, Africa, Enterprise and Broadband. As such, we retain our Buy recommendation and INR 1,500 price target. However, these numbers are unlikely to be a significant positive catalyst. In our view, we see upside in the consumer margins given how they have risen rapidly against consensus numbers. Separately, more value-based investors may also wish to look at SingTel as a better means of playing the Bharti story.

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