Buy Bharti Airtel; target of Rs 660: Dolat Capital

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Dolat Capital's research report on Bharti Airtel

Bharti reported healthy Q1FY21 led by 2% QoQ increase in ARPU despite Covid impact. Computed ARPU (net of inter-segment) was flat QoQ, yet strong. Consolidated revenue/EBITDA increased by 0.8/2% QoQ. Adjusted for accounting change in DTH segment in Q4FY20, revenue/EBITDA is broadly flat QoQ. We appreciate Bharti’s in-market execution and the clarity on thoughts and strategy to drive the market share and growth. Bharti remains well-capitalized and good-positioned irrespective of the outcome on AGR liabilities or industry structure (viz. best of both worlds). Reiterate BUY with TP of Rs 660 @ 10/7x FY22E EV/EBITDA for India Wireless/Africa. Bharti’s TP sensitivity to ARPU is significantly higher viz. ~Rs 40/sh for every Rs 10 change in ARPU @ 10x EV/EBITDA. Management remains upbeat of Rs 200 ARPU in short-term and Rs 300 in medium-term. This would be led by higher proportion of postpaid subscriber additions, 2G to 4G migration, customer segmentation, ancillary revenue streams etc. That said, tariff increase is inevitable and key trigger for ARPU growth.

Outlook

We believe this is feasible and inescapable for healthy industry structure. A positive verdict from SC wrt defer payment option over 10/15 years for AGR liabilities and/or a potential price increase in Q2FY21 are potential near term catalyst.

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