Healthy performance: Airtel Africa’s 2QFY22 performance was modestly ahead of our expectations, reflecting a healthy addition to the subscriber base along with sustained improvement in mix and steady ARPUs. Low, albeit rising penetration of data customers along with higher realised ARPUs and rising adoption of mobile money services amid low banking penetration provides a long runway of growth. We shall review our overall estimates post consolidated results next week. Reiterate BUY with FV of ₹800.

2QFY22 results modestly ahead of estimates driven by sustained improvement in subscriber mix: Airtel Africa’s overall revenues grew 4.3% qoq to $1.16 bn in 2QFY22, in line with our estimate, led by (1) 2.7% growth in voice revenues, (2) 5% growth in data segment and (3) 5% growth in mobile money revenues. EBITDA for the quarter increased 5.6% qoq to $561 mn,1% above our estimate, driven by 70 bps qoq expansion in margins to 48.4%. Adjusted net income increased by 34% qoq to $192 m, benefitting from lower finance cost and a decline in tax rate to 37.7% from 44.8% in the previous quarter. Overall mobile subscriber base increased by 1.9 m to 122.7 m. Overall ARPUs remained steady at $3.1/month.

Strong growth in 1HFY22; high FCF generation drives moderation in net debt/EBITDA to 1.5X: In 1HFY22, revenues grew 25% to $2.27 bn reflecting 26% growth for mobile services and 42% growth for mobile money. EBITDA increased sharply by 38% yoy to $1.09 bn led by a strong 440 bps expansion in mobile services margins to 47.7%; mobile money margins reduced 30 bps to 48.6%. Adjusted net income increased 2.3X to $335 mn, boosted by a decline in tax rate to 40.9% from 48.6% in 1HFY21. Normalised FCF generation post lease payments increased to $307 mn from $105 mn in 1HFY21, while capex reduced to $305 mn from $367 mn in 1HFY21. Net debt declined to $3.1 bn with net debt/EBITDA ratio reducing to 1.5X from 1.8X at end-1QFY22 and 2.2X at end-1HFY21.

Optimistic outlook driven by rising penetration of data customers and mobile money services: We expect Africa business to continue to grow at a healthy pace driven by rising penetration as well as upgrade of data customers — (1) data subscribers are around 36% of overall customers and 4G customers are about 40% of data customers, and both are rising at a healthy pace and (2) 4G ARPUs are ~80% higher than data ARPUs, which, in turn are ~80% higher than voice ARPUs and both can drive an accelerated increase in revenues and EBITDA.