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RESULTS REVIEW 2QFY18 03 NOV 2017

Bharti Airtel BUY

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters

Resilient performanceBharti Airtel’s 2QFY18 revenue at Rs 218bn (-0.8% QoQ, -11.7% YoY) was in line with estimates. EBITDA at Rs 79.2bn (+2.1/-16.1% QoQ/YoY; 36.4% margin) was the key surprise, led by (1) Strong cost control in the India wireless business, and (2) Healthy revenue as well as margin performance in Africa. Stringent cost control helps cushion the impact of IUC rate-cuts from 3QFY18. After the sharp Jio-driven pricing crack, we reckon Bharti’s India wireless EBITDA will bounce back, with industry consolidation and resulting pricing power. Price hikes by Jio can accelerate EBITDA growth. Tata’s/Uninor acquisitions in India (at trivial valuations) bolster its leadership. We foresee FCF turning meaningfully positive by FY19E, as capex eases and operations improve. Still, near-term challenges persist. With a massive Rs 2.3tn investment, Jio can further disrupt Indian telecom till it achieves a critical subscriber base (from its ~11%) and revenue market share (aspiration 50%). Nevertheless, Bharti remains best-positioned to combat the potential onslaught, if any. Our SOTP is Rs 618 (9x Sep-19E EV/e for India wireless, plus Rs 59 for Tata/Uninor).

Key highlights India’s wireless financials and key KPIs: Revenues

stood at Rs 122.5bn, -5.2% QoQ and -17% YoY, broadly in-line. EBITDA at Rs 42.1bn (-5% QoQ, -33% YoY) was better-than-expected on the back of lower network and SG&A expenses.

ARPU stood at Rs 145/month vs. Rs 154/month in 1QFY18. The mobile broadband subscriber base of 55.2mn, +6.3mn QoQ, was positive. Data traffic grew by 66% QoQ and 4.4X YoY to 784bn MBs, still only ~20% of R-Jio’s data volumes. The tight control on costs, given the pressure on revenues and step-up in capex guidance (Rs 200bn to Rs 250bn), is a positive.

Africa delivers for fifth straight quarter: Bharti delivered healthy improvement in EBITDA in Africa (+23/37% QoQ/YoY). In constant currency, EBITDA inched up to USD 251mn in 2QFY18 vs. USD 151mn in 1QFY17. 2QFY18 EBITDA was partly supported by a one-off in Kenya.

Near-term outlook: The near-term remains challenging, as down-trading of subscribers will impact ARPU, and so will the IUC rate-cut impact. Stake sale in Infratel/Indus is a potential trigger.

Consolidated Financial Summary (Rs bn) 2QFY18 2QFY17 YoY (%) 1QFY18 QoQ (%) FY16 FY17 FY18E FY19E FY20E Net Sales 217.8 246.5 -11.7 219.6 -0.8% 851.4 911.5 991.2 1,054.2 1,135.2 EBITDA 79.2 94.4 -16.1 77.6 2.1% 339.8 353.3 306.4 339.5 398.6 APAT 3.4 14.6 -76.5 3.7 -6.6% 60.8 38.0 10.7 18.1 41.8 Diluted EPS (Rs) 15.2 9.5 2.7 4.5 10.5 P/E (x) 35.2 56.3 200.1 118.5 51.1 EV / EBITDA (x) 9.1 9.0 10.6 9.5 7.9 RoIC 4.0 3.8 1.9 3.3 4.9 Source: Company, HDFC sec Inst Research

INDUSTRY TELECOM

CMP (as on 02 Nov 2017) Rs 543

Target Price Rs 618 Nifty 10,424

Sensex 33,573

KEY STOCK DATA

Bloomberg BHARTI IN

No. of Shares (mn) 3,997

MCap (Rs bn) / ($ mn) 2,171/33,589

6m avg traded value (Rs mn) 2,241

STOCK PERFORMANCE (%)

52 Week high / low Rs 549/283

3M 6M 12M

Absolute (%) 30.6 56.3 75.5

Relative (%) 27.2 44.1 53.5

SHAREHOLDING PATTERN (%)

Promoters 67.1

FIs & Local MFs 9.9

FPIs 16.4

Public & Others 6.6 Source : BSE

Himanshu Shah [email protected] +91-22-6171-7315

BHARTI AIRTEL : RESULTS REVIEW 2QFY18

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Quarterly Financial Snapshot: Consolidated

Rs Bn 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 % chg YoY

% chg QoQ 1HFY17 1HFY18 % chg

YoY Total revenues 255.5 246.5 233.4 219.3 219.6 217.8 -11.7% -0.8% 502.0 437.4 -12.9% Access charges 27.0 28.6 24.4 22.8 25.0 25.6 -10.5% 2.3% 55.6 50.6 -9.0% Net revenue 228.4 217.9 209.0 196.6 194.6 192.2 -11.8% -1.2% 446.3 386.7 -13.4% License fees 25.5 24.1 22.3 20.9 20.8 19.7 -18.3% -5.3% 49.6 40.5 -18.3% Network costs 54.0 50.9 52.6 51.6 51.6 50.5 -0.9% -2.2% 104.9 102.1 -2.7% Employee costs 11.1 10.9 10.5 10.5 10.1 10.1 -7.1% -0.6% 22.0 20.2 -8.0% S&M 19.9 18.0 16.6 16.9 15.4 14.1 -21.7% -8.2% 37.9 29.5 -22.3% G&A 22.4 19.6 22.2 18.1 19.0 18.6 -5.2% -2.5% 42.0 37.6 -10.5% Total Opex 132.9 123.5 124.2 118.0 117.0 112.9 -8.6% -3.4% 256.5 229.9 -10.3% EBITDA 95.5 94.4 84.8 78.6 77.6 79.2 -16.1% 2.1% 189.9 156.8 -17.4% D&A 50.4 49.6 48.4 49.4 48.2 46.9 -5.4% -2.7% 100.0 95.1 -4.9% EBIT 45.1 44.8 36.5 29.2 29.4 32.3 -27.9% 10.1% 89.9 61.7 -31.3% Finance cost (net) 19.4 19.1 19.4 19.2 18.3 23.3 22.1% 27.3% 38.5 41.5 8.0%

Share in JVs/Associates 2.5 2.7 2.7 2.5 2.9 3.7 35.8% 28.3% 5.2 6.5 24.3%

Other (inc)/exp 0.2 (1.1) 0.8 (0.0) 0.8 0.2 -121.7% -70.9% (0.9) 1.1 -222.2% PBT 28.5 27.4 20.6 12.5 14.8 13.0 -52.5% -12.3% 55.8 27.8 -50.2% Tax expense 12.3 12.1 12.9 6.9 8.2 5.7 -53.0% -31.1% 24.4 13.9 -43.0% EO (net of tax) 1.3 (0.9) 1.0 0.9 0.4 1.5 -267.1% 262.4% 0.4 1.9 339.1% PAT (after EO items) 14.8 16.2 6.7 4.7 6.2 5.9 -63.7% -5.1% 31.0 12.0 -61.2%

Minority Interests 0.2 1.5 1.7 1.0 2.5 2.4 57.4% -3.0% 1.8 4.9 179.4%

Net Income 14.6 14.6 5.0 3.7 3.7 3.4 -76.5% -6.6% 29.2 7.1 -75.7% Source: Company, HDFC sec Inst Research

Healthy EBITDA performance in light of stiff competition from Jio This is led by wasteful expenditure and zero-based budgeting on major costs Reduction in tower rental prices remains an opportunity for telcos including Bharti Extraordinary costs is towards a one-time expense on technology upgradation and re-farming QoQ increase in finance costs is owing to incremental Rs 3.8bn forex and derivative loss


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Margin Analysis (%)

1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 chg YoY (bps)

chg QoQ (bps) 1HFY17 1HFY18 chg YoY

(bps) Access charges 10.6 11.6 10.5 10.4 11.4 11.8 16 36 11.1 11.6 49 License fees 10.0 9.8 9.5 9.5 9.5 9.1 -74 -43 9.9 9.3 -62 Network costs 21.1 20.7 22.6 23.5 23.5 23.2 252 -33 20.9 23.3 245 Employee costs 4.4 4.4 4.5 4.8 4.6 4.6 23 1 4.4 4.6 24

Sales & marketing 7.8 7.3 7.1 7.7 7.0 6.5 -83 -52 7.6 6.7 -82

G&A 8.8 7.9 9.5 8.2 8.7 8.5 58 -15 8.4 8.6 23 Total Opex 52.0 50.1 53.2 53.8 53.3 51.9 176 -141 51.1 52.6 148 EBITDA 37.4 38.3 36.3 35.8 35.3 36.4 -192 105 37.8 35.9 -197 D&A 19.7 20.1 20.7 22.5 21.9 21.5 142 -42 19.9 21.7 182 EBIT 17.6 18.2 15.6 13.3 13.4 14.9 -334 147 17.9 14.1 -380 Finance costs 7.6 7.7 8.3 8.7 8.3 10.7 295 236 7.7 9.5 184 Profit before Tax 11.1 11.1 8.8 5.7 6.7 6.0 -513 -78 11.1 6.4 -476

Net Income 5.7 5.9 2.2 1.7 1.7 1.6 -435 -10 5.8 1.6 -420 Tax as % of PBT 43.3 44.1 62.6 55.5 55.6 43.7 -47 -1193 43.7 50.0 631 Source: Company, HDFC sec Inst Research


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Segment-wise Financial Performance Revenues (Rs Bn) 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 % chg

YoY % chg

QoQ 1HFY17 1HFY18 % chg YoY

Mobile 150.4 147.2 138.1 129.7 129.1 122.5 -16.8% -5.2% 297.7 251.6 -15.5% Home 6.6 7.1 7.0 6.8 6.7 6.4 -9.9% -5.0% 13.7 13.1 -4.6% Digital 8.4 8.5 8.7 8.7 9.0 9.4 9.6% 4.4% 16.9 18.3 8.4% Business 26.8 29.8 27.1 25.8 27.8 28.2 -5.3% 1.6% 56.6 56.0 -1.0% Towers 14.6 15.0 15.3 16.0 16.0 16.6 11.0% 3.9% 29.5 32.6 10.4% Others 0.9 0.9 1.0 0.9 1.0 1.0 8.2% -4.6% 1.8 2.0 8.9% India 207.7 208.5 197.2 187.9 189.6 184.0 -11.8% -3.0% 416.2 373.6 -10.2% South Asia 4.1 4.2 2.5 1.0 1.0 1.0 -75.4% 5.8% 8.3 2.0 -75.9% Africa 62.5 53.0 53.6 50.5 48.5 52.0 -1.9% 7.2% 115.5 100.6 -13.0% (-) Intersegment (14.7) (15.1) (17.4) (19.0) (18.6) (18.3) 21.3% -1.6% (29.8) (36.8) 23.6% Total 255.5 246.5 233.4 219.3 219.6 217.8 -11.7% -0.8% 502.0 437.4 -12.9%

EBITDA (Rs Bn) 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 % chg

YoY % chg

QoQ 1HFY17 1HFY18 % chg YoY

Mobile 64.1 62.8 53.0 47.9 44.3 42.1 -33.0% -5.0% 126.9 86.4 -31.9% Home 2.9 3.3 3.4 3.3 3.0 2.7 -18.9% -9.9% 6.3 5.7 -8.5% Digital 3.0 3.0 3.0 3.2 3.3 3.5 16.1% 6.6% 6.0 6.8 12.9% Business 7.7 8.4 8.3 9.4 9.3 9.9 17.1% 5.8% 16.2 19.2 18.9% Towers 6.8 7.1 7.3 7.9 8.0 8.1 14.4% 2.2% 13.9 16.1 15.4% Others (0.7) (0.4) (0.4) (2.4) (0.9) (0.9) 150.9% -5.0% (1.1) (1.8) 74.6% India 83.9 84.3 74.6 69.3 67.0 65.4 -22.4% -2.3% 168.2 132.4 -21.3% South Asia (0.0) 0.2 0.2 (0.1) (0.1) (0.0) -107.0% -76.5% 0.2 (0.1) -141.8% Africa 14.0 12.2 12.9 13.1 13.6 16.8 37.3% 23.5% 26.2 30.4 15.9% (-) Intersegment (2.4) (2.4) (2.9) (3.7) (2.9) (3.0) 25.8% 3.2% (4.8) (5.9) 24.0% Total 95.5 94.4 84.8 78.6 77.6 79.2 -16.1% 2.1% 189.9 156.8 -17.4%

Margin % 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 chg YoY

(bps) chg QoQ

(bps) 1HFY17 1HFY18 chg YoY (bps)

Mobile 42.6% 42.6% 38.4% 36.9% 34.3% 34.4% -826 8 42.6% 34.3% -830 Home 43.9% 47.4% 48.6% 49.0% 45.0% 42.6% -475 -233 45.7% 43.8% -185 Digital 36.0% 35.5% 34.6% 36.4% 36.8% 37.5% 208 76 35.7% 37.2% 145 Business 28.9% 28.3% 30.6% 36.6% 33.6% 35.0% 669 138 28.6% 34.3% 575 Towers 47.0% 47.5% 47.7% 49.6% 49.8% 48.9% 145 -83 47.2% 49.3% 211 India 40.4% 40.4% 37.8% 36.9% 35.3% 35.6% -488 25 40.4% 35.4% -498 South Asia -0.6% 5.0% 6.6% -11.1% -6.4% -1.4% -646 498 2.2% -3.8% -606 Africa 22.4% 23.1% 24.2% 25.9% 28.1% 32.3% 923 426 22.7% 30.3% 755 Blended 37.4% 38.3% 36.3% 35.8% 35.3% 36.4% -192 105 37.8% 35.9% -197 Source: Company, HDFC sec Inst Research

Despite 5% QOQ drop in revenues in India wireless business, EBITDA margin is flat owing to steep cost control initiatives Africa delivered a strong revenue and margin performance Other businesses are (1) Some pressure in the home BB business, given the impact of sharp data price decline in wireless, (2) Strong performance in DTH, with a healthy +16% YoY EBITDA growth on the back of strong 10% top-line growth, and (3) Strong EBITDA growth in the India Enterprise segment (+6% QoQ, +17% YoY)


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Operating KPIs

1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 India Wireless KPIs Customer Base ('000s) 230,662 235,212 243,289 251,237 255,735 259,941 265,853 273,648 280,647 282,047 VLR (%) 95.8 96.2 96.0 97.0 97.5 97.4 97.2 97.3 96.9 96.5 Net Additions ('000s) 4,645 4,550 8,077 7,948 4,497 4,206 5,912 7,795 6,999 1,400 Pre-Paid (as % of total base) 94.43 94.20 94.10 94.00 93.88 93.70 93.70 93.70 93.80 93.70 Monthly Churn (%) 3.3 3.5 3.4 3.3 3.6 3.7 4.1 3.6 3.8 3.9 ARPU (Rs/month) 198 193 192 194 196 188 172 158 154 145 MOU (min/month) 424 404 405 415 414 406 419 471 507 518 RPM (Rs/min) 0.468 0.476 0.475 0.468 0.473 0.463 0.411 0.335 0.304 0.279 Minutes on network (mn mins) 290,802 282,138 290,459 307,988 314,831 313,403 330,217 381,236 421,912 437,142 Data KPIs Data subs ('000s) 49,470 51,013 54,860 58,216 58,903 62,659 54,915 57,362 62,560 65,769 - Mobile Broadband subs 21,360 23,895 28,094 35,460 36,572 41,335 37,690 42,716 48,911 55,218 Total MBs on the network (mn MBs) 102,015 114,960 133,946 146,768 158,035 178,125 171,817 225,109 472,385 783,809 Usage per customer (MBs/month) 706 765 843 859 904 1,000 972 1,331 2,611 4,087 DTH Digital TV Customers ('000s) 10,412 10,576 11,106 11,725 12,149 12,405 12,588 12,815 13,314 13,521 Net additions 339 164 530 619 424 256 183 227 499 207 Average Revenue Per User (ARPU) 222 224 229 229 233 232 232 228 228 233 Monthly Churn 0.8 1.3 0.7 0.8 0.8 1.2 1.3 1.2 0.9 1.4 Source: Company, HDFC sec Inst Research

Wireless ARPU declined 6% QoQ in-line with expectations; ARPU trajectory is expected to remain down for another two quarters, as high-ARPU customers’ down-trading continues, before we see the impact of up-trading 7mn QoQ additions in mobile broadband subscribers is a key positive DTH net subscriber additions were modest, impacted by higher churn; we presume this to be on account of Free Dish Uptick is ARPU is positive and could be on account of the GST benefit, with tax at 18% vs. earlier service tax of 15% and entertainment tax of 6-8%


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Key Assumptions

FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E FY22E India Wireless Subs (Mn) 188.2 205.5 226.0 251.2 273.6 291.6 310.8 326.2 338.5 348.3 Net Adds (Mn) 6.9 17.3 20.5 25.2 22.4 18.0 19.2 15.4 12.3 9.8 Implied ARPU (Rs)* 188.3 193.7 197.9 192.9 177.0 139.8 138.1 143.5 146.0 154.7 Revenue (Rs Bn) 417.4 457.7 512.3 552.2 557.4 474.2 499.3 548.6 582.2 637.7 Incremental Rev (Rs Bn) 30.1 40.3 54.6 39.9 5.1 (83.1) 25.1 49.3 33.6 55.5 EBITDA (Rs Bn) 136.1 157.6 193.7 219.1 226.8 163.1 181.5 226.0 265.2 299.0 Incremental EBITDA (Rs Bn) (0.6) 21.5 36.1 25.4 7.6 (63.7) 18.4 44.5 39.2 33.8 EBITDA Margin (%) 32.6 34.4 37.8 39.7 40.7 34.4 36.4 41.2 45.5 46.9

Africa Subs (Mn) 63.7 69.4 76.3 80.6 80.1 81.3 83.7 85.5 86.7 87.9 Net Adds (Mn) 10.6 5.7 6.8 4.3 (0.5) 1.2 2.4 1.8 1.2 1.2 Implied ARPU (Rs) 342.9 341.1 307.8 267.1 227.8 206.4 218.9 230.3 241.1 252.1 Revenue (Rs Bn) 240.4 272.5 269.1 251.3 219.6 199.8 216.7 233.7 249.0 264.0 Incremental Rev (Rs Bn) 42.2 32.1 (3.4) (17.7) (31.8) (19.8) 16.9 17.1 15.3 15.0 EBITDA (Rs Bn) 63.1 71.3 61.1 52.9 52.3 61.7 68.4 75.3 81.1 86.9 Incremental EBITDA (Rs Bn) 10.4 8.1 (10.2) (8.2) (0.6) 9.5 6.6 6.9 5.8 5.8 EBITDA Margin (%) 26.3 26.2 22.7 21.0 23.8 30.9 31.6 32.2 32.6 32.9

Consolidated Revenue (Rs Bn) India Wireless 417 458 512 552 557 474 499 549 582 638 Telemedia services 38 39 44 25 28 27 27 28 29 30 Enterprise 53 63 67 97 109 115 125 135 143 150 Passive Infra 103 51 54 56 61 64 71 74 77 81 DTH - 21 25 29 34 38 44 50 56 63 Others 20 3 3 3 3 4 4 4 5 5 South Asia 23 27 23 25 20 4 4 5 5 5 Wireless - Africa 240 273 269 251 220 200 217 234 249 264 Gross revenues 895 934 998 1,038 1,032 926 992 1,079 1,147 1,235 (-) Intersegment 92 77 77 73 78 75 80 87 93 100 Net revenues 803 857 920 965 955 851 912 991 1,054 1,135 Intersegment as % of gross 10.2 8.2 7.8 7.0 7.5 8.1 8.1 8.1 8.1 8.1

* Our ARPU is net of IUC rate cut impact of Rs 5 in FY18, Rs 10 in FY19; Rs 12 in FY20 and Rs 17 FY21 onwards


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FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E FY22E Consolidated EBITDA (Rs Bn) India Wireless 126 137 136 158 194 219 227 163 182 226 265 299 Telemedia services 16 16 16 15 18 11 13 12 12 12 12 13 Enterprise 10 8 9 14 14 30 34 39 43 46 50 53 Passive Infra 32 36 39 23 26 26 29 32 34 36 39 41 DTH - - - 3 7 10 12 14 16 19 22 24 Others (10) (9) (10) (2) (1) (2) (3) (4) (4) (4) (4) (4) South Asia - - (1) 1 (0) (1) 0 (0) (0) 0 0 1 Wireless - Africa 31 53 63 71 61 53 52 62 68 75 81 87 Gross EBITDA 205 240 252 282 318 347 365 317 351 411 465 514 (-) Intersegment 5 3 4 5 5 7 11 11 12 13 13 14 Net EBITDA 200 237 249 277 313 340 353 306 339 399 452 500

EBITDA Margin % India Wireless 36.0 35.3 32.6 34.4 37.8 39.7 40.7 34.4 36.4 41.2 45.5 46.9 Telemedia services 45.0 42.4 42.5 37.5 40.6 42.5 47.2 44.0 43.0 42.0 42.5 43.0 Enterprise 24.1 18.7 17.6 21.8 20.7 31.3 31.0 33.5 34.0 34.5 35.0 35.5 Passive Infra 37.1 37.8 37.4 44.7 47.3 47.1 48.0 49.9 48.7 49.3 50.0 50.8 DTH - - - 16.1 27.3 34.2 35.6 37.0 37.5 38.0 38.5 39.0 Others (100.0) (57.6) (50.7) (69.7) (38.1) (51.1) (93.8) (90.0) (90.0) (90.0) (90.0) (90.0) South Asia - - (4.2) 3.9 (0.9) (3.2) 1.2 (5.0) (1.0) 4.0 9.0 14.0 Wireless - Africa 24.0 26.6 26.3 26.2 22.7 21.0 23.8 30.9 31.6 32.2 32.6 32.9 Blended Margin 33.6 33.2 31.0 32.3 34.0 35.2 37.0 36.0 37.2 40.2 42.9 44.0 Source: Company, HDFC sec Inst Research


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Valuation Snapshot

Segments Sep-19 EBITDA (Rs Bn)

EBITDA/Share (Rs)

Multiple (X)

Enterprise Value (Rs Bn)

Value Per Share (Rs)

India Wireless 204 51 9 1,834 459 Telemedia services 12 3 6 71 18 Enterprise 45 11 8 356 89 DTH 18 4 10 178 44 Wireless - Africa 72 18 8 574 144 Others* (16) (4) 9 (145) (36) Sub-total 334 83 2,868 717 Passive Infra** 716 104 Enterprise Value 3,584 821 (-) Net Debt 1,048 262 Target Price 2,537 559 Option value of Tata/Uninor 240 59 Target Price 2,777 618 * Others include South Asia, Corporate costs etc; ** Passive Infra business value is basis our Bharti Infratel value of Rs 716bn @ TP of Rs 387 pro-rated for Bharti's 58% stake Per share impact of TTSL Wireless and Telenor acquisition TTSL acquisition impact Potential revenue accretion (Rs mn) 30,000 Potential EBITDA accretion @ 60% (Rs mn) 18,000 EV impact (Rs mn) 1,62,000 Liabilities assumed and transaction costs (Rs mn) (40,000) Option value of acquired liberalized spectrum at 50% of MTM value (Rs mn) 60,696 Net equity impact (Rs mn) 1,82,696 Uninor acquisition impact Potential revenue accretion (Rs mn) 15,000 Potential EBITDA accretion @ 50% (Rs mn) 9,000 EV impact (Rs mn) 81,000 Liabilities assumed and transaction costs (Rs mn) (26,000) Net equity impact (Rs mn) 55,000 Total equity impact of Tata and Uninor (Rs mn) 2,37,696 Total equity impact of Tata and Uninor (Rs/share) 59 Source: HDFC sec Inst Research


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Consolidated Income Statement (Rs bn) FY16 FY17 FY18E FY19E FY20E Revenues 965.3 954.7 851.4 911.5 991.2 Interconnect costs 109.4 102.8 80.9 61.5 59.5 License fee 94.9 92.8 80.6 86.3 93.8 Network costs 211.9 219.2 210.1 228.6 243.6 Employee costs 49.1 43.0 42.2 47.5 51.1 SG&A expenses 160.1 143.6 131.2 148.2 144.5 Total costs 625.5 601.4 545.1 572.1 592.6 EBITDA 339.8 353.3 306.4 339.5 398.6 D&A 174.5 197.7 205.1 226.1 245.8 EBIT 165.3 155.6 101.2 113.3 152.8 Net finance costs 69.3 77.1 77.4 83.5 86.3 PBT 96.1 78.5 23.8 29.8 66.5 Tax expense 59.5 44.2 15.5 13.4 26.6 PAT before minority/others 36.5 34.3 8.3 16.4 39.9 Minority interest 8.2 6.6 8.1 8.6 9.1 Share of associate profits 10.7 10.4 10.8 10.2 11.0 PAT before Eo Items 39.0 38.1 11.1 18.1 41.8 Eo (loss)/gains 21.7 (0.1) (0.4) - - RPAT 60.8 38.0 10.7 18.1 41.8

Source: Company, HDFC sec Inst Research

Consolidated Balance Sheet (Rs mn) FY16 FY17 FY18E FY19E FY20E SOURCES OF FUNDS Equity Capital 20.0 20.0 20.0 20.0 20.0 Reserves & Surplus 647.7 654.6 649.6 652.7 669.8 Shareholders Fund 667.7 674.6 669.6 672.7 689.8 Minority Interest 55.0 68.8 76.8 85.4 94.4 ST Borrowings 111.8 177.9 177.9 177.9 177.9 LT Borrowings 892.7 896.4 963.7 938.7 938.7 Total Loans 1,004.5 1,074.3 1,141.6 1,116.6 1,116.6 Other non-current liabilities 59.8 58.4 57.5 58.0 58.7 Total Liabilities 1,787.0 1,876.0 1,945.5 1,932.6 1,959.5 PP&E 657.8 644.0 734.6 788.7 821.2 Net intangible assets 1,122.1 1,246.7 1,201.4 1,135.3 1,065.7 Investment in associates 61.0 82.3 93.1 103.3 114.3 Other non-current assets 187.7 151.3 151.3 151.3 151.3 Total non-current assets 2,028.7 2,124.4 2,180.4 2,178.6 2,152.6 Inventories 1.7 0.5 1.5 1.6 1.7 Trade and other receivables 65.8 49.8 58.0 62.1 67.5 Other current assets 86.9 119.7 58.5 61.0 64.2 Current Assets 154.4 170.1 118.0 124.7 133.5 Deferred revenue 51.3 48.8 48.8 48.8 48.8 Trade & other payables 404.3 392.1 333.3 344.3 360.8 Other current liabilities 13.6 10.6 10.6 10.6 10.6 Current Liabilities 469.2 451.5 392.7 403.8 420.3 Net Current Assets (314.8) (281.5) (274.7) (279.1) (286.8) C&CE 67.1 33.1 39.8 33.2 93.7 Net assets held for sale 6.0 - - - - Total Assets 1,787.0 1,876.0 1,945.5 1,932.6 1,959.5

Source: Company, HDFC sec Inst Research


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Consolidated Cash Flow Year ending March (Rs mn) FY16 FY17 FY18E FY19E FY20E Reported PAT 60.8 38.0 10.7 18.1 41.8 Depreciation 174.5 197.7 205.1 226.1 245.8 Interest 69.3 77.1 77.4 83.5 86.3 Working Capital Change 4.6 (33.3) (6.8) 4.4 7.7 OPERATING CASH FLOW ( a ) 309.2 279.5 286.4 332.0 381.6 Capex (453.0) (308.5) (250.4) (214.1) (208.8) Free Cash Flow (143.8) (29.0) 36.1 118.0 172.9 Investments & Others (57.1) 19.7 (11.7) (9.7) (10.3) INVESTING CASH FLOW ( b ) (510.1) (288.8) (262.1) (223.8) (219.1) Capital Issuance 0.3 (12.5) (2.7) (1.6) (2.0) Debt Issuance 197.7 69.8 67.3 (25.0) - Interest (69.3) (77.1) (77.4) (83.5) (86.3) Dividend & others (6.5) (4.8) (4.8) (4.8) (13.7) FINANCING CASH FLOW ( c ) 122.2 (24.7) (17.6) (115.0) (102.0) NET CASH FLOW (a+b+c) (78.7) (34.0) 6.7 (6.7) 60.6 Closing C&CE 67.1 33.1 39.8 33.2 93.7 Source: Company, HDFC sec Inst Research

Key Ratios FY16 FY17 FY18E FY19E FY20E PROFITABILITY (%) EBITDA Margin 35.2 37.0 36.0 37.2 40.2 EBIT Margin 17.1 16.3 11.9 12.4 15.4 APAT Margin 6.3 4.0 1.3 2.0 4.2 RoE 9.4 5.7 1.6 2.7 6.1 RoIC (or Core RoCE) 4.0 3.8 1.9 3.3 4.9 RoCE 3.8 3.7 1.9 3.2 4.7 EBITDA Margin 35.2 37.0 36.0 37.2 40.2 EFFICIENCY Tax Rate (%) 62.0 56.4 65.0 45.0 40.0 Fixed Asset Turnover (x) 0.6 0.5 0.4 0.5 0.5 Inventory (days) 1 0 1 1 1 Debtors (days) 25 19 25 25 25 Other Current Assets (days) 33 46 25 24 24 Payables (days) 153 150 143 138 133 Other Current Liab & Provns (days) 25 23 25 24 22 Cash Conversion Cycle (days) (119) (108) (118) (112) (106) Net D/EBITDA (x) 2.8 2.9 3.6 3.2 2.6 Net D/E (x) 1.4 1.5 1.6 1.6 1.5 Interest Coverage (x) 2.4 2.0 1.3 1.4 1.8 PER SHARE DATA (Rs) EPS (Rs/sh) 15.2 9.5 2.7 4.5 10.5 CEPS (Rs/sh) 58.9 59.0 54.0 61.1 72.0 DPS (Rs/sh) 1.4 1.0 1.0 1.0 2.8 BV (Rs/sh) 167.0 168.8 167.5 168.3 172.6 VALUATION P/E (x) 35.2 56.3 200.1 118.5 51.1 P/BV (x) 3.2 3.2 3.2 3.2 3.1 EV/EBITDA (x) 9.1 9.0 10.6 9.5 7.9 EV/Revenues (x) 3.2 3.3 3.8 3.5 3.2 OCF/EV (%) 10.0 8.8 8.8 10.3 12.1 FCF/EV (%) (4.7) (0.9) 1.1 3.7 5.5 FCFE/Mkt Cap (%) (6.9) (3.3) (1.3) 1.1 2.7 Dividend Yield (%) 0.3 0.2 0.2 0.2 0.5 Source: Company, HDFC sec Inst Research


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Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Date CMP Reco Target 03-Nov-17 543 BUY 618

RECOMMENDATION HISTORY

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Bharti Airtel TP


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Disclosure: I, Himanshu Shah, CA, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. 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HSL may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research Report. HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 2496 5066 Compliance Officer: Binkle R. Oza Email: [email protected] Phone: (022) 3045 3600 HDFC Securities Limited, SEBI Reg. No.: NSE-INB/F/E 231109431, BSE-INB/F 011109437, AMFI Reg. No. ARN: 13549, PFRDA Reg. No. POP: 04102015, IRDA Corporate Agent License No.: HDF 2806925/HDF C000222657, SEBI Research Analyst Reg. 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