Bharti reported results in line with expectation. Re-classification of subs (to only paying subs) led to 48 mn moderation in base and makes ARPU comparison difficult. Reported numbers though indicate that 50%+ of low ARPU subs have not upgraded to the minimum ARPU plan. India mobile revenues were down 1% q-o-q. Margins saw dip across Mobile/Home/DTH. Africa growth remained strong and margins stable. Capex saw moderation but likely to exceed guidance.
In-line results: Revenues were in line while margins came 30bps below expectation. Profit after tax came at Rs 3.8 bn vs JEFe of Rs 9.7 bn loss aided by exceptional gain of Rs 14.1 bn (reversal of levies and settlement of litigation and de-consolidation of Airtel Payment Bank). Less than 50% of low ARPU subs recharged: The company in the quarter reclassified subscribers as only those who transact and generate revenues. Consequently the India Mobile subscriber base declined by 48.5 mn. Reported ARPU increased to Rs 104 (vs Rs 100 in Q2). Revenues though dipped 1% q-o-q.
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Data subs and usage increases sharply: While overall subs data is not comparable to previous quarters, 4G data subs addition remained strong at 11 mn. Data per sub also increased to 10.5 GB (vs 9.2 GB in Q2). Data usage per sub now is similar to Jio (10.8 GB).
Margins dip across Domestic segments: Margins saw a dip across domestic businesses ex Enterprise. Mobile business margins fell 180bps q-o-q to 19%. Home business margins fell sharply 535bps. DTH margins also fell 170bps.
Capex sees a dip: Capex in the quarter fell to Rs 65.7 bn vs Rs 76.8 bn in Q2. It has completed Rs 224 bn of capex in 9M vs full year guidance of Rs 270 bn. Pricing remains key but elusive; retain Hold: Bharti is now trading at 9x FY20e EV/Ebitda, a 25% premium to historical average but on depressed earnings. While it is better positioned than incumbents, we believe recovery is still some time away.
The key going forward is the improvement in pricing which remains elusive. Jio has indicated that it does not feel a need to change APRU currently. We expect competitive intensity in India business to remain high over the next 6-9 m. Further, we expect investment in network and add-on services to continue which will partly offset cost rationalisations. Retain Hold.