By New Street Research
not many stocks are at hitting new all-time highs currently but as one of the leading drivers of the EM (electro-magnetic) Telco bull market, Bharti is. If you don’t own it, this is what you are missing. We continue to see a bullish outlook across all key assets: Indian Mobile, Africa, Enterprise, Broadband. We retain our Buy recommendation and lift our price target to Rs 1,400.
Key growth drivers for Bharti
Indian Mobile 5G launch suggests the next round of ARPU upside is close, which coupled with 2G to 4G migration means that the core is set to continue to grow at double digit rates. With VIL likely to lose top end subscribers, another price increase is required if VIL is to survive, likely to around Rs 275 -Rs 300.
Africa: Airtel Africa continues to see strong growth. We think growth is sustainable.
Enterprise. We recently published a deep dive on Airtel Business which we think could match current consumer mobile revenues by FY28.
Broadband. Although small today, Airtel Home is seeing very rapid subscriber growth (roughly 10% customer growth per quarter) recently.
Valuation: With Bharti breaking out, we think it is the right time to be putting new money to work in the stock again.
Revenue growth in Indian mobile continues to accelerate for Bharti and has now reached 25%, driven by the following reasons:
Improved market share performance, with Bharti now out-executing Jio.
Better pricing .
We think 5G is likely to see further upside to both Bharti’s market share and ARPU and therefore continued strong revenue growth.
2G to 4G & 4G to 5G migration
As customers migrate from 2G to 4G this leads to ARPU growth of 2-3% sequentially. We expect 5G over time to be priced at a premium to 4G, leading to similar trends as customers migrate from 4G to 5G.
5G auction is game changing
Spectrum bought by Bharti and Jio in the recent 5G auction will transform the Indian market we think, with both seeing a big increase in capacity share. However, because Jio spent heavily on expensive 700 MHz spectrum, the increase in their capacity share is not dramatically greater than Bharti’s. Excluding mmWave, both see capacity share increase by around 5% (to 39% for Bharti and 44% for Jio). However, VIL’s capacity share is set to fall to 19%. We think Bharti will be the early winner in 5G driven by their over exposure to high end customers, and better 5G strategy.
Subscriber growth strong driven by low penetration today and market share gains
Subscriber growth remains strong, with the country still having relatively low penetration. Additionally, Bharti’s market share performance is much improved, driven by a focus on execution as well as the fact that Airtel is the most aspirational brand in India.
As a result of growing Enterprise revenues, rising ARPU in the consumer division, and strong growth in Africa, as well as Indian Broadband, we think Bharti’s revenue and profit growth will remain strong until the end of the decade. By 2030 the company is generating close to $45bn of revenue, $25bn of Ebitda and $12bn of net profit. This outlook is far from discounted at current multiples we think.