As of end Q1, Bharti’s net debt-to-annualised Ebitda was 3.56x which we estimate has remained largely unchanged in Q2
By IIFL Institutional Equities
On the call after its Q2 KPI release, Bharti sounded hopeful that there would be room for some favourable consideration in the computation of interest and penalty by DoT on the AGR dispute. Bharti managed to grow revenue by ~1% q-o-q, in a seasonally weak quarter, driven by up-trading to bundles, Airtel Thanks and tweaking of minimum Arpu plans. Bharti awaits the outcome of Trai’s IUC review before reacting to Jio’s price increase.
As of end Q1, Bharti’s net debt-to-annualised Ebitda was 3.56x which we estimate has remained largely unchanged in Q2. If Bharti had to pay Rs 21,700 crore upfront in the AGR case (less likely in our view, considering the government weighing in VIL’s financial health), its leverage would rise to 4.21x. Bharti’s extent of deleveraging hinges on BHIN stock price. We maintain ‘buy’, with the target
price of Rs 424.
Decent Q2: We estimate flat q-o-q India Ebitda vs our earlier estimate of 3% fall: Bharti’s 0.8% q-o-q mobile revenue growth in a seasonally lean quarter is decent and suggests ~20bps q-o-q potential RMS gain to 31.2%, based on Jio’s reported 5.8% revenue growth and our estimate of ~3.5% decline for VIL. Based on our cost projections, we estimate flat q-o-q India Ebitda vs our earlier estimate of 3% decline.
Bharti acknowledged some pressure in the low-Arpu segment from Jio Phone, though it has seen some stability in postpaid Arpu. It will not look at temporary price increase driven by IUC and has decided not to respond to Jio’s pricing moves, as it awaits the outcome of Trai’s IUC review. Bharti expects massive MIMO deployment, 900 4G refarming and redeployment of 3G spectrum for 4G to augment capacity (current CU is ~60%), even without any additional spectrum deployment.