FY20 ARA Bharti Airtel – BUY 28 August 2020
Strong performance in tough conditions Company update
The key takeaways from Bharti’s FY20 AR are: CMP Rs511 Price performance (%)
• Bharti’s underlying standalone (SA) Ebitda margin expanded 330bps 12-mth TP (Rs) 619 (21%) 1M 3M 1Y YoY and Ebitda growth was 30%. This is after removing the 150bps Absolute (Rs) (8.7) (9.3) 46.7 boost to reported margin due to spreading of customer acquisition Market cap (US$m) 37,767 Absolute (US$) (7.1) (6.6) 42.6 cost over the life of the customer. Enterprise value(US$m) 53,417 Rel. to Sensex (11.8) (33.0) 42.8 • Opex Cagr of 1.7% in India in the past 3 years is impressive (ex LF, Bloomberg BHARTI IN SUC and access charges). Cagr (%) 3 yrs 5 yrs • Comparing Bharti’s and JIO’s cost structure, the difference in S&D Sector Telecom EPS NA NA and other expenses is partly due to JIO’s opex capitalisation and lower salience in enterprise and post-paid. Shareholding pattern (%) Stock performance Promoter 56.2 Vol('000, LHS) Price (Rs., RHS) • Consol WC (ex capex creditors) for Bharti deteriorated from -27% of Pledged (as % of promoter share) sales in FY19 to -20% of sales in FY20 mostly due to Africa. 0.0 300,000 800 FII 20.2 • Bharti SA’s underlying WC position at -16% of sales in FY20 was 600 DII 18.4 200,000 marginally better than JIO’s -14%. 400 52Wk High/Low (Rs) 612/326 100,000 • The proportion of online top-ups rose to 70% during lockdown vs. 200 35% before. If this remains sticky, there could be ~50bps Ebitda Shares o/s (m) 5456 margin boost. Daily volume (US$ m) 170.7 0 0
• Effective interest rate rose to 11.1% in FY20 vs. 10.8% in FY19. Dividend yield FY21ii (%) 0.7
Jun-20 Jun-19
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Aug-18 Aug-19 Aug-20 • Contingent liabilities towards DoT came down sharply to Rs51bn as Free float (%) 43.8 Bharti made AGR provisions in its balance sheet. Separately, Bharti Financial summary (Rs bn) has provided for Rs56bn one-time spectrum charges (OTSC) split as Y/e 31 Mar, Consolidated FY19A FY20A FY21ii FY22ii FY23ii Rs18bn principal and Rs38bn interest. With DoT’s total demand at Revenues (Rs bn) 808 879 971 1,101 1,341 Rs84bn, the remaining part of the principal and potential interest on Ebitda margins (%) 31.9 41.9 43.3 46.6 49.1 this could result in incremental Rs200bn+ liability in the event of an Pre-exceptional PAT (Rs bn) 4 (98) (158) 55 137 adverse outcome (currently sub judice). Reported PAT (Rs bn) 4 (322) (158) 55 137 We build in Rs17/share regulatory hit: If the SC orders Bharti/JIO Pre-exceptional EPS (Rs) 1.0 (17.9) (28.9) 10.0 25.1 to pay AGR dues of insolvent telcos (whose spectrum is in use by the Growth (%) (62.7) NA NA NA 149.9 surviving telcos), the worst case AGR liabilities could be IIFL vs consensus (%) 381.3 (28.2) 10.0 Rs138bn/Rs252bn. If the telcos are ordered to surrender this spectrum, PER (x) 498.8 (28.5) (17.7) 51.0 20.4 it may be a blessing in disguise. We build in Rs17/share hit assuming ROE (%) 0.5 NA NA 7.0 17.0 25% probability of adverse outcome on OTSC case and 50% probability Net debt/equity (x) 1.3 1.2 1.6 1.9 1.7 for AGR dues of insolvent telcos. We also tweak AGR hit/share from EV/Ebitda (x) 13.7 11.9 10.5 8.8 6.9 Rs54 to Rs49 earlier to factor in indemnity asset from Telenor. Our TP Price/book (x) 2.4 2.7 3.5 3.6 3.3 comes down to Rs619 from Rs630. The stock trades at 10.5x FY21 OCF/Ebitda (x) 0.8 0.5 0.9 1.0 0.9 EV/Ebitda and we forecast 25% Ebitda Cagr over FY21-23. Source: Company, IIFL Research. Priced as on 27 August 2020
G V Giri | [email protected] Balaji Subramanian | [email protected] |
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Bharti Airtel – BUY
Interesting stats from FY20 AR 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 • The proportion of online top-ups rose to 70% during lockdown vs. claim on the opco have been waived off. Carry forward tax loss 35% before. We think that this may settle around 50% once balance has been allowed. Special dividend of up to 25% of 2019 normalcy resumes post COVID. This is positive since dealer payouts Ebitda will be paid. 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 Airtel Thanks delivers ARPU uplift as higher revenue and not as lower costs. Bharti relaunched My Airtel app during FY19, with rewards, privileges • 38m subs can use VoWi-Fi based on device compatibility; 2m are and personalised offers. Airtel Thanks customers pay higher ARPU the daily active subs and 5m+ users have used this service till now compared to non-Airtel Thanks customers though the extent of boost at least once. Post VoWi-Fi rollout, there has been a 73% increase in is unclear. call duration and 42% reduction in call attempts due to improved Airtel Thanks packs are offered in three tiers (corporate and add-on indoor experience. plan users are not eligible) • 37% of voice traffic has been offloaded to VoLTE. • Silver (for prepaid subs who top up for unlimited plans of Rs119 • There are >80k sites and 0.5 m outlets in rural areas, which works but less than Rs249) – This comes bundled with Wynk and Airtel out to >40% of total sites and ~50% of total outlets. Xstream • Bharti has 10 large data centres, 120+ edge data centres, 2k+ • Gold (for prepaid subs who top up for unlimited plans of Rs249 or enterprise and government clients, and 500k+ SME clients. above, for post-paid Infinity Plan users and fixed BB users below Rs1099) - In addition to Wynk and Airtel Xstream in the silver • There are 160m+ users across Airtel Thanks, Wynk and Xstream. tier, this offers ZEE5, HOOQ and Eros Now. Airtel Thanks customers pay higher ARPU compared to non-Airtel Thanks customers. Bharti also monetises some of these digital • Platinum (for post-paid plan users of Rs499 or above, fixed BB assets through ad revenue (currently miniscule). It plans to deploy users of Rs1099 or above) - In addition to the benefits in the ad platforms to improve monetisation. Further, it earns revenue gold tier, this offers 1 year of Amazon Prime, free handset from insurance companies (HDFC Life and Bharti AXA) who use damage protection, Airtel Books and priority customer Bharti’s digital assets for distribution. support. Amazon Prime membership comes with video, shopping, unlimited free shipping and early and exclusive access • 850MHz acquired from Tata is actively used by Bharti. Bharti has to deals on Amazon. 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
Bharti Airtel – BUY
Standalone – 330bps underlying Ebitda margin • Bad debt provisions + write-offs which have historically remained at Rs8-9bn came down to Rs4.4bn in FY20. Bharti stated that FY20 saw expansion YoY higher recoveries in the enterprise business and lower ICR bad debt.
We look at the P&L of Bharti standalone (which includes India mobile ex Figure 1: Bharti Standalone: Lower bad debt provisions and other expenses drove most Rajasthan and North East + Home broadband + Enterprise). of the 330bps Ebitda margin expansion Revenue grew 10% YoY in FY20 vs. 8% decline seen in FY19. • FY18 FY19 FY20 FY18 FY19 FY20 Reported Ebitda had two positive influences and a negative Rs bn Rs bn Rs bn % of rev % of rev % of rev influence: 1) Ind-AS 116 related tailwind of Rs43.1bn; and 2) Revenue 536.6 496.1 543.2 spreading of customer acquisition cost as the average life of customer is derived to be more than 12 months, which boosted SA Ebitda (reported) 178.7 124.8 202.6 33.3 25.2 37.3 Ebitda by Rs7.9bn; and 3) accounting change in enterprise and Ebitda (ex accounting change) 178.7 124.8 159.5 33.3 25.2 28.5 home segments where some costs which were earlier below the Ebitda are now part of opex. Though Bharti did not quantify this, by Opex (ex LF, SUC, IUC) 223.4 240.0 248.5 41.6 48.4 45.7 extrapolating historical trends, we estimate that this was a headwind
of Rs3.3bn. Passive infra charges (ex Ind-AS) 64.4 72.6 74.3 12.0 14.6 13.7 • After removing the above three factors from reported numbers, opex Power and fuel costs 45.6 55.6 61.7 8.5 11.2 11.4 grew 4.6% YoY and Ebitda grew 30% YoY. Ebitda margin expanded Repair and maintenance 16.2 20.9 20.7 3.0 4.2 3.8 330bps YoY to 28.5%. Internet bandwidth and leased line 7.1 10.3 13.6 1.3 2.1 2.5 • We look at opex (excluding LF, SUC and access charges) since these Other network opex 6.2 6.1 5.8 1.1 1.2 1.1 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 Sales distribution commission* 22.2 16.6 17.7 4.1 3.3 3.3 level.
Content costs 5.7 7.5 5.9 1.1 1.5 1.1 • Passive infra charges (tower rentals) rose by 8% YoY while power and fuel costs were up 11%. Repair and maintenance costs were flat IT expenses 3.8 5.9 5.7 0.7 1.2 1.0 YoY. Mobile broadband unique locations/BTS are up 11%/21% YoY. 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 • Sales and marketing expenses (adjusted for the Rs7.9bn tailwind from spreading of customer acquisition cost) remained flat as % of Customer care expenses 4.7 5.3 4.7 0.9 1.1 0.9 revenue. 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 • Content costs had risen 30% YoY in FY19 reflecting the impact of FY20 and removing est. Rs3.3bn leased line costs which was earlier below Ebitda 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.
Bharti Airtel – BUY
Cost comparison with JIO
We compare the opex (ex LF, SUC and access charges) of Bharti stand- Figure 3: Comparison of network opex components for Bharti and JIO alone+Hexacom and JIO. The main differences are in sales and Rs m Bharti SA + Hexacom JIO marketing expenses and other expenses. FY19 FY20 FY19 FY20
Average est. location count 173,414 187,744 195,000 247,500 Figure 2: Opex comparison of Bharti SA and JIO Rs bn JIO As % of rev Bharti SA + Hexacom As % of rev Reported rental costs 73,523 33,683 42,710 77,340 Employee cost 14.6 2.7% 15.8 2.7% Ind-AS adjustment 44,521 13,230 Network opex* 183.3 33.7% 190.3 32.7% Effective rental costs 73,523 78,204 42,710 90,570 Sales and marketing exp 12.8 2.4% 27.3 4.7% As % of revenue 13.9% 13.4% 10.5% 16.7% 15.6 2.9% 28.6 4.9% Other expenses Rental costs per location per month 35,331 34,712 18,252 30,495 Total 226.3 41.7% 262.0 45.0% Revenue 543.2 581.9 Energy costs 61,133 68,202 50,830 67,070 Source: Company, IIFL Research; *after adjusting for Ind-AS 116 impact 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 Unit rental/energy costs 12%/25% lower for JIO vs. Bharti: Source: Company, IIFL Research Though JIO has ~32% more locations than Bharti, it has ~7% lower revenue than Bharti. This suggests that Bharti’s revenue per location is Bharti’s sales and marketing costs have declined by 20% in 3 significantly higher. In our view, this is on account of JIO’s network years: JIO’s sales and marketing expense as % of revenue in FY20 was being significantly bigger since it carries 2x data traffic of Bharti. With 2.4% vs. Bharti’s 4.7%. JIO does not split this line item further. For Bharti deriving est. ~30% of its revenue from 2G users, the capacity Bharti, subscriber acquisition costs (SAC) account for almost 2/3rds of and the equipment count required to support this revenue is this line item with the remaining being ad spend and others. 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.
Bharti Airtel – BUY
Figure 4: We estimate that JIO may have capitalized sales and marketing expenses to Figure 5: Reduction in SAC and churn for Bharti reflects improved quality of subscriber the tune of 3.7% of revenue if one assumes similar SAC as Bharti acquisition
SAC as % of rev Churn Bharti's sales and marketing exp as % of revenue 4.7% 5.0% Bharti's ad spend and others as % of revenue 1.5% (%) 4.1% 4.0% SAC as % of revenue 3.2% 4.0% 3.7% 3.4% 3.5% 3.5% 3.3% Bharti's SAC (Rs m) 18,516 3.2% 3.2% Bharti's gross adds in FY20 (m) 84.8 3.0% 2.5% Implied SAC per sub (Rs) 218 2.0%
JIO's gross adds in FY20 ( m) 126.4 1.0% JIO's estimated SAC assuming similar SAC per sub as Bharti (Rs m) 27,586 As % of revenue 5.1% 0.0% JIO's est. ad spend and others as % of revenue 1.0% FY16 FY17 FY18 FY19 FY20
Total est. sales and marketing exp as % of revenue 6.1% Source: Company, IIFL Research JIO's reported sales and marketing exp as % of revenue 2.4% Est. capitalised sales and marketing expenses 3.7% Higher other expenses for Bharti vs. JIO partly due to higher Source: Company, IIFL Research post-paid and enterprise presence: JIO’s other expenses at Rs15bn (2.9% of revenue) are significantly below Bharti’s Rs27bn (4.9% of The above table indicates that JIO potentially capitalised sales and revenue). About 75% of this gap is account of Bharti’s higher bad debt marketing expenses worth 3.7% of revenue or Rs20bn. Total estimated provisions (due to higher enterprise, post-paid salience) and content capitalised opex including Rs25bn energy costs comes to Rs45bn for costs (JIO’s content costs are housed in RIL’s other subsidiaries). The JIO. This largely validates our calculation of Rs47bn opex capitalisation remaining is mostly on account of customer care expenses (Rs4.6bn for in FY20 in JIO’s ARA note. Bharti vs. Rs2.1bn for JIO), which is probably due to Bharti’s customers being spread across mobile, enterprise and home broadband. 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.
Bharti Airtel – BUY
Figure 6: Other expenses as % of revenue for Bharti and JIO Steady WC in SA; some deterioration in subsidiaries (Other exp as % of rev) Bharti JIO Figure 7: Consol WC cycle: Some deterioration in overall WC days 8.0% 7.5% 6.7% Rs m FY17 FY18 FY19 FY20 7.0% 6.6% 6.2% Revenue 954,683 834,481 807,802 879,324 6.0% 4.9% 5.0% Inventory – A 488 0 0 0 4.0% 3.4% Trade receivables – B 47,402 58,830 43,006 46,058 3.0% 2.9% 3.0% Unbilled revenue – C 15,880 16,136 17,072 19,221 2.0% Trade payables – D 268,537 268,537 263,138 250,199 1.0% Capex creditors less capital advances – E 62,899 79,793 119,704 129,349 0.0% Other net current liabilities – F 18,216 20,170 17,176 (7,628) FY16 FY17 FY18 FY19 FY20
Source: Companies, IIFL Research 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 -23.4% -25.6% -27.3% -20.2% creditors) 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
Bharti Airtel – BUY that the deterioration in FY20 was partly on account of Airtel Africa. Figure 11: ROE and ROCE have bottomed out in FY20 Build-up of prepaid expenses in subsidiaries also resulted in WC (%) ROE ROCE deterioration. 20.0%
Figure 9: FY20’s WC deterioration was mostly in Africa 15.0% % of revenue FY18 FY19 FY20 Africa -20.3% -35.9% -18.0% 10.0% Source: Company, IIFL Research 5.0%
Bharti SA’s -16% WC as % of sales superior to JIO’s -14%: On 0.0% 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 -5.0% marginally deteriorated to -26%. This is superior to JIO’s -14% with the main difference being on account of Bharti’s higher trade payables. -10.0% FY17 FY18 FY19 FY20 FY21ii FY22ii FY23ii
Bharti’s trade payables at Rs192bn is 4x that of JIO’s Rs47bn. Bharti’s Source: Company, IIFL Research trade payables include OTSC provision of ~Rs56bn, LF & SUC due for the quarter (Rs15bn) and tower company payables for the quarter. If Figure 12: Elements of DuPont analysis we exclude Bharti’s OTSC provision, its net current assets (ex capex FY17 FY18 FY19 FY20 FY21ii FY22ii FY23ii creditors) would be -16% vs. JIO’s -14%. 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% Figure 10: FCF likely to be negative for the next two years due to elevated capex Interest Burden 0.5 0.3 -0.4 -4.7 -0.8 0.5 0.7 Rs bn FY17 FY18 FY19 FY20 FY21ii FY22ii FY23ii Financial Leverage 3.1 3.2 3.2 3.4 3.9 4.6 4.7 OCF (post interest) 215.9 223.9 124.5 89.5* 218.7 275.9 450.2 Tax burden 0.5 0.3 -0.2 0.1 -0.3 0.6 0.6 Capex (ex spectrum) (218.6) (259.8) (305.3) (221.3) (230.7) (225.5) (250.2) ROE 5.2% 1.4% 0.5% -5.1% 2.9% 7.0% 17.0% Spectrum capex (165.5) (13.0) (45.5) (30.7) (1.8) (66.7) (147.7) Source: Company, IIFL Research 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 Key balance sheet movements 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 • Bharti’s US$1bn FCCBs (issued in Jan 2020) have a conversion price liability 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
Bharti Airtel – BUY
AGR provision for both Tata and Telenor. Since Tata Group and Figure 13: Contingent liabilities for Bharti SA: Non-DoT items have fallen as % of Telenor (parent) will bear the AGR dues, Bharti also carries an revenue indemnification asset on its balance sheet. Contingent liabilities (Rs m) FY15 FY16 FY17 FY18 FY19 FY20 51,129 • Deferred tax asset (DTA) is up YoY from Rs89bn to Rs270bn. Most of DoT claims 4,766 4,809 36,540 40,344 93,522 the increase is due to carry forward losses. DTL is also up from Sales and service tax 11,120 11,259 11,245 8,738 8,032 8,343 Rs11bn to Rs16bn. Net DTA is up fromRs78bn to Rs254bn. 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 • Bharti SA has not recognized DTA in respect of carry forward losses of Rs389bn/Rs494bn in FY19/20 pertaining to capital losses since it Entry tax 4,221 5,061 5,509 6,010 6,169 1,991 is not probable that relevant capital gains will be available in future. Access charge litigation 6,952 8,196 8,733 10,021 11,839 13,487 The above pertains to MTM capital losses on subsidiaries such as Others 854 1,954 2,086 2,509 2,291 2,303 Infratel and Airtel Africa. On the other hand, Bharti has created Total 48,802 51,815 80,957 82,456 136,686 90,560 Rs149bn DTA in FY20 for P&L losses as it expects to make taxable Standalone revenue 554,964 603,003 622,763 536,630 496,080 543,171 profits over time as industry prospects improve. As of % of standalone revenue 8.8% 8.6% 13.0% 15.4% 27.6% 16.7% • Taxes recoverable (mostly GST receivable) is Rs126bn as of end- Non-DoT claims 44,036 47,006 44,417 42,112 43,165 39,431 FY20 vs. Rs113bn as of end-FY19. With revenue growth likely to As of % of standalone revenue 7.9% 7.8% 7.1% 7.8% 8.7% 7.3% accelerate and capex likely to come off, GST receivables should Source: Company, IIFL Research come off. Further, Bharti’s share of contingent liabilities for JVs/associates was Contingent liabilities + potential OTSC liabilities Rs49bn as of end-FY20 vs. Rs28bn as of end-FY19. This was primarily due to Indus’ tax disputes. Contingent liabilities came down: Contingent liabilities pertaining to DoT demand had seen a sharp jump YoY from Rs40bn in FY18 to OTSC not part of contingent liabilities: On the longstanding OTSC Rs93bn in FY19. This largely pertained to the AGR case. With AGR (one-time spectrum charges) dispute, DoT had increased its demand related liability now part of the balance sheet, contingent liabilities from Rs51bn to Rs84bn during FY19, inline with the higher spectrum towards DoT came down to Rs51bn. 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).
Bharti Airtel – BUY
Figure 14: In the event of an adverse verdict on the OTSC case, Rs206bn could be • Bharti’s Hexacom’s FY20 loss of Rs27bn included AGR provision of potentially at risk Rs22bn. Adjusted for this, PAT was flat. Rs m Airtel DTH saw lower revenue due to: 1) content costs being netted OTSC demand from DoT as of end-FY19 - A 84,140 • off from both revenue and costs; and 2) activation revenue being Provision made in FY20 after adverse SC verdict on part of the demand - B 18,075 recognized over the life of the customer from FY20 (vs. upfront Interest provision made on the above Rs18bn - C 38,345 recognition earlier).
Provision yet to be made - D = A - B 66,065 • 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 Potential interest provision on the above - E = C*D/B 140,153 from Rs10bn in FY19 to Rs26bn in FY20. Ebitda growth explained Total provision incl interest that may have to be made - F = D + E 206,218 1/3rd of this jump with the remaining due to improved WC which in Source: Company, IIFL Research turn was recovery of security deposit from a broadcaster.
Bharti has till date made AGR provisions of Rs475bn. Contingent • Airtel Payments Bank saw a 2.5x revenue jump and a similar liabilities towards DoT is Rs51bn. Then there is the above Rs206bn increase in PAT loss to Rs3.7bn. Airtel Payments Bank was an OTSC. Further, there is the risk of Rs138bn AGR dues of Videocon and associate of Bharti only for 5 months in FY19 hence on an Aircel, from which Bharti acquired spectrum. Rs3.5bn penalty on 3G ICR annualized basis, the numbers are almost flat for FY20 vs. FY19. In is also not part of contingent liability. Overall potential regulatory FY17 and FY18, PAT loss for Airtel Payment Bank was liability comes to ~Rs875bn, indicating the extremely harsh stance that Rs2.4bn/Rs2.7bn, thereby indicating that losses have increased in the DoT, TRAI and the Supreme Court have taken on the industry. FY19 and FY20.
Figure 15: Total regulatory liabilities add up to almost Rs875bn • Wynk revenue was down 10% YoY. PAT loss widened from Rs60m to Rs0.6bn. Bharti explained that this was due to change in transfer Rs m pricing model. 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 Airtel – BUY
Figure 16: Performance of key subsidiaries and associates • In some cases, there would be a separate towerco, the revenue of Rs m FY16 FY17 FY18 FY19 FY20 which would entail the opco’s cost. A holdco may have extended Airtel Sri Lanka loan to an opco ─ and the holdco will book interest income as
Revenue 3,948 3,838 4,032 4,436 4,552 revenue and the opco will show this as cost, and so on. PAT (2,643) (2,483) (1,984) (1,622) (2,165) Hence, the PBT and PAT do not provide an underlying picture of the Bharti Hexacom business. Opco revenue is the only relevant number.
Revenue 51,878 51,255 44,083 36,136 38,741 It can be seen that PAT 10,278 6,601 (1,119) (7,220) (27,165) • Nigeria posted robust revenue growth (24% in each of the past two Bharti Telemedia (Airtel DTH) years in cc terms). In Nigeria, stable market conditions and head- Revenue 29,178 34,305 37,570 41,001 29,238 start on 4G (vs. the leader MTN) has helped Bharti. PAT 1,277 1,315 2,829 13,498 3,857 Airtel Payment Bank • Uganda, Malawi, Kenya, DRC and Tanzania are other fast growing markets. Zambia, Niger, Congo B and Madagascar have seen Revenue 395 264 1,591 1,434 3,798 declines. PAT (346) (2,443) (2,726) (1,541) (3,721) Wynk Airtel Africa had US$3.25bn debt as of end-FY20, of which Bharti has provided guarantees for US$2.5bn. 490 1,285 2,812 6,130 5,466 Revenue PAT 16 41 141 (60) (628) Figure 17: Nigeria has been the key growth driver in the past 2 years Source: Company, IIFL Research Revenue (Rs m) CY17 CY18 CY19 YoY (CY18) YoY (CY19) Nigeria 57,112 76,591 92,056 34% 20% Africa – Strong show continues DRC 13,929 19,157 20,798 38% 9% Gabon 9,771 9,506 9,430 -3% -1% In Africa, focus on distribution, data, mobile money, existing customers, Tanzania 14,151 14,982 16,441 6% 10% network, and the right-cost model and people have borne fruit as Bharti saw 27% YoY reported Ebitda growth in FY20 in USD terms. Even after Zambia 15,100 11,999 9,077 -21% -24% adjusting for the spreading of customer acquisition costs and Ind-AS Niger 12,225 10,392 9,039 -15% -13% 116, Ebitda growth was robust at 20% and Ebitda has almost doubled in Uganda 20,398 23,594 27,844 16% 18% USD terms from FY17 levels. Congo B 11,038 9,193 8,444 -17% -8% Kenya 10,813 14,066 15,375 30% 9% In all African countries, Bharti has an opco. In some cases, there is a Chad 8,823 7,637 7,875 -13% 3% mobile money entity, a holdco and a towerco. Bharti reports revenue, PBT and PAT for its various Africa subsidiaries. Malawi 7,610 9,834 11,779 29% 20% Madagascar 3,488 3,114 2,636 -11% -15% Bharti explained that: Seychelles 1,551 1,691 1,788 9% 6% • One should not look at the PBT and PAT losses of these opcos nor Rwanda 1,226 3,838 3,481 213% -9% add these up as one may have lent to the other. Africa 187,235 215,594 236,063 15% 9% Source: Company, IIFL Research
Bharti Airtel – BUY
Figure 18: Africa’s performance has significantly improved in the past 3 years Liquidity position improved in FY20: Liquidity position improved as US$m FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 of end-FY20 with ~22% of debt maturing in a year vs. ~30% as of end- Revenue 4,137 4,417 4,491 4,407 3,839 3,270 3,091 3,077 3,422 FY19.
Ebitda 1,097 1,158 1,175 1,002 807 777 1,031 1,196 1,515 Figure 20: Currency mix of debt - INR debt was steady at 64% YoY 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 (%) FX-hedged FX- unhedged INR Source: Company, IIFL Research 100% 12% 10% *Sale of tower assets in FY15 had an adverse impact on Ebitda but Ind-AS adoption from FY20 has 90% 18% 12% 13% offset this 80% 25% 22% **For FY12-18, we have calculated FCF = Ebitda - capex - interest expense – tax; For FY19 and 70% 38% 34% FY20, we have used Airtel Africa’s reported FCF 60% 46% 50% Debt profile: Net debt to Ebitda at 4.35x; Adverse 40% 30% 65% 64% regulatory outcomes could take this to 5.4x 50% 54% 20% 37% 10% Bharti had consolidated gross debt of Rs1,174bn, as of end-FY20. The 0% main observations are: FY16 FY17 FY18 FY19 FY20
Figure 19: Debt maturity profile (end-FY20) – Rs265bn or 22% maturing within a year (vs. Source: Company, IIFL Research 30% as of end-FY19) which is an improvement in liquidity position Figure 21: FX sensitivity: Similar to FY19 Borrowings (m) FX sensitivity (Rs m) Change P&L impact BS impact Total 600,000 USD-INR 5% (8,017) (10,567) (18,584) (Rs m) 487,647 500,000 EUR-INR 5% (2,696) (681) (3,377) Total (10,713) (11,248) (21,961) 400,000 Source: Company, IIFL Research 279,559 300,000 265,528 If we consider the notional FX debt to be 20x the sensitivity to a 5% 200,000 148,738 move, we come to Rs439bn, which is 37% of the gross debt, and which 100,000 largely matches the proportion displayed in figure 20 (also disclosed by the company). The sensitivity to FX has been largely constant in recent 0 years as seen in the below table. <1 year 1-2 years 2-5 years >5 years Figure 22: FX sensitivity to 5% change in USD-INR and EUR-INR Source: Company, IIFL Research 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
Bharti Airtel – BUY
Figure 23: Annual PBT hit from 100bps change in interest rates Figure 25: Finance cost: Effective interest cost marginally rose YoY to 11.1% Change (bps) PBT impact FY20 (Rs m) Rs bn FY18 FY19 FY20
INR - borrowings 100 (2,166) Finance costs incl FX 93 110 137 USD – borrowings 100 (644) FX impact in balance sheet 7 16 -5 Source: Company, IIFL Research Total finance costs 100 126 132 Average debt 1,099 1,166 1,192 We also look at the time-series of sensitivity of PBT to 1% interest rate Effective finance cost 9.1% 10.8% 11.1% increase in INR, USD and EUR. We also compare the same with the 10- Source: Company, IIFL Research year government bond yields in India and the US. The PBT sensitivity has come down in recent years. This suggests lesser and progressively Figure 26: Including accrued interest, other payables and AGR dues, net debt stood at decreasing proportion of floating rate borrowings, prima facie Rs1602bn as of end-FY20; Out of the total Rs475bn AGR dues, Rs180bn has been paid suggesting good positioning when long yields are at rock bottom levels. and already reflects in reported net debt; We add the Rs295bn provided for but not However, the accounting IFRS norms are that PV fluctuations in the paid underlying instrument (e.g. fixed rate bond outstanding) will hit the balance sheet directly so this does not give the full picture of sensitivity Rs m FY17 FY18 FY19 FY20 to interest rate fluctuation. But we understand Bharti has reduced the Reported net debt 970,547 1,001,060 1,129,899 1,188,590 interest rate hedges and locked in greater proportion of borrowings in Accrued interest 7,364 28,341 33,419 8,874 low fixed rates. Payables towards acquisition 4,104 13,523 5,575 4,296 Advance received against agreement to sell 0 27,317 29,146 34,407 Figure 24: Sensitivity of PBT to 1% interest rate increase– In recent years, this has come investment down suggesting better treasury operations Perpetual bond* 71,383 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 AGR dues provided for but not paid 295,000 10-yr Ind. govt 7.9% 8.4% 8.2% 8.3% 8.3% 7.7% 7.0% 6.9% 7.7% 6.7% Adjusted net debt 982,015 1,070,241 1,198,039 1,602,550 bond yield (%) Net debt to TTM Ebitda 2.78 3.56 4.65 4.35 10-yr US govt 3.1% 2.4% 1.8% 2.5% 2.3% 2.1% 2.0% 2.4% 2.9% 1.8% Net debt to 1YF Ebitda 3.26 4.15 3.25 3.82 bond yield (%) Source: Company, IIFL Research; In the initial 5 years post perpetual bond issue, accounting Sensitivity 5,121 6,293 6,357 6,742 5,052 4,293 3,495 3,679 3,245 2,810 standards permit treating them as equity (Rs m) Source: Company, IIFL Research Figure 27: If all these liabilities were to be added to debt, net debt to Ebitda could rise to ~5.4x Effective interest cost rose marginally: In our view, a holistic FY20 Rs m picture of effective cost of borrowing would include interest cost, finance Adjusted net debt from Fig 26 1,602,550 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 Potential OTSC dues and contingent liabilities from Fig 14 260,847 below. 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
Bharti Airtel – BUY
Figure 28: Net debt/Ebitda: Strong Ebitda growth should bring this to 2.5x by FY23; if Figure 29: In the worst case, AGR dues of Rs138bn of Aircel and Videocon could come on one adds AGR dues (including Aircel and Videocon) and OTSC, leverage ratio should still Bharti fall below 3x by FY23 Rs bn Total dues Pending dues Bharti incl Telenor 440 260 (Rs bn) Net debt (LHS) Net debt to Ebitda (RHS) (x) Tata 168 126 2,000 5.0 Aircel 124 124 1,600 4.0 Videocon 14 14 Total 745 523 1,200 3.0 Source: Supreme Court, IIFL Research
800 2.0 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 400 1.0 those relating to the specific spectrum being bought. DoT had challenged this in the Telecom Court, which had ruled in telcos’ favour. 0 0.0 FY16 FY17 FY18 FY19 FY20 FY21ii FY22ii FY23ii But the deal did not go through. The 2016 deal liabilities of Rs252bn are a risk for JIO. Source: Company, IIFL Research Cancellation of traded spectrum may prove a blessing in AGR dues on traded spectrum pose risks for Bharti and 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 JIO 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, With the Supreme Court training its guns on insolvent telcos and which would be more economical than paying the AGR dues of insolvent insisting that telcos that bought spectrum from them are liable for the telcos, even after accounting for the lost value of the cancelled former’s AGR dues, there are risks to Bharti (on spectrum bought from spectrum. Ensuring business continuity (Bharti and JIO are using the Aircel and Videocon) and JIO (on spectrum bought from/shared with spectrum bought in these deals) would be critical, though, and DoT RCOM). The worst scenario for Bharti would be the SC directing to pay would need to make some arrangements for this. the entire Rs138bn (Rs124bn dues of Aircel and Rs14bn dues of Videocon as per the latest DoT affidavit). 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.
Bharti Airtel – BUY
Figure 30: Details of spectrum expiring in 2021 Figure 31: Bharti − India valuation Spectrum* (MHz) % of total Band Rs bn at reserve price DCF - India
Bharti 3.0 7.3% 1800 122 VIL 3.6 8.3% 1800 107 Cost of Debt 10.0% Tax Rate 25.0% JIO 4.6 16.7% 850 225 Source: DoT, IIFL Research; *Revenue weighted average using industry revenue as circle weights Post Tax Cost of Debt 6.6%
We build in Rs1trn/Rs800bn total spectrum spending (fresh purchase + Debt 32.1% renewal) for JIO/Bharti over the next 6 years. WACC 10.5% Exit multiple (x) 8.0 Outlook and TP change EV (Rs m) 44,788,594 Source: Company, IIFL Research Window for next round of tariff increase somewhat narrow: In the next 2-3 months, it may be difficult to take meaningful tariff Figure 32: Bharti − Africa valuation increases as the spending environment remains weak due to COVID. On Item (US$ m) Current the other hand, we gather from handset industry sources that work on Adj EV / (Adj Ebitda - Tax) 7.5 the JIO-Google Android smartphone is making brisk progress and that Unadjusted Ebitda 1,505 this phone may be launched in the middle of 2021. It is very difficult to Tax 209 imagine an industry-wide price hike at a time when JIO is launching an Ebitda - Tax 1,296 affordable handset. EV 9,720 The SC verdict on AGR would also have a bearing on pricing. In the EV (Rs bn) 729,025 event of an adverse verdict, VIL may be compelled to move NCLT. This Source: IIFL Research would put the government in a spot since it has Rs1.5trn to be recovered from VIL. Moreover, state-owned banks also have an Figure 33: TP derivation exposure to VIL. All these may pave the way for a restructuring plan Net Equity Holdco Bharti's Equity Rs per (Rs bn) EV where the government nudges telcos to raise (and rationalize) tariffs. debt value discount stake val share India 4,789 1,004 3,784 0% 3,784 694
On balance, we think tariff hikes are unlikely for the next 12 months but Africa 729 232 497 20% 56% 222 41 should happen thereafter. But anyway, this would be neutral for Bharti S Asia 0 0 since higher tariffs would slow down RMS gains for Bharti at VIL’s Total 4,007 734 expense. Source: Company, IIFL Research 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.
Bharti Airtel – BUY
Figure 34: Minority interest adjustments Figure 37: Bharti − TP derivation (Rs bn) Methodol 2-YF Valuation EV Net Equity Bharti's Equity Rs per Rs/share
ogy metric assumption debt val stake value share India 694 for MI Africa 41 Hexacom EV/Ebitda 16 8.0 128 42 86 70% 26 5 Less: adjustments for minority interest 38 10% WACC, Infratel Less: adjustments for AGR provisions 49 DCF 7x exit in 276 (30) 306 54% 142 26 (SA) Less: perpetual debt of Rs75bn 14 FY36 Less: Other regulatory hit 17 DTH EV/Ebitda 21 8.0 167 20 147 80% 29 6 TP (Rs) 619 Total 38
Source: Company, IIFL Research CMP (Rs) 511 Upside 21.1% Figure 35: We factor in a Rs49/share hit due to the AGR case Dividend per share (Rs) 2.7 (Rs m) Total Return 21.5% Est. AGR case-related hit 475,000 Source: IIFL Research 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
Company snapshot Bharti Airtel – BUY
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.
Management India revenue breakup as of Geography-wise rev. break-up Name Designation FY19 (%) - FY19 Sunil Mittal Chairman Homes, South Enterpris 3.3% Gopal Vittal MD & CEO (India and South Asia) Asia, 0.5 e, 18.5% Africa, Raghunath Mandava CEO (Africa) 26.3 DTH, 6.1%
Passive infra, Mobile, 10.3% Competition: JIO, Vodafone-Idea, BSNL in India; MTN, Vodacom, India, 61.8% Safaricom and Millicom in Africa: 73.2
PE Chart EV/Ebitda Assumptions
Y/e 31 Mar, FY19A FY20A FY21ii FY22ii FY23ii 12m fwd PE Avg +/- 1SD 12m fwd EV/EBITDA Avg +/- 1SD Consolidated 15.0 India traffic (min bn) 2,811.3 3,034.5 3,330.6 3,741.1 4,152.6 (x) (x) India Ebitda margin (%) 29.9 41.2 44.2 48.0 50.3 90.0 13.0 75.0 India capex-to-sales (%) 40.2 32.3 22.9 20.9 18.9 11.0 Africa traffic (min bn) 207.3 250.1 288.8 315.5 338.3 60.0 9.0 Africa Ebitda margin (%) 38.9 44.3 40.2 40.5 42.8 45.0 7.0 Africa capex-to-sales (%) 21.1 23.7 23.8 18.5 17.0 30.0 Source: Company data, IIFL Research 15.0 5.0 0.0 3.0 Apr-09 Jul-11 Oct-13 Jan-16 May-18 Aug-20 Apr-09 Jul-11 Oct-13 Jan-16 May-18 Aug-20
Bharti Airtel – BUY
Financial summary Income statement summary (Rs bn) Balance sheet summary (Rs bn) Y/e 31 Mar, Consolidated FY19A FY20A FY21ii FY22ii FY23ii Y/e 31 Mar, Consolidated FY19A FY20A FY21ii FY22ii FY23ii Revenues 808 879 971 1,101 1,341 Cash & cash equivalents 108 273 307 429 409 Ebitda 258 369 420 513 659 Inventories 0 0 1 1 1 Depreciation and amortisation (213) (277) (298) (319) (341) Receivables 43 46 58 69 84 Ebit 44 92 122 194 318 Other current assets 178 447 415 415 415 Non-operating income 34 (376) (95) 21 41 Creditors 280 250 247 268 297 Financial expense (96) (144) (121) (118) (133) Other current liabilities 269 737 774 734 734 PBT (17) (428) (95) 97 226 Net current assets (220) (221) (241) (88) (122) Exceptionals 0 0 0 0 0 Fixed assets 904 1,177 1,145 1,084 1,025 Reported PBT (17) (428) (95) 97 226 Intangibles 1,201 1,159 1,118 1,286 1,454 Tax expense 34 122 (46) (29) (62) Investments 0 0 0 0 0 PAT 17 (307) (141) 67 164 Other long-term assets 318 506 467 467 467 Minorities, Associates etc. (13) (15) (17) (13) (27) Total net assets 2,203 2,621 2,490 2,749 2,825 Attributable PAT 4 (322) (158) 55 137 Borrowings 1,254 1,482 1,562 1,852 1,850 Other long-term liabilities 99 117 131 131 131 Ratio analysis Shareholders equity 849 1,021 797 766 844 Y/e 31 Mar, Consolidated FY19A FY20A FY21ii FY22ii FY23ii Total liabilities 2,203 2,621 2,490 2,749 2,825 Per share data (Rs) Pre-exceptional EPS 1.0 (17.9) (28.9) 10.0 25.1 Cash flow summary (Rs bn) DPS 11.7 3.3 3.3 3.3 3.3 Y/e 31 Mar, Consolidated FY19A FY20A FY21ii FY22ii FY23ii BVPS 212.5 187.2 146.1 140.4 154.6 Ebit 44 92 122 194 318 Growth ratios (%) Tax paid (12) (23) (18) (29) (62) Revenues (3.2) 8.9 10.4 13.4 21.8 Depreciation and amortization 213 277 298 319 341 Ebitda (14.3) 43.1 13.9 22.2 28.4 Net working capital change (55) (166) (31) 9 14 EPS (62.7) (1850.1) 61.3 (134.7) 149.9 Other operating items 10 1 0 0 0 Profitability ratios (%) Operating cash flow before interest 201 181 371 493 610 Ebitda margin 31.9 41.9 43.3 46.6 49.1 Financial expense (76) (110) (128) (158) (133) Ebit margin 5.5 10.4 12.5 17.6 23.7 Non-operating income 0 0 22 21 41 Tax rate 197.4 28.4 (48.3) 30.3 27.6 Operating cash flow after interest 125 71 265 356 518 Net profit margin 2.1 (34.9) (14.5) 6.1 12.2 Capital expenditure (306) (223) (232) (292) (398) Return ratios (%) Long-term investments 0 0 0 0 0 ROE 0.5 (10.5) (17.4) 7.0 17.0 Others 1 (11) (46) (80) (68) ROCE 3.8 (11.8) 1.0 8.2 12.9 Free cash flow (181) (162) (14) (16) 52 Solvency ratios (x) Equity raising 115 502 0 0 0 Net debt-equity 1.3 1.2 1.6 1.9 1.7 Borrowings 102 (157) 66 157 (54) Net debt to Ebitda 4.4 3.3 3.0 2.8 2.2 Dividend (47) (18) (18) (18) (18) Interest coverage 0.5 0.6 1.0 1.6 2.4 Net chg in cash and equivalents (10) 165 34 122 (20) Source: Company data, IIFL Research Source: Company data, IIFL Research
Bharti Airtel – BUY
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Bharti Airtel – BUY
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Name, Qualification and Certification of Research Analyst: G V Giri(MBA), Balaji Subramanian(MBA)
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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 unforese en 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.
Bharti Airtel – BUY
Close price Target price Bharti Airtel: 3 year price and rating history Date Close price Target price Rating Date Rating (Rs) (Rs) (Rs) (Rs) (Rs) Price TP/Reco changed date 20 Jul 2020 570 661 BUY 19 Nov 2018 333 342 BUY 700 20 May 2020 599 649 BUY 23 Jul 2018 346 444 BUY 600 13 Apr 2020 490 564 BUY 10 Jul 2018 363 503 BUY 500 06 Feb 2020 534 595 BUY 18 Apr 2018 382 548 BUY 400 14 Jan 2020 469 520 BUY 22 Jan 2018 498 586 BUY 300 29 Nov 2019 437 480 BUY 02 Nov 2017 538 628 BUY 200 31 Oct 2019 368 424 BUY 10 Aug 2017 416 498 BUY 100 05 Aug 2019 343 380 BUY
0 21 Jun 2019 349 408 BUY 03 Jun 2019 349 419 BUY
05 Mar 2019 308 335 BUY
Jun-20 Jun-18 Jun-19
Oct-17 Oct-18 Oct-19
Apr-18 Apr-19 Apr-20
Feb-19 Feb-18 Feb-20
Dec-17 Dec-18 Dec-19
Aug-18 Aug-19 Aug-20 Aug-17 01 Feb 2019 306 353 BUY