Bharti Airtel’s Q1FY21 performance was better than expectations despite the COVID-19 led lockdown. India Mobile Ebitda grew 3% q-o-q (10% above est.) while consolidated Ebitda grew by 2.4% q-o-q, which reflects healthy recovery in Jun’20. Positive FCF and de-leveraging resumed with Rs 23 bn net debt reduction.

We largely maintain our FY21/FY22e consol. Ebitda estimates. We have built in 7%/14% ARPU increase for FY21/FY22e, translating into 20% Ebitda CAGR over FY20-22E. Q2FY21 is expected to see healthy 4-5% India mobile revenue growth q-o-q based on exit ARPU/subs as at Q1FY21 and 4G subs adds trajectory in Jun’20.

India wireless Ebitda up 3% q-o-q (10% beat) on lower cost
Consol. revenue was up 1% q-o-q (in line) to Rs 239.4 bn. Consol. Ebitda was up 2.4% q-o-q (in line) to Rs 104.1 bn on stable India mobile Ebitda along with margin expansion of 60bp to 43.5%. Reported net loss stood at Rs159.3 bn. Excluding exceptional, adjusted net loss after minority stood at Rs4.3 bn.

Mobile India revenue in Q1FY21 was a surprise (-0.6% q-o-q) at Rs 128.8 bn (5% beat). This could be attributed to stable ARPUs/subs, despite the free validity extended to ~20-25m subscribers. Nearly 2-3% revenue loss should be reversed in the next quarter. Ebitda was up 2.8% q-o-q to Rs 52.2 bn (10% beat) as network/SG&A fell 4%/8% each. However, nearly two-thirds of the benefit could be reversed in the next quarter as spends post lockdown should increase.

ARPU jumped 2% q-o-q to Rs 157 (v/s est. Rs 154), despite ~ 2% ARPU impact due to lower recharges during the lockdown. Further, subscribers declined marginally by 3.8 m, possibly due to the lockdown related impact. Our channel checks suggest that healthy subs adds have resumed in Jun’20. FCF was normalised to Rs 26 bn after last quarter’s negative FCF due to high capex.

Valuation and view
Bharti has delivered strong execution over the last few quarters with industry leading revenue growth and 4G subscriber adds. It also has healthy network capacity v/s peers. The company is well placed to drive additional ARPU growth from increasing 4G subs adds and market share gains. This should help Bharti generate healthy FCF/subsequent deleveraging in the future. We have assigned EV/Ebitda of 12x to the India wireless business and 6x to the Africa business on FY22E. We have increased AGR liability to Rs 230 bn (v/s Rs 180 bn earlier) to factor in the remaining part of liability as per the DoT demand. Subsequently, we have arrived at SOTP-based TP of Rs 700. Maintain Buy.