FY20/21/22e Ebitda up 5/9/9% to factor in results and higher-than-expected price rise; TP revised to Rs 468; ‘Hold’ maintained
Airtel reported strong Q3 with Mobile ARPU up 5% q-o-q and mobile margins +110bps q-o-q. Other businesses were in line with JEFe. Mgmt indicated that exit ARPU in Dec was Rs 140. The key for the sector going forward is the level of elasticity in data usage. While we expect Bharti’s market share and ARPU to increase, it already trades at 8xFY22e EV/Ebitda. Given our view of data elasticity, we expect ARPU increase post current hike to be gradual. Retain Hold; PT Rs 468.
Strong quarter: Bharti reported strong Q3FY20 results. Overall, revenues were 1% ahead of expectation, and Ebitda margins were 220bps ahead led by better revenues. Reported loss was at Rs4.7 bn. India mobile trends in line: India mobile business trends were in line. Revenues improved 5% q-o-q and came in 1% above JEFe. Margins improved 113bps q-o-q. ARPU increased to Rs135 (+5% q-o-q and +2% vs JEFe). Subs addition though was lower at 3.6 mn. 4G upgrades were strong at 20 mn aided by Jio IUC charges.
Other businesses in line: Enterprise and Home segments were stable q-o-q. Enterprise revenue grew 7% y-o-y and was flat q-o-q. Margins were flat q-o-q. Home business revenues grew 1% y-o-y and q-o-q. Margins though improved 477bps q-o-q. Africa business remained strong and grew 13% y-o-y with stable margins.
Operational parameters strong: Data and Voice usage remained strong for Bharti. Data per sub increased to 13.9GB/m vs 13.1GB/m in Q2. MoU also increased to 898 min. Capex in the quarter was Rs50 bn with mobile capex at Rs 25bn.
Concall highlights: Mgmt believes Rs300 ARPU is necessary for industry to generate return on capital. It expects capex to increase in the near term but remain below recent peaks.
Estimates: We adjust our estimates for the quarter. We also factor in the price increase which was 20% higher than our expectation. Our FY20/21/22 Ebitda estimates increase by 5/9/9%.
Elasticity: The impact of recent price hikes by the telcos will depend on data elasticity. Even in the best case, where ARPU for all data subs increases by 35-40%,we estimate the overall ARPU increase would be 16/20/27% for VodaIdea/Bharti/Jio. We expect elasticity to be reflected in: (i) SIM Consolidation, (ii) Downtrading –Telcos have retained the Rs379/329 price point (84 days, 6GB data) and all three have retained the Rs148/129 (28 days, 2GB) price. They have also launched lower-price monthly packs that are closer to the price points of earlier headline plans.
Bharti: Bharti is better placed than VodaIdea. It recently raised $3 bn through QIP and FCCB issue. We expect its market share to rise to c.35% (from 30%). However, the stock already trades at 8x FY22e reported EV/Ebitda and 10xIndia mobile EV/Ebitda, with margins at a historical peak in FY22e. With declines at Infratel and risk of more competitive intensity in the fibre segment (30% of Ebitda),we stay at Hold with a revised TP of Rs468.