PL Stock Report: Bharti Airtel (BHARTI IN) - Q2FY24 Result Update – Muted operating performance - ACCUMULATE

Bharti Airtel (BHARTI IN) - Swarnendu Bhushan - Co-Head of Research, Prabhudas Lilladher Pvt Ltd.

Rating: ACCUMULATE | CMP: Rs924 | TP: Rs993

Q2FY24 Result Update – Muted operating performance

Quick Pointers:

• ARPU at Rs 203; net subscriber addition was at 3.7mn.
• Q2 consol capex was at Rs95.9bn vs Rs 114.bn in Q1.

We cut our FY24 EPS estimate by 15.4% due to volatility in Africa segment. Bharti Airtel reported EBITDA/PAT of Rs195.1bn (-0.4%QoQ; PLe Rs200bn) and Rs13.4bn (-16.9%QoQ; PLe Rs15.3bn). India mobile revenues were up 2.7%QoQ and EBIDTA margin was stable at 54.9%. ARPU grew 1.5% QoQ to Rs203 (PLe Rs203) with 7.7mn growth in 4G subscribers (overall net addition was 3.7mn). Africa mobile Revenue/EBITDA was down 9.2%/8.5% QoQ, and Enterprise revenue grew 1.1% QoQ, while EBIDTA grew by 3%QoQ due to 74bps jump in margins. Home services (fixed line + broadband) had an ARPU decline of 2.2% while DTH had ARPU grew 3.3%. We maintain our positive stance on the sector, due to falling competitive intensity, given weak financial position of peers. Maintain ‘Accumulate’ rating at SOTP based TP of Rs993 (Rs936 earlier) based on 8.5x FY26 EV/EBITDA for India mobile multiple, 4.5x FY26 EV/EBITDA for Airtel Africa, enterprise segment at 9x FY26 EV/EBITDA, 3x FY26 EV/EBITDA for DTH and 6x EV/EBITDA for home services.

4G subscriber addition of 7.7m sustains India mobile business: India mobile Q2 Revenue/ EBIDTA were Rs209.5bn (+2.7%QoQ) and Rs115bn (+3%QoQ). Q2 4G net customer addition was an impressive 7.7mn (13.3mn in H1FY24) and for H1FY24 net subscriber addition was at 6.9mn with average ARPU of Rs203 (+6.9%YoY). We expect moderate growth in ARPU in near term. We estimate FY24/25/26E net subscriber adds at 13/12/8mn each along with ARPU of Rs215/225/236.

Poor Africa performance: Q2 Africa revenues and EBIDTA were at $1.2bn (-9.6%QoQ) and USD613mn (-8.5%QoQ). While total subscribers grew by 4.6mn, ARPU grew by 2.4%QoQ to $2.5 maintaining EBIDTA margins at 48.9%. For H1FY24, EBIDTA/PAT was at USD2.2bn (+3%YoY) and USD0.3bn (+7%YoY) with net subscriber addition of 7.6m (6.2mn in H1FY23).

Steady improvement in enterprise and home services EBITDA: In Q2 the enterprise segment remained largely flat at 1% QoQ to Rs 51.1bn while EBIDTA partially recovered by 3% due to 74bps increase in margins at 40.3% at Rs20.6bn. H1FY24 segment EBIDTA increased to Rs40.5bn (+15.9%YoY). Home services revenue was at Rs12.2bn (+5%QoQ) and EBITDA was at Rs6bn (+3.6% QoQ) and margins were at 49.8%. Although ARPU decreased by 2.2% to come in at Rs595 (Q1: Rs 608), subscriber base was up 7.3% QoQ at 6.9mn. For H1FY24, segment EBIDTA was at Rs11.9bn (+21.6%YoY). DTH EBITDA was down 1.2% QoQ to Rs 4.2bn, although ARPU grew 3.3% to Rs159. Subscriber base was also down 1.1% and totaled to 15,749k. For H1FY24, EBIDTA was at Rs8.5bn (-7.2%YoY), as subscribers were lower at 15.7mn (H1FY23 15.8mn).