Stock Fundamentals

Bharti Airtel: Sending strong signals

Eswarkrishnan Chellam | Updated on January 20, 2018 Published on March 27, 2016

Steps taken to expand reach and protect subscriber base are key drivers for the stock

While the looming threat of intensified competition from Reliance Jio may have shaken up the telecom industry, Bharti Airtel is taking pre-emptive steps to retain its dominant position.

This resolve is demonstrated by the recent purchase of spectrum rights from Videocon Telecommunications. Bharti Airtel is the leading telecom service provider, ranking either first or second in 18 of the total 22 circles with average revenue market share of around 36 per cent in these circles. Its share of urban customers is 53 per cent, much higher than its immediate rivals, Vodafone and Idea.

The company’s leadership position in a high-growth wireless segment, its strategy to invest aggressively to expand reach and protect subscriber base and divestment of loss-making African subsidiaries are the key drivers for the stock. However, realisations can come under pressure in the near term if Reliance Jio adopts an aggressive pricing strategy.

The stock currently trades at around 23 times its 2016-17 estimated earnings, well below its five-year historical average of 35 times. Investors with a two to three year perspective can accumulate the stock at these levels.

Bharti has over 60,000 base transceiver station (BTS) of 3G, across 21 out of 22 circles, and presence in over 300 cities, making it well positioned to offer high speed data connections.

Spreading its wings

While it is widely expected that the new entrant Reliance Jio will attempt to gain market share through predatory pricing, Bharti is ring fencing its premier customers by providing better speed, coverage and service. Bharti Airtel’s Project Leap, announced in November 2015, proposes to spend ₹60,000 crore over the next three years to modernise its mobile and home broadband network. A net debt equity ratio of 1.2 times also makes fund-raising easier.



Data consumption

The company is witnessing strong growth in wireless data consumption with increasing adoption of smart mobile devices. Even as overall customers grew 12 per cent between December 2014 and 2015, growth in customers of mobile data was around 30 per cent.

Data realisation per unit (MB), however fell 13 per cent possibly due to pricing pressure. As a result revenue realised from data usage grew18 per cent.

Airtel is among 11 others to receive an in-principal agreement to set up payment banks in India. This is a positive development, considering its experience in mobile money transactions in Africa, where it is witnessing strong growth.

To turnaround its loss-making Africa business that recorded loss of ₹2,566 crore for nine months ending December 2015, the company is reorganising its operations through strategic asset sales. Last year, it raked in $1.8 billion from tower assets sales in nine countries.

Reorganising operations

This year, Airtel divested its operations in two countries, netting around $1 billion and, last week, the company entered into an agreement to dispose its tower business in Tanzania for around $180 million.

Airtel derives 73 per cent of its revenue from its India operation, while Africa contributes around 25 per cent. South Asia brings in a little more than one per cent. Almost 80 per cent of its revenue comes from mobile services.

For the nine month ending December 2015, India operation saw broad based revenue growth across its mobile, DTH and enterprise segments. While total revenues grew 10 per cent to 52,515 crore, mobile services revenue increased 7 per cent. Its smaller service offerings — Airtel business and DTH grew at 20 and 16 per cent respectively.

Revenue from voice grew 6 per cent between December 2014 and 2015. This was on the back of 9 per cent growth in minutes on network, despite 13 per cent decline in voice ARPU.

In contrast, data usage per customer between December 2014 and 2015 surged 35 per cent. Revenue from data grew at almost 18 per cent. While its data customer base clocked a 30 per cent growth, reaching 5.5 crore subscribers, data ARPU increased 18 per cent to touch ₹200.

Consolidated revenue for the nine months ended December 2015 grew 4 per cent over the corresponding previous period to ₹71,572 crore; dragged down by its African operations. The company has, however, maintained its operating margin at 35.2 per cent, despite pressure on realisations. Net profit growth was at 7 per cent, coming in at ₹4,194 crore. Higher finance cost due to capex spending has weighed on the earnings this fiscal.

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