The company expects relief from the government and is also considering a review petition. We believe, the AGR order impacts Vodafone Idea the most, impairing its ability to invest in network.
Bharti Airtel reported better-than-expected Q2FY20 numbers with strong growth across key verticals and Rs 8,930 crore Ebitda versus the Street’s Rs 8,210-crore estimate. The company estimates Rs 34,260 crore overall AGR-related dues after the Supreme Court (SC) judgment and has made a provision of Rs 28,500 crore towards the same, leading to a Rs 23,040-crore net loss. Adjusted net loss (Rs 1,100 crore) was lower than the Street’s estimate (Rs 1,400 crore). Notes to account also included a statement on possible funding challenges undermining the Group’s ability to continue as a going concern. The company expects relief from the government and is also considering a review petition. We believe, the AGR order impacts Vodafone Idea the most, impairing its ability to invest in network. This will provide Bharti an opportunity to boost market share, driving profitability. Maintain ‘buy’ with revised TP of Rs 425 (Rs 414 earlier) as we rollover valuation to FY21E.
Bharti posted a strong operational performance with 1.9% q-o-q revenue growth and 190bps q-o-q Ebitda margin expansion with strong performance in India as well as Africa. While 4G subscriber addition was also robust at 7.9 million, Arpu was steady at Rs 128. Consistently strong operational performance underscores the company’s ability to execute amidst challenging environment.
We believe, despite regulatory headwinds, execution and ability to raise funds will help Bharti sail through the current turmoil. The stock is trading at an attractive 6.9x FY21E Ebitda. We maintain ‘buy/SO’ with a SOTP-based TP of Rs 425.