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Bharti Airtel – BUY
Strong performance in tough conditions
Financial summary (Rs bn)
Y/e 31 Mar, Consolidated FY19A FY20A FY21ii FY22ii FY23ii
Revenues (Rs bn) 808 879 971 1,101 1,341
Ebitda margins (%) 31.9 41.9 43.3 46.6 49.1
Pre-exceptional PAT (Rs bn) 4 (98) (158) 55 137
Reported PAT (Rs bn) 4 (322) (158) 55 137
Pre-exceptional EPS (Rs) 1.0 (17.9) (28.9) 10.0 25.1
Growth (%) (62.7) NA NA NA 149.9
IIFL vs consensus (%) 381.3 (28.2) 10.0
PER (x) 498.8 (28.5) (17.7) 51.0 20.4
ROE (%) 0.5 NA NA 7.0 17.0
Net debt/equity (x) 1.3 1.2 1.6 1.9 1.7
EV/Ebitda (x) 13.7 11.9 10.5 8.8 6.9
Price/book (x) 2.4 2.7 3.5 3.6 3.3
OCF/Ebitda (x) 0.8 0.5 0.9 1.0 0.9
Source: Company, IIFL Research. Priced as on 27 August 2020
G V Giri | [email protected] 91 22 4646 4676
Balaji Subramanian | [email protected] 91 22 4646 4644
|
CMP Rs511
12-mth TP (Rs) 619 (21%)
Market cap (US$m) 37,767
Enterprise value(US$m) 53,417
Bloomberg BHARTI IN
Sector Telecom
Shareholding pattern (%)
Promoter 56.2 Pledged (as % of promoter share) 0.0
FII 20.2
DII 18.4
52Wk High/Low (Rs) 612/326
Shares o/s (m) 5456
Daily volume (US$ m) 170.7
Dividend yield FY21ii (%) 0.7
Free float (%) 43.8
Price performance (%)
1M 3M 1Y
Absolute (Rs) (8.7) (9.3) 46.7
Absolute (US$) (7.1) (6.6) 42.6
Rel. to Sensex (11.8) (33.0) 42.8
Cagr (%) 3 yrs 5 yrs
EPS NA NA
Stock performance
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Company update
FY20 ARA
28 August 2020
The key takeaways from Bharti’s FY20 AR are:
• Bharti’s underlying standalone (SA) Ebitda margin expanded 330bps
YoY and Ebitda growth was 30%. This is after removing the 150bps
boost to reported margin due to spreading of customer acquisition
cost over the life of the customer.
• Opex Cagr of 1.7% in India in the past 3 years is impressive (ex LF,
SUC and access charges).
• Comparing Bharti’s and JIO’s cost structure, the difference in S&D
and other expenses is partly due to JIO’s opex capitalisation and
lower salience in enterprise and post-paid.
• Consol WC (ex capex creditors) for Bharti deteriorated from -27% of
sales in FY19 to -20% of sales in FY20 mostly due to Africa.
• Bharti SA’s underlying WC position at -16% of sales in FY20 was
marginally better than JIO’s -14%.
• The proportion of online top-ups rose to 70% during lockdown vs.
35% before. If this remains sticky, there could be ~50bps Ebitda
margin boost.
• Effective interest rate rose to 11.1% in FY20 vs. 10.8% in FY19.
• Contingent liabilities towards DoT came down sharply to Rs51bn as
Bharti made AGR provisions in its balance sheet. Separately, Bharti
has provided for Rs56bn one-time spectrum charges (OTSC) split as
Rs18bn principal and Rs38bn interest. With DoT’s total demand at
Rs84bn, the remaining part of the principal and potential interest on
this could result in incremental Rs200bn+ liability in the event of an
adverse outcome (currently sub judice).
We build in Rs17/share regulatory hit: If the SC orders Bharti/JIO
to pay AGR dues of insolvent telcos (whose spectrum is in use by the
surviving telcos), the worst case AGR liabilities could be
Rs138bn/Rs252bn. If the telcos are ordered to surrender this spectrum,
it may be a blessing in disguise. We build in Rs17/share hit assuming
25% probability of adverse outcome on OTSC case and 50% probability
for AGR dues of insolvent telcos. We also tweak AGR hit/share from
Rs54 to Rs49 earlier to factor in indemnity asset from Telenor. Our TP
comes down to Rs619 from Rs630. The stock trades at 10.5x FY21
EV/Ebitda and we forecast 25% Ebitda Cagr over FY21-23.
gvgiri@i i flcap.com
Bharti Airtel – BUY
2
Interesting stats from FY20 AR
• The proportion of online top-ups rose to 70% during lockdown vs.
35% before. We think that this may settle around 50% once
normalcy resumes post COVID. This is positive since dealer payouts
are ~4% of revenue for physical top-ups vs. <1% for online top-
ups. Pre-paid dealer commission is netted off from reported
revenue. Hence any savings in dealer commissions would manifest
as higher revenue and not as lower costs.
• 38m subs can use VoWi-Fi based on device compatibility; 2m are
the daily active subs and 5m+ users have used this service till now
at least once. Post VoWi-Fi rollout, there has been a 73% increase in
call duration and 42% reduction in call attempts due to improved
indoor experience.
• 37% of voice traffic has been offloaded to VoLTE.
• There are >80k sites and 0.5 m outlets in rural areas, which works
out to >40% of total sites and ~50% of total outlets.
• Bharti has 10 large data centres, 120+ edge data centres, 2k+
enterprise and government clients, and 500k+ SME clients.
• There are 160m+ users across Airtel Thanks, Wynk and Xstream.
Airtel Thanks customers pay higher ARPU compared to non-Airtel
Thanks customers. Bharti also monetises some of these digital
assets through ad revenue (currently miniscule). It plans to deploy
ad platforms to improve monetisation. Further, it earns revenue
from insurance companies (HDFC Life and Bharti AXA) who use
Bharti’s digital assets for distribution.
• 850MHz acquired from Tata is actively used by Bharti. Bharti has
850MHz in 5 circles though it has 5MHz in none of these. In two
circles, it uses the 850 band for LTE. Being sub 1 GHz spectrum, it is
used to improve reach and indoor coverage. Also, in 2 out of these 5
circles, Bharti did not have sub-1GHz spectrum before Tata
acquisition; this strengthens its spectrum portfolio in those circles.
• The long running dispute with Tanzanian government has been
resolved. News shares in Airtel Tanzania were issued to Tanzanian
government such that the shareholding of the opco becomes 51-49
(with the government having 49%). Earlier, this was 60-40. In
return, US$874m tax claim on BAIN, US$183m fine, US$47m tax
claim on the opco have been waived off. Carry forward tax loss
balance has been allowed. Special dividend of up to 25% of 2019
Ebitda will be paid.
Airtel Thanks delivers ARPU uplift
Bharti relaunched My Airtel app during FY19, with rewards, privileges
and personalised offers. Airtel Thanks customers pay higher ARPU
compared to non-Airtel Thanks customers though the extent of boost
is unclear.
Airtel Thanks packs are offered in three tiers (corporate and add-on
plan users are not eligible)
• Silver (for prepaid subs who top up for unlimited plans of Rs119
but less than Rs249) – This comes bundled with Wynk and Airtel
Xstream
• Gold (for prepaid subs who top up for unlimited plans of Rs249 or
above, for post-paid Infinity Plan users and fixed BB users below
Rs1099) - In addition to Wynk and Airtel Xstream in the silver
tier, this offers ZEE5, HOOQ and Eros Now.
• Platinum (for post-paid plan users of Rs499 or above, fixed BB
users of Rs1099 or above) - In addition to the benefits in the
gold tier, this offers 1 year of Amazon Prime, free handset
damage protection, Airtel Books and priority customer
support. Amazon Prime membership comes with video,
shopping, unlimited free shipping and early and exclusive access
to deals on Amazon.
gvgiri@i i flcap.com
Bharti Airtel – BUY
3
Standalone – 330bps underlying Ebitda margin expansion YoY
We look at the P&L of Bharti standalone (which includes India mobile ex
Rajasthan and North East + Home broadband + Enterprise).
• Revenue grew 10% YoY in FY20 vs. 8% decline seen in FY19.
Reported Ebitda had two positive influences and a negative
influence: 1) Ind-AS 116 related tailwind of Rs43.1bn; and 2)
spreading of customer acquisition cost as the average life of
customer is derived to be more than 12 months, which boosted SA
Ebitda by Rs7.9bn; and 3) accounting change in enterprise and
home segments where some costs which were earlier below the
Ebitda are now part of opex. Though Bharti did not quantify this, by
extrapolating historical trends, we estimate that this was a headwind
of Rs3.3bn.
• After removing the above three factors from reported numbers, opex
grew 4.6% YoY and Ebitda grew 30% YoY. Ebitda margin expanded
330bps YoY to 28.5%.
• We look at opex (excluding LF, SUC and access charges) since these
are costs that can be controlled by Bharti. This was up 2.2% YoY
and it is commendable that it has increased only 5% from FY17
level.
• Passive infra charges (tower rentals) rose by 8% YoY while power
and fuel costs were up 11%. Repair and maintenance costs were flat
YoY. Mobile broadband unique locations/BTS are up 11%/21% YoY.
• Sales and marketing expenses (adjusted for the Rs7.9bn tailwind
from spreading of customer acquisition cost) remained flat as % of
revenue.
• Content costs had risen 30% YoY in FY19 reflecting the impact of
content deals with ZEE5 and Netflix. In the absence of new deals,
content costs came off in FY20. Further, reduction in VAS revenue
was also accompanied by a reduction in content costs.
• Bad debt provisions + write-offs which have historically remained at
Rs8-9bn came down to Rs4.4bn in FY20. Bharti stated that FY20 saw
higher recoveries in the enterprise business and lower ICR bad debt.
Figure 1: Bharti Standalone: Lower bad debt provisions and other expenses drove most of the 330bps Ebitda margin expansion
FY18 FY19 FY20 FY18 FY19 FY20
Rs bn Rs bn Rs bn % of rev % of rev % of rev
Revenue 536.6 496.1 543.2
Ebitda (reported) 178.7 124.8 202.6 33.3 25.2 37.3
Ebitda (ex accounting change) 178.7 124.8 159.5 33.3 25.2 28.5
Opex (ex LF, SUC, IUC) 223.4 240.0 248.5 41.6 48.4 45.7
Passive infra charges (ex Ind-AS) 64.4 72.6 74.3 12.0 14.6 13.7
Power and fuel costs 45.6 55.6 61.7 8.5 11.2 11.4
Repair and maintenance 16.2 20.9 20.7 3.0 4.2 3.8
Internet bandwidth and leased line 7.1 10.3 13.6 1.3 2.1 2.5
Other network opex 6.2 6.1 5.8 1.1 1.2 1.1
Sales distribution commission* 22.2 16.6 17.7 4.1 3.3 3.3
Content costs 5.7 7.5 5.9 1.1 1.5 1.1
IT expenses 3.8 5.9 5.7 0.7 1.2 1.0
Bad debts W/O + provisions 8.8 8.5 4.4 1.6 1.7 0.8
Collection and recovery exp. 3.7 1.3 1.2 0.7 0.3 0.2
Customer care expenses 4.7 5.3 4.7 0.9 1.1 0.9
Others 9.5 8.8 5.8 1.8 1.8 1.1 Source: Company, IIFL Research; *After adding back Rs7.9bn pertaining to accounting change in FY20 and removing est. Rs3.3bn leased line costs which was earlier below Ebitda
gvgiri@i i flcap.com
Bharti Airtel – BUY
4
Cost comparison with JIO
We compare the opex (ex LF, SUC and access charges) of Bharti stand-
alone+Hexacom and JIO. The main differences are in sales and
marketing expenses and other expenses.
Figure 2: Opex comparison of Bharti SA and JIO
Rs bn JIO As % of rev Bharti SA + Hexacom As % of rev
Employee cost 14.6 2.7% 15.8 2.7%
Network opex* 183.3 33.7% 190.3 32.7%
Sales and marketing exp 12.8 2.4% 27.3 4.7%
Other expenses 15.6 2.9% 28.6 4.9%
Total 226.3 41.7% 262.0 45.0%
Revenue 543.2 581.9
Source: Company, IIFL Research; *after adjusting for Ind-AS 116 impact
Unit rental/energy costs 12%/25% lower for JIO vs. Bharti:
Though JIO has ~32% more locations than Bharti, it has ~7% lower
revenue than Bharti. This suggests that Bharti’s revenue per location is
significantly higher. In our view, this is on account of JIO’s network
being significantly bigger since it carries 2x data traffic of Bharti. With
Bharti deriving est. ~30% of its revenue from 2G users, the capacity
and the equipment count required to support this revenue is
significantly lower. Thus it makes sense for Bharti to continue
supporting 2G users in the near term. Over time, as Bharti expands its
4G footprint and converts existing 2G users to 4G, we expect the
revenue per location for both telcos to converge (after adjusting for
spectrum holding differences).
On a per location basis, JIO’s rental cost/energy cost per month was
~12%/25% lower than Bharti’s. If we assume that JIO’s energy cost per
location is the same as Bharti with the difference being capitalised by
JIO, the annual energy cost capitalised comes to Rs25bn.
Figure 3: Comparison of network opex components for Bharti and JIO
Rs m Bharti SA + Hexacom JIO
FY19 FY20 FY19 FY20
Average est. location count 173,414 187,744 195,000 247,500
Reported rental costs 73,523 33,683 42,710 77,340
Ind-AS adjustment
44,521
13,230
Effective rental costs 73,523 78,204 42,710 90,570
As % of revenue 13.9% 13.4% 10.5% 16.7%
Rental costs per location per month 35,331 34,712 18,252 30,495
Energy costs 61,133 68,202 50,830 67,070
As % of revenue 11.6% 11.7% 12.5% 12.3%
Energy costs per location per month 29,377 30,273 21,722 22,582
Source: Company, IIFL Research
Bharti’s sales and marketing costs have declined by 20% in 3
years: JIO’s sales and marketing expense as % of revenue in FY20 was
2.4% vs. Bharti’s 4.7%. JIO does not split this line item further. For
Bharti, subscriber acquisition costs (SAC) account for almost 2/3rds of
this line item with the remaining being ad spend and others.
gvgiri@i i flcap.com
Bharti Airtel – BUY
5
Figure 4: We estimate that JIO may have capitalized sales and marketing expenses to the tune of 3.7% of revenue if one assumes similar SAC as Bharti
Bharti's sales and marketing exp as % of revenue 4.7%
Bharti's ad spend and others as % of revenue 1.5%
SAC as % of revenue 3.2%
Bharti's SAC (Rs m) 18,516
Bharti's gross adds in FY20 (m) 84.8
Implied SAC per sub (Rs) 218
JIO's gross adds in FY20 ( m) 126.4
JIO's estimated SAC assuming similar SAC per sub as Bharti (Rs m) 27,586
As % of revenue 5.1%
JIO's est. ad spend and others as % of revenue 1.0%
Total est. sales and marketing exp as % of revenue 6.1%
JIO's reported sales and marketing exp as % of revenue 2.4%
Est. capitalised sales and marketing expenses 3.7% Source: Company, IIFL Research
The above table indicates that JIO potentially capitalised sales and
marketing expenses worth 3.7% of revenue or Rs20bn. Total estimated
capitalised opex including Rs25bn energy costs comes to Rs45bn for
JIO. This largely validates our calculation of Rs47bn opex capitalisation
in FY20 in JIO’s ARA note.
Most of Bharti’s reduction in sales and marketing (20% in absolute
terms in 3 years) has happened on SAC, which is on account of
improvement in subscriber acquisition quality. This also reflects in lower
churn which has come down from 3.7% to 2.5% during this period. CEO
Gopal Vittal had emphasised on acquisition of quality subscribers when
we met him a few years back and he has delivered on this count.
Figure 5: Reduction in SAC and churn for Bharti reflects improved quality of subscriber acquisition
Source: Company, IIFL Research
Higher other expenses for Bharti vs. JIO partly due to higher
post-paid and enterprise presence: JIO’s other expenses at Rs15bn
(2.9% of revenue) are significantly below Bharti’s Rs27bn (4.9% of
revenue). About 75% of this gap is account of Bharti’s higher bad debt
provisions (due to higher enterprise, post-paid salience) and content
costs (JIO’s content costs are housed in RIL’s other subsidiaries). The
remaining is mostly on account of customer care expenses (Rs4.6bn for
Bharti vs. Rs2.1bn for JIO), which is probably due to Bharti’s customers
being spread across mobile, enterprise and home broadband.
3.2% 3.5%
4.1%
3.3% 3.2% 3.4% 3.7%
3.5%
4.0%
2.5%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
FY16 FY17 FY18 FY19 FY20
SAC as % of rev Churn
(%)
gvgiri@i i flcap.com
Bharti Airtel – BUY
6
Figure 6: Other expenses as % of revenue for Bharti and JIO
Source: Companies, IIFL Research
Steady WC in SA; some deterioration in subsidiaries
Figure 7: Consol WC cycle: Some deterioration in overall WC days
Rs m FY17 FY18 FY19 FY20
Revenue 954,683 834,481 807,802 879,324
Inventory – A 488 0 0 0
Trade receivables – B 47,402 58,830 43,006 46,058
Unbilled revenue – C 15,880 16,136 17,072 19,221
Trade payables – D 268,537 268,537 263,138 250,199
Capex creditors less capital advances – E 62,899 79,793 119,704 129,349
Other net current liabilities – F 18,216 20,170 17,176 (7,628)
Net current assets (A+B+C)-(D+E+F) (285,882) (293,534) (339,940) (306,641)
Net current assets as a % of revenue -29.9% -35.2% -42.1% -34.9%
Net current assets as a % of revenue (ex capex creditors)
-23.4% -25.6% -27.3% -20.2%
Source: Company, IIFL Research
If one removes capex creditors, working capital deteriorated from -23%
of sales in FY17 to -20% of sales in FY20.
The below table suggests that WC deterioration was mainly in the
subsidiaries even though SA WC was stable.
Figure 8: Working capital (excluding capex creditors) deterioration was in the subsidiaries
% of revenue FY17 FY18 FY19 FY20
Consol -23.4% -25.6% -27.3% -20.2%
SA -17.7% -22.8% -28.4% -26.2%
Subsidiaries -34.0% -30.6% -25.5% -10.4% Source: Company, IIFL Research
Trade payables were down from Rs263bn to Rs250bn YoY. This was flat
for SA at Rs192bn and hence the reduction is entirely in the
subsidiaries. With Airtel Africa disclosing its balance sheet, we also note
6.6% 6.2%
6.7%
7.5%
4.9%
3.4% 3.0% 2.9%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
FY16 FY17 FY18 FY19 FY20
Bharti JIO(Other exp as % of rev)
gvgiri@i i flcap.com
Bharti Airtel – BUY
7
that the deterioration in FY20 was partly on account of Airtel Africa.
Build-up of prepaid expenses in subsidiaries also resulted in WC
deterioration.
Figure 9: FY20’s WC deterioration was mostly in Africa
% of revenue FY18 FY19 FY20
Africa -20.3% -35.9% -18.0%
Source: Company, IIFL Research
Bharti SA’s -16% WC as % of sales superior to JIO’s -14%: On
the SA WC front, net current assets (ex capex creditors) as a % of
revenue which had improved from -17% to -28% from FY17 to FY19
marginally deteriorated to -26%. This is superior to JIO’s -14% with the
main difference being on account of Bharti’s higher trade payables.
Bharti’s trade payables at Rs192bn is 4x that of JIO’s Rs47bn. Bharti’s
trade payables include OTSC provision of ~Rs56bn, LF & SUC due for
the quarter (Rs15bn) and tower company payables for the quarter. If
we exclude Bharti’s OTSC provision, its net current assets (ex capex
creditors) would be -16% vs. JIO’s -14%.
Figure 10: FCF likely to be negative for the next two years due to elevated capex
Rs bn FY17 FY18 FY19 FY20 FY21ii FY22ii FY23ii
OCF (post interest) 215.9 223.9 124.5 89.5* 218.7 275.9 450.2
Capex (ex spectrum) (218.6) (259.8) (305.3) (221.3) (230.7) (225.5) (250.2)
Spectrum capex (165.5) (13.0) (45.5) (30.7) (1.8) (66.7) (147.7)
FCF (pre inorganic) (168.1) (49.0) (226.3) (162.5) (13.8) (16.2) 52.3
Proceeds from stake sale 140.2 205.6 45.3 0.0 0.0 0.0 0.0
FCF (27.9) 156.7 (181.0) (162.5) (13.8) (16.2) 52.3
Source: Company, IIFL Research; *after Rs120bn AGR cash payout which resulted in unwinding of liability
Figure 11: ROE and ROCE have bottomed out in FY20
Source: Company, IIFL Research
Figure 12: Elements of DuPont analysis
FY17 FY18 FY19 FY20 FY21ii FY22ii FY23ii
Asset Turnover 0.42 0.35 0.31 0.28 0.27 0.30 0.35
EBIT margin 16.3% 13.0% 5.5% 10.4% 12.5% 17.6% 23.7%
Interest Burden 0.5 0.3 -0.4 -4.7 -0.8 0.5 0.7
Financial Leverage 3.1 3.2 3.2 3.4 3.9 4.6 4.7
Tax burden 0.5 0.3 -0.2 0.1 -0.3 0.6 0.6
ROE 5.2% 1.4% 0.5% -5.1% 2.9% 7.0% 17.0%
Source: Company, IIFL Research
Key balance sheet movements
• Bharti’s US$1bn FCCBs (issued in Jan 2020) have a conversion price
of Rs534. The stock has remained well above this in recent months.
The FCCB holder has the option of conversion any time. As the
FCCBs are tradable in open market, a holder looking to liquidate the
holding could sell the FCCB in the market, instead of converting.
• Indemnification assets have jumped from Rs9bn in FY19 to Rs204bn
in FY20. Out of this jump, Rs190bn pertains to AGR dues of Tata
(Rs160bn) and Telenor (Rs30bn). Bharti’s balance sheet carries the
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
FY17 FY18 FY19 FY20 FY21ii FY22ii FY23ii
ROE ROCE(%)
gvgiri@i i flcap.com
Bharti Airtel – BUY
8
AGR provision for both Tata and Telenor. Since Tata Group and
Telenor (parent) will bear the AGR dues, Bharti also carries an
indemnification asset on its balance sheet.
• Deferred tax asset (DTA) is up YoY from Rs89bn to Rs270bn. Most of
the increase is due to carry forward losses. DTL is also up from
Rs11bn to Rs16bn. Net DTA is up fromRs78bn to Rs254bn.
• Bharti SA has not recognized DTA in respect of carry forward losses
of Rs389bn/Rs494bn in FY19/20 pertaining to capital losses since it
is not probable that relevant capital gains will be available in future.
The above pertains to MTM capital losses on subsidiaries such as
Infratel and Airtel Africa. On the other hand, Bharti has created
Rs149bn DTA in FY20 for P&L losses as it expects to make taxable
profits over time as industry prospects improve.
• Taxes recoverable (mostly GST receivable) is Rs126bn as of end-
FY20 vs. Rs113bn as of end-FY19. With revenue growth likely to
accelerate and capex likely to come off, GST receivables should
come off.
Contingent liabilities + potential OTSC liabilities
Contingent liabilities came down: Contingent liabilities pertaining to
DoT demand had seen a sharp jump YoY from Rs40bn in FY18 to
Rs93bn in FY19. This largely pertained to the AGR case. With AGR
related liability now part of the balance sheet, contingent liabilities
towards DoT came down to Rs51bn.
Figure 13: Contingent liabilities for Bharti SA: Non-DoT items have fallen as % of revenue
Contingent liabilities (Rs m) FY15 FY16 FY17 FY18 FY19 FY20
DoT claims 4,766 4,809 36,540 40,344 93,522 51,129
Sales and service tax 11,120 11,259 11,245 8,738 8,032 8,343
Income tax 16,635 16,282 12,527 9,951 9,950 10,439
Customs duty 4,254 4,254 4,317 4,883 4,883 2,868
Entry tax 4,221 5,061 5,509 6,010 6,169 1,991
Access charge litigation 6,952 8,196 8,733 10,021 11,839 13,487
Others 854 1,954 2,086 2,509 2,291 2,303
Total 48,802 51,815 80,957 82,456 136,686 90,560
Standalone revenue 554,964 603,003 622,763 536,630 496,080 543,171
As of % of standalone revenue 8.8% 8.6% 13.0% 15.4% 27.6% 16.7%
Non-DoT claims 44,036 47,006 44,417 42,112 43,165 39,431
As of % of standalone revenue 7.9% 7.8% 7.1% 7.8% 8.7% 7.3%
Source: Company, IIFL Research
Further, Bharti’s share of contingent liabilities for JVs/associates was
Rs49bn as of end-FY20 vs. Rs28bn as of end-FY19. This was primarily
due to Indus’ tax disputes.
OTSC not part of contingent liabilities: On the longstanding OTSC
(one-time spectrum charges) dispute, DoT had increased its demand
from Rs51bn to Rs84bn during FY19, inline with the higher spectrum
prices discovered in 2014 and 2015 auctions. OTSC demand has two
parts: 1) on spectrum held up to 6.2MHz; and 2) on spectrum beyond
6.2MHz.
Recently, the Supreme Court made an adverse ruling against VIL that
OTSC can be charged on spectrum beyond 6.2MHz. Consequently, in its
4QFY20 results, Bharti booked an exceptional loss of Rs56bn (Rs18bn
principal and Rs38bn interest). The remaining Rs66bn (Rs84bn demand
minus Rs18bn provision for principal already made) and potential
interest of Rs140bn on the same could be at risk in the event of an
adverse verdict (i.e. if the SC orders that OTSC is applicable on
spectrum up to 6.2MHz).
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Bharti Airtel – BUY
9
Figure 14: In the event of an adverse verdict on the OTSC case, Rs206bn could be potentially at risk
Rs m
OTSC demand from DoT as of end-FY19 - A 84,140
Provision made in FY20 after adverse SC verdict on part of the demand - B 18,075
Interest provision made on the above Rs18bn - C 38,345
Provision yet to be made - D = A - B 66,065
Potential interest provision on the above - E = C*D/B 140,153
Total provision incl interest that may have to be made - F = D + E 206,218
Source: Company, IIFL Research
Bharti has till date made AGR provisions of Rs475bn. Contingent
liabilities towards DoT is Rs51bn. Then there is the above Rs206bn
OTSC. Further, there is the risk of Rs138bn AGR dues of Videocon and
Aircel, from which Bharti acquired spectrum. Rs3.5bn penalty on 3G ICR
is also not part of contingent liability. Overall potential regulatory
liability comes to ~Rs875bn, indicating the extremely harsh stance that
the DoT, TRAI and the Supreme Court have taken on the industry.
Figure 15: Total regulatory liabilities add up to almost Rs875bn
Rs m
AGR provision made* 475,000
Contingent liabilities 51,129
Potential OTSC provision 206,218
3G ICR related liability 3,500
Aircel's AGR liability 124,000
Videocon's AGR liability 14,000
Total 873,847 Source: Company, IIFL Research; *Bharti has paid Rs180bn out of this
Key subsidiaries
• The key subsidiaries of Bharti saw PAT losses widening in FY20.
• Airtel Sri Lanka saw a slowdown in revenue and higher PAT loss.
• Bharti’s Hexacom’s FY20 loss of Rs27bn included AGR provision of
Rs22bn. Adjusted for this, PAT was flat.
• Airtel DTH saw lower revenue due to: 1) content costs being netted
off from both revenue and costs; and 2) activation revenue being
recognized over the life of the customer from FY20 (vs. upfront
recognition earlier).
• Airtel DTH PBT jumped 80% YoY but PAT came down YoY as FY19
PAT had benefited from one-time tax credit. OCF saw a sharp jump
from Rs10bn in FY19 to Rs26bn in FY20. Ebitda growth explained
1/3rd of this jump with the remaining due to improved WC which in
turn was recovery of security deposit from a broadcaster.
• Airtel Payments Bank saw a 2.5x revenue jump and a similar
increase in PAT loss to Rs3.7bn. Airtel Payments Bank was an
associate of Bharti only for 5 months in FY19 hence on an
annualized basis, the numbers are almost flat for FY20 vs. FY19. In
FY17 and FY18, PAT loss for Airtel Payment Bank was
Rs2.4bn/Rs2.7bn, thereby indicating that losses have increased in
FY19 and FY20.
• Wynk revenue was down 10% YoY. PAT loss widened from Rs60m to
Rs0.6bn. Bharti explained that this was due to change in transfer
pricing model.
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Bharti Airtel – BUY
10
Figure 16: Performance of key subsidiaries and associates
Rs m FY16 FY17 FY18 FY19 FY20
Airtel Sri Lanka
Revenue 3,948 3,838 4,032 4,436 4,552
PAT (2,643) (2,483) (1,984) (1,622) (2,165)
Bharti Hexacom
Revenue 51,878 51,255 44,083 36,136 38,741
PAT 10,278 6,601 (1,119) (7,220) (27,165)
Bharti Telemedia (Airtel DTH)
Revenue 29,178 34,305 37,570 41,001 29,238
PAT 1,277 1,315 2,829 13,498 3,857
Airtel Payment Bank
Revenue 395 264 1,591 1,434 3,798
PAT (346) (2,443) (2,726) (1,541) (3,721)
Wynk
Revenue 490 1,285 2,812 6,130 5,466
PAT 16 41 141 (60) (628)
Source: Company, IIFL Research
Africa – Strong show continues
In Africa, focus on distribution, data, mobile money, existing customers,
network, and the right-cost model and people have borne fruit as Bharti
saw 27% YoY reported Ebitda growth in FY20 in USD terms. Even after
adjusting for the spreading of customer acquisition costs and Ind-AS
116, Ebitda growth was robust at 20% and Ebitda has almost doubled in
USD terms from FY17 levels.
In all African countries, Bharti has an opco. In some cases, there is a
mobile money entity, a holdco and a towerco. Bharti reports revenue,
PBT and PAT for its various Africa subsidiaries.
Bharti explained that:
• One should not look at the PBT and PAT losses of these opcos nor
add these up as one may have lent to the other.
• In some cases, there would be a separate towerco, the revenue of
which would entail the opco’s cost. A holdco may have extended
loan to an opco ─ and the holdco will book interest income as
revenue and the opco will show this as cost, and so on.
Hence, the PBT and PAT do not provide an underlying picture of the
business. Opco revenue is the only relevant number.
It can be seen that
• Nigeria posted robust revenue growth (24% in each of the past two
years in cc terms). In Nigeria, stable market conditions and head-
start on 4G (vs. the leader MTN) has helped Bharti.
• Uganda, Malawi, Kenya, DRC and Tanzania are other fast growing
markets. Zambia, Niger, Congo B and Madagascar have seen
declines.
Airtel Africa had US$3.25bn debt as of end-FY20, of which Bharti has
provided guarantees for US$2.5bn.
Figure 17: Nigeria has been the key growth driver in the past 2 years
Revenue (Rs m) CY17 CY18 CY19 YoY (CY18) YoY (CY19)
Nigeria 57,112 76,591 92,056 34% 20%
DRC 13,929 19,157 20,798 38% 9%
Gabon 9,771 9,506 9,430 -3% -1%
Tanzania 14,151 14,982 16,441 6% 10%
Zambia 15,100 11,999 9,077 -21% -24%
Niger 12,225 10,392 9,039 -15% -13%
Uganda 20,398 23,594 27,844 16% 18%
Congo B 11,038 9,193 8,444 -17% -8%
Kenya 10,813 14,066 15,375 30% 9%
Chad 8,823 7,637 7,875 -13% 3%
Malawi 7,610 9,834 11,779 29% 20%
Madagascar 3,488 3,114 2,636 -11% -15%
Seychelles 1,551 1,691 1,788 9% 6%
Rwanda 1,226 3,838 3,481 213% -9%
Africa 187,235 215,594 236,063 15% 9%
Source: Company, IIFL Research
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Bharti Airtel – BUY
11
Figure 18: Africa’s performance has significantly improved in the past 3 years
US$m FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Revenue 4,137 4,417 4,491 4,407 3,839 3,270 3,091 3,077 3,422
Ebitda 1,097 1,158 1,175 1,002 807 777 1,031 1,196 1,515
Ebitda margin* 26.5% 26.2% 26.2% 22.7% 21.0% 23.8% 33.4% 38.9% 44.3%
FCF** (1,010) (295) (93) (946) (553) (87) 45 151 453
Source: Company, IIFL Research *Sale of tower assets in FY15 had an adverse impact on Ebitda but Ind-AS adoption from FY20 has offset this **For FY12-18, we have calculated FCF = Ebitda - capex - interest expense – tax; For FY19 and FY20, we have used Airtel Africa’s reported FCF
Debt profile: Net debt to Ebitda at 4.35x; Adverse regulatory outcomes could take this to 5.4x
Bharti had consolidated gross debt of Rs1,174bn, as of end-FY20. The
main observations are:
Figure 19: Debt maturity profile (end-FY20) – Rs265bn or 22% maturing within a year (vs. 30% as of end-FY19) which is an improvement in liquidity position
Source: Company, IIFL Research
Liquidity position improved in FY20: Liquidity position improved as
of end-FY20 with ~22% of debt maturing in a year vs. ~30% as of end-
FY19.
Figure 20: Currency mix of debt - INR debt was steady at 64% YoY
Source: Company, IIFL Research
Figure 21: FX sensitivity: Similar to FY19
FX sensitivity (Rs m) Change P&L impact BS impact Total
USD-INR 5% (8,017) (10,567) (18,584)
EUR-INR 5% (2,696) (681) (3,377)
Total (10,713) (11,248) (21,961)
Source: Company, IIFL Research
If we consider the notional FX debt to be 20x the sensitivity to a 5%
move, we come to Rs439bn, which is 37% of the gross debt, and which
largely matches the proportion displayed in figure 20 (also disclosed by
the company). The sensitivity to FX has been largely constant in recent
years as seen in the below table.
Figure 22: FX sensitivity to 5% change in USD-INR and EUR-INR
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Impact (Rs m) 6,223 7,145 9,178 17,497 23,609 23,044 20,433 21,175 23,336 21,961
Source: Company, IIFL Research
265,528
148,738
279,559
487,647
0
100,000
200,000
300,000
400,000
500,000
600,000
<1 year 1-2 years 2-5 years >5 years
Borrowings (m)
(Rs m)
37% 50% 54%
65% 64%
46% 38% 34%
25% 22%
18% 12% 12% 10% 13%
0%10%20%30%40%50%60%70%80%90%
100%
FY16 FY17 FY18 FY19 FY20
FX-hedged FX- unhedged INR(%)
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Bharti Airtel – BUY
12
Figure 23: Annual PBT hit from 100bps change in interest rates
Change (bps) PBT impact FY20 (Rs m)
INR - borrowings 100 (2,166)
USD – borrowings 100 (644)
Source: Company, IIFL Research
We also look at the time-series of sensitivity of PBT to 1% interest rate
increase in INR, USD and EUR. We also compare the same with the 10-
year government bond yields in India and the US. The PBT sensitivity
has come down in recent years. This suggests lesser and progressively
decreasing proportion of floating rate borrowings, prima facie
suggesting good positioning when long yields are at rock bottom levels.
However, the accounting IFRS norms are that PV fluctuations in the
underlying instrument (e.g. fixed rate bond outstanding) will hit the
balance sheet directly so this does not give the full picture of sensitivity
to interest rate fluctuation. But we understand Bharti has reduced the
interest rate hedges and locked in greater proportion of borrowings in
low fixed rates.
Figure 24: Sensitivity of PBT to 1% interest rate increase– In recent years, this has come down suggesting better treasury operations
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
10-yr Ind. govt bond yield (%)
7.9% 8.4% 8.2% 8.3% 8.3% 7.7% 7.0% 6.9% 7.7% 6.7%
10-yr US govt bond yield (%)
3.1% 2.4% 1.8% 2.5% 2.3% 2.1% 2.0% 2.4% 2.9% 1.8%
Sensitivity
(Rs m) 5,121 6,293 6,357 6,742 5,052 4,293 3,495 3,679 3,245 2,810
Source: Company, IIFL Research
Effective interest cost rose marginally: In our view, a holistic
picture of effective cost of borrowing would include interest cost, finance
charges, FX losses/gains in both the P&L and balance sheet. This
number rose to 11.1% in FY20 vs. 10.8% in FY19 as seen in the table
below.
Figure 25: Finance cost: Effective interest cost marginally rose YoY to 11.1%
Rs bn FY18 FY19 FY20
Finance costs incl FX 93 110 137
FX impact in balance sheet 7 16 -5
Total finance costs 100 126 132
Average debt 1,099 1,166 1,192
Effective finance cost 9.1% 10.8% 11.1%
Source: Company, IIFL Research
Figure 26: Including accrued interest, other payables and AGR dues, net debt stood at Rs1602bn as of end-FY20; Out of the total Rs475bn AGR dues, Rs180bn has been paid and already reflects in reported net debt; We add the Rs295bn provided for but not paid
Rs m FY17 FY18 FY19 FY20
Reported net debt 970,547 1,001,060 1,129,899 1,188,590
Accrued interest 7,364 28,341 33,419 8,874
Payables towards acquisition 4,104 13,523 5,575 4,296
Advance received against agreement to sell investment
0 27,317 29,146 34,407
Perpetual bond*
71,383
AGR dues provided for but not paid 295,000
Adjusted net debt 982,015 1,070,241 1,198,039 1,602,550
Net debt to TTM Ebitda 2.78 3.56 4.65 4.35
Net debt to 1YF Ebitda 3.26 4.15 3.25 3.82
Source: Company, IIFL Research; In the initial 5 years post perpetual bond issue, accounting standards permit treating them as equity
Figure 27: If all these liabilities were to be added to debt, net debt to Ebitda could rise to ~5.4x
FY20 Rs m
Adjusted net debt from Fig 26 1,602,550
Potential OTSC dues and contingent liabilities from Fig 14 260,847
Potential AGR dues of Aircel and Videocon 138,000
Overall net debt 2,001,397
Net debt to TTM Ebitda 5.43
Source: Company, IIFL Research
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Bharti Airtel – BUY
13
Figure 28: Net debt/Ebitda: Strong Ebitda growth should bring this to 2.5x by FY23; if one adds AGR dues (including Aircel and Videocon) and OTSC, leverage ratio should still fall below 3x by FY23
Source: Company, IIFL Research
AGR dues on traded spectrum pose risks for Bharti and JIO
With the Supreme Court training its guns on insolvent telcos and
insisting that telcos that bought spectrum from them are liable for the
former’s AGR dues, there are risks to Bharti (on spectrum bought from
Aircel and Videocon) and JIO (on spectrum bought from/shared with
RCOM). The worst scenario for Bharti would be the SC directing to pay
the entire Rs138bn (Rs124bn dues of Aircel and Rs14bn dues of
Videocon as per the latest DoT affidavit).
Figure 29: In the worst case, AGR dues of Rs138bn of Aircel and Videocon could come on Bharti
Rs bn Total dues Pending dues
Bharti incl Telenor 440 260
Tata 168 126
Aircel 124 124
Videocon 14 14
Total 745 523
Source: Supreme Court, IIFL Research
Further to their deal in 2016, JIO-RCOM tried another deal in 2017,
which included a clause that limited potential liabilities for JIO only to
those relating to the specific spectrum being bought. DoT had
challenged this in the Telecom Court, which had ruled in telcos’ favour.
But the deal did not go through. The 2016 deal liabilities of Rs252bn are
a risk for JIO.
Cancellation of traded spectrum may prove a blessing in
disguise: The worst outcome would be if the SC ordered JIO and Bharti
to pay. But if it orders them to return the spectrum, it could be a
blessing in disguise for the telcos since they are likely to bid for fresh,
clean spectrum with 20 year life at attractive prices in fresh auctions,
which would be more economical than paying the AGR dues of insolvent
telcos, even after accounting for the lost value of the cancelled
spectrum. Ensuring business continuity (Bharti and JIO are using the
spectrum bought in these deals) would be critical, though, and DoT
would need to make some arrangements for this.
We already factor in spectrum renewals in 2021: The first table
below captures the spectrum expiry schedule of the three large telcos.
This shows that 7%/8%/17% of Bharti/VIL/JIO’s spectrum (based on
industry revenue weighted circle average) expires in 2021.
0.0
1.0
2.0
3.0
4.0
5.0
0
400
800
1,200
1,600
2,000
FY16 FY17 FY18 FY19 FY20 FY21ii FY22ii FY23ii
Net debt (LHS) Net debt to Ebitda (RHS)(Rs bn) (x)
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Bharti Airtel – BUY
14
Figure 30: Details of spectrum expiring in 2021
Spectrum* (MHz) % of total Band Rs bn at reserve price
Bharti 3.0 7.3% 1800 122
VIL 3.6 8.3% 1800 107
JIO 4.6 16.7% 850 225 Source: DoT, IIFL Research; *Revenue weighted average using industry revenue as circle weights
We build in Rs1trn/Rs800bn total spectrum spending (fresh purchase +
renewal) for JIO/Bharti over the next 6 years.
Outlook and TP change
Window for next round of tariff increase somewhat narrow: In
the next 2-3 months, it may be difficult to take meaningful tariff
increases as the spending environment remains weak due to COVID. On
the other hand, we gather from handset industry sources that work on
the JIO-Google Android smartphone is making brisk progress and that
this phone may be launched in the middle of 2021. It is very difficult to
imagine an industry-wide price hike at a time when JIO is launching an
affordable handset.
The SC verdict on AGR would also have a bearing on pricing. In the
event of an adverse verdict, VIL may be compelled to move NCLT. This
would put the government in a spot since it has Rs1.5trn to be
recovered from VIL. Moreover, state-owned banks also have an
exposure to VIL. All these may pave the way for a restructuring plan
where the government nudges telcos to raise (and rationalize) tariffs.
On balance, we think tariff hikes are unlikely for the next 12 months but
should happen thereafter. But anyway, this would be neutral for Bharti
since higher tariffs would slow down RMS gains for Bharti at VIL’s
expense.
We assign 50%/25% probability of an adverse outcome in AGR
case/other regulatory issues and build in Rs17/share hit: We
continue to use DCF-based valuation for Bharti India, at 10% WACC,
and maintain 8x exit multiple in the terminal year (FY36). Our Africa
multiple is 7.5x on adjusted EV/Ebitda basis.
Figure 31: Bharti − India valuation
DCF - India
Cost of Debt 10.0%
Tax Rate 25.0%
Post Tax Cost of Debt 6.6%
Debt 32.1%
WACC 10.5%
Exit multiple (x) 8.0
EV (Rs m) 44,788,594
Source: Company, IIFL Research
Figure 32: Bharti − Africa valuation
Item (US$ m) Current
Adj EV / (Adj Ebitda - Tax) 7.5
Unadjusted Ebitda 1,505
Tax 209
Ebitda - Tax 1,296
EV 9,720
EV (Rs bn) 729,025
Source: IIFL Research
Figure 33: TP derivation
(Rs bn) EV Net
debt
Equity value
Holdco discount
Bharti's stake
Equity
val
Rs per share
India 4,789 1,004 3,784 0%
3,784 694
Africa 729 232 497 20% 56% 222 41
S Asia
0 0
Total
4,007 734
Source: Company, IIFL Research
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Bharti Airtel – BUY
15
Figure 34: Minority interest adjustments
(Rs bn) Methodology
2-YF metric
Valuation assumption
EV Net debt
Equity val
Bharti's stake
Equity value
for MI
Rs per share
Hexacom EV/Ebitda 16 8.0 128 42 86 70% 26 5
Infratel (SA)
DCF
10% WACC, 7x exit in
FY36 276 (30) 306 54% 142 26
DTH EV/Ebitda 21 8.0 167 20 147 80% 29 6
Total
38 Source: Company, IIFL Research
Figure 35: We factor in a Rs49/share hit due to the AGR case
(Rs m)
Est. AGR case-related hit 475,000
AGR case-related payment made by Bharti 180,000
AGR case-related payout est. to be materialised 295,000
Less: Indemnity payment from Telenor 30,000
AGR case hit for Bharti 265,000
PV hit per-share (Rs) 49 Source: Company, IIFL Research
Figure 36: We build in Rs17/share hit due to regulatory risk
Rs m Total hit Probability Expected hit
Potential OTSC provision 206,218 25% 51,555
3G ICR related liability 3,500 25% 875
Aircel's AGR liability 124,000 50% 62,000
Videocon's AGR liability 14,000 50% 7,000
Total 347,718
121,430
Post-tax hit
91,072
Per share (Rs) 17
Source: Company, IIFL Research
Figure 37: Bharti − TP derivation
Rs/share
India 694
Africa 41
Less: adjustments for minority interest 38
Less: adjustments for AGR provisions 49
Less: perpetual debt of Rs75bn 14
Less: Other regulatory hit 17
TP (Rs) 619
CMP (Rs) 511
Upside 21.1%
Dividend per share (Rs) 2.7
Total Return 21.5% Source: IIFL Research
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Bharti Airtel – BUY
16
Management
Competition: JIO, Vodafone-Idea, BSNL in India; MTN, Vodacom, Safaricom and Millicom in Africa:
PE Chart EV/Ebitda
Background: Bharti Airtel, founded in 1995, is a diversified telecom service provider offering wireless, fixed line, enterprise and DTH services. It
expanded into Africa by acquiring Zain's Africa operations for US$10.7bn EV in 2010 and is present in 14 African markets. It is India's largest mobile
operator with 26% subscriber market share and 31% revenue market share as of 4QFY18. It owns 53.51% stake in Bharti Infratel, which in turn owns
42% stake in Indus Towers, a three-way JV between Bharti, Idea and Vodafone. 4G spectrum in all circles makes it well placed to ride the next wave of
growth from data.
Company snapshot
Name Designation
Sunil Mittal Chairman
Gopal Vittal MD & CEO (India and South Asia)
Raghunath Mandava CEO (Africa)
3.0
5.0
7.0
9.0
11.0
13.0
15.0
Apr-09 Jul-11 Oct-13 Jan-16 May-18 Aug-20
12m fwd EV/EBITDA Avg +/- 1SD
(x)
Assumptions
Y/e 31 Mar, Consolidated
FY19A FY20A FY21ii FY22ii FY23ii
India traffic (min bn) 2,811.3 3,034.5 3,330.6 3,741.1 4,152.6
India Ebitda margin (%) 29.9 41.2 44.2 48.0 50.3
India capex-to-sales (%) 40.2 32.3 22.9 20.9 18.9
Africa traffic (min bn) 207.3 250.1 288.8 315.5 338.3
Africa Ebitda margin (%) 38.9 44.3 40.2 40.5 42.8
Africa capex-to-sales (%) 21.1 23.7 23.8 18.5 17.0 Source: Company data, IIFL Research
0.0
15.0
30.0
45.0
60.0
75.0
90.0
Apr-09 Jul-11 Oct-13 Jan-16 May-18 Aug-20
12m fwd PE Avg +/- 1SD
(x)
India, 73.2
Africa, 26.3
South Asia, 0.5
Geography-wise rev. break-up
(%) - FY19
Mobile, 61.8%
Homes, 3.3%
Enterprise, 18.5%
DTH, 6.1%
Passive infra, 10.3%
India revenue breakup as of
FY19
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Bharti Airtel – BUY
17
Financial summary Income statement summary (Rs bn) Y/e 31 Mar, Consolidated FY19A FY20A FY21ii FY22ii FY23ii Revenues 808 879 971 1,101 1,341 Ebitda 258 369 420 513 659 Depreciation and amortisation (213) (277) (298) (319) (341) Ebit 44 92 122 194 318 Non-operating income 34 (376) (95) 21 41 Financial expense (96) (144) (121) (118) (133) PBT (17) (428) (95) 97 226 Exceptionals 0 0 0 0 0 Reported PBT (17) (428) (95) 97 226 Tax expense 34 122 (46) (29) (62) PAT 17 (307) (141) 67 164 Minorities, Associates etc. (13) (15) (17) (13) (27) Attributable PAT 4 (322) (158) 55 137
Ratio analysis Y/e 31 Mar, Consolidated FY19A FY20A FY21ii FY22ii FY23ii Per share data (Rs) Pre-exceptional EPS 1.0 (17.9) (28.9) 10.0 25.1 DPS 11.7 3.3 3.3 3.3 3.3 BVPS 212.5 187.2 146.1 140.4 154.6 Growth ratios (%) Revenues (3.2) 8.9 10.4 13.4 21.8 Ebitda (14.3) 43.1 13.9 22.2 28.4 EPS (62.7) (1850.1) 61.3 (134.7) 149.9 Profitability ratios (%) Ebitda margin 31.9 41.9 43.3 46.6 49.1 Ebit margin 5.5 10.4 12.5 17.6 23.7 Tax rate 197.4 28.4 (48.3) 30.3 27.6 Net profit margin 2.1 (34.9) (14.5) 6.1 12.2 Return ratios (%) ROE 0.5 (10.5) (17.4) 7.0 17.0 ROCE 3.8 (11.8) 1.0 8.2 12.9 Solvency ratios (x) Net debt-equity 1.3 1.2 1.6 1.9 1.7 Net debt to Ebitda 4.4 3.3 3.0 2.8 2.2 Interest coverage 0.5 0.6 1.0 1.6 2.4 Source: Company data, IIFL Research
Balance sheet summary (Rs bn) Y/e 31 Mar, Consolidated FY19A FY20A FY21ii FY22ii FY23ii Cash & cash equivalents 108 273 307 429 409
Inventories 0 0 1 1 1
Receivables 43 46 58 69 84
Other current assets 178 447 415 415 415
Creditors 280 250 247 268 297
Other current liabilities 269 737 774 734 734
Net current assets (220) (221) (241) (88) (122) Fixed assets 904 1,177 1,145 1,084 1,025
Intangibles 1,201 1,159 1,118 1,286 1,454
Investments 0 0 0 0 0
Other long-term assets 318 506 467 467 467
Total net assets 2,203 2,621 2,490 2,749 2,825
Borrowings 1,254 1,482 1,562 1,852 1,850
Other long-term liabilities 99 117 131 131 131 Shareholders equity 849 1,021 797 766 844 Total liabilities 2,203 2,621 2,490 2,749 2,825
Cash flow summary (Rs bn) Y/e 31 Mar, Consolidated FY19A FY20A FY21ii FY22ii FY23ii Ebit 44 92 122 194 318 Tax paid (12) (23) (18) (29) (62) Depreciation and amortization 213 277 298 319 341 Net working capital change (55) (166) (31) 9 14 Other operating items 10 1 0 0 0 Operating cash flow before interest 201 181 371 493 610 Financial expense (76) (110) (128) (158) (133) Non-operating income 0 0 22 21 41 Operating cash flow after interest 125 71 265 356 518 Capital expenditure (306) (223) (232) (292) (398) Long-term investments 0 0 0 0 0 Others 1 (11) (46) (80) (68) Free cash flow (181) (162) (14) (16) 52 Equity raising 115 502 0 0 0 Borrowings 102 (157) 66 157 (54) Dividend (47) (18) (18) (18) (18) Net chg in cash and equivalents (10) 165 34 122 (20) Source: Company data, IIFL Research
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Bharti Airtel – BUY
18
Disclosure : Published in 2020, © IIFL Securities Limited (Formerly ‘India Infoline Limited’) 2020
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gvgiri@i i flcap.com
Bharti Airtel – BUY
19
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(Choose a company from the list on the browser and select the “three years” period in the price chart).
Name, Qualification and Certification of Research Analyst: G V Giri(MBA), Balaji Subramanian(MBA)
IIFL Securities Limited (Formerly ‘India Infoline Limited’), CIN No.: L99999MH1996PLC132983, Corporate Office – IIFL Centre, Kamala City, Senapati Bapat Marg, Lower Parel, Mumbai – 400013 Tel: (91-22) 4249 9000 .Fax: (91-22) 40609049, Regd. Office – IIFL House, Sun Infotech Park, Road No. 16V, Plot No. B-23, MIDC, Thane Industrial Area, Wagle Estate, Thane – 400604 Tel: (91-22) 25806650. Fax: (91-22)
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Stock Broker SEBI Regn.: INZ000164132, PMS SEBI Regn. No. INP000002213, IA SEBI Regn. No. INA000000623, SEBI RA Regn.:- INH000000248
Key to our recommendation structure
BUY - Stock expected to give a return 10%+ more than average return on a debt instrument over a 1-year horizon.
SELL - Stock expected to give a return 10%+ below the average return on a debt instrument over a 1-year horizon.
Add - Stock expected to give a return 0-10% over the average return on a debt instrument over a 1-year horizon.
Reduce - Stock expected to give a return 0-10% below the average return on a debt instrument over a 1-year horizon.
Distribution of Ratings: Out of 229 stocks rated in the IIFL coverage universe, 110 have BUY ratings, 10 have SELL ratings, 78 have ADD ratings and 30 have REDUCE ratings
Price Target: Unless otherwise stated in the text of this report, target prices in this report are based on either a discounted cash flow valuation or comparison of valuation ratios with companies seen by the analyst as
comparable or a combination of the two methods. The result of this fundamental valuation is adjusted to reflect the analyst’s views on the likely course of investor sentiment. Whichever valuation method is used there
is a significant risk that the target price will not be achieved within the expected timeframe. Risk factors include unforeseen changes in competitive pressures or in the level of demand for the company’s products. Such
demand variations may result from changes in technology, in the overall level of economic activity or, in some cases, in fashion. Valuations may also be affected by changes in taxation, in exchange rates and, in
certain industries, in regulations. Investment in overseas markets and instruments such as ADRs can result in increased risk from factors such as exchange rates, exchange controls, taxation, and political and social conditions. This discussion of valuation methods and risk factors is not comprehensive – further information is available upon request.
gvgiri@i i flcap.com
Bharti Airtel – BUY
20
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Price TP/Reco changed date(Rs)
Bharti Airtel: 3 year price and rating history Date Close price (Rs)
Target price (Rs)
Rating
20 Jul 2020 570 661 BUY
20 May 2020 599 649 BUY
13 Apr 2020 490 564 BUY 06 Feb 2020 534 595 BUY
14 Jan 2020 469 520 BUY
29 Nov 2019 437 480 BUY
31 Oct 2019 368 424 BUY
05 Aug 2019 343 380 BUY
21 Jun 2019 349 408 BUY 03 Jun 2019 349 419 BUY
05 Mar 2019 308 335 BUY
01 Feb 2019 306 353 BUY
Date Close price (Rs)
Target price (Rs)
Rating
19 Nov 2018 333 342 BUY
23 Jul 2018 346 444 BUY
10 Jul 2018 363 503 BUY 18 Apr 2018 382 548 BUY
22 Jan 2018 498 586 BUY
02 Nov 2017 538 628 BUY
10 Aug 2017 416 498 BUY