buy revival on the cards? -...

RESULTS REVIEW 1QFY19 29 JUL 2018

Bharti Airtel BUY

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

Revival on the cards? Bharti Airtel’s 1QFY19 revenue at Rs 200.8bn (+2.3 QoQ) and EBITDA at 67.3bn (-2.9% QoQ) was marginally higher than estimates led by both India wireless and Africa. Modest revenue decline in India wireless business (+1.2% QoQ, ~-1% adjusted for Telenor) despite 9% ARPU decline to Rs. 105 and healthy margin in Africa were the key highlights.

Management indicated that the prices should start lifting upwards in six months. Though it is a function of competitive dynamics, the equal structural split amongst the three large players has started to emerge. With complete exit of weaker players and thus lack of their subscribers for grab, merger of Voda-Idea and their likely comeback to regain the lost grounds on 4G and with towering cash burn for all the operators, we believe improvement in pricing is a high probability event. This will be positive for all the players.

Even if competitive intensity remains high, Bharti with its manageable debt and assets monetization, healthy spectrum footprint and head-start in 4G is well poised. Reiterate BUY. Our SOTP is Rs 455, 9x FY20E EV/E for India wireless.

Key highlights India wireless business: India wireless EOP subscribers

stood at 345mn, +41mn QoQ (incl. Telenor 28mn). ARPU declined from Rs. 115 to Rs. 105. Data volumes grew by 355% YoY/39% QoQ to 2.15bn GBs. EOP data subs were at 95mn (27.5% of total), +8.7 mn QoQ.

Competitive intensity though remain high, worst of the pain in terms of subscriber downgrades is behind. We expect the ARPU to decline further marginally, however revenue erosion to stem a key positive. Costs pressure to keep EBITDA growth under check.

Capex during 1QFY19 was at Rs. 82bn due to front loading. But management has maintained guidance of ~Rs. 270bn. 4G FDD coverage is broadly through. Incremental capex to be on TDD (VoLTE), fiber and transmission.

Africa, healthy margin performance: Led by management change, enhanced distribution, focus on network and cost rationalization- Bharti has delivered healthy improvement in Africa EBITDA over FY17-18. Africa revenue and EBITDA increased by 6.3/7.6%. Though the quarter was slow, the constant currency growth was upbeat.

Near-term outlook: The near-term remains challenging as hyper competition persists.

Consolidated Financial Summary (Rs bn) 1QFY19 1QFY18 YoY (%) 4QFY18 QoQ (%) FY17 FY18 FY19E FY20E FY21E Net Sales 200.8 219.6 (8.6) 196.3 2.3 954.7 836.9 827.7 920.0 980.4 EBITDA 67.3 77.6 (13.3) 69.3 (2.9) 353.3 300.8 276.0 335.5 385.9 APAT 1.0 3.7 (73.5) 0.8 17.4 38.0 11.0 (12.2) 8.4 28.8 Diluted EPS (Rs) 9.5 4.7 (3.1) 2.1 7.2 P/E (x) 38.0 76.7 NA NA 50.3 EV / EBITDA (x) 7.1 8.1 9.2 7.6 6.5 RoE (%) 5.7 1.6 (1.8) 1.3 4.4 Source: Company, HDFC sec Inst Research

INDUSTRY TELECOM

CMP (as on 27 Jul 2018) Rs 365

Target Price Rs 455 Nifty 11,278

Sensex 37,337

KEY STOCK DATA

Bloomberg BHARTI IN

No. of Shares (mn) 3,997

MCap (Rs bn) / ($ mn) 1,458/21,216

6m avg traded value (Rs mn) 2,641

STOCK PERFORMANCE (%)

52 Week high / low Rs 565/331

3M 6M 12M

Absolute (%) (10.8) (19.4) (12.3)

Relative (%) (17.5) (23.0) (27.6)

SHAREHOLDING PATTERN (%)

Promoters 67.1

FIs & Local MFs 12.4

FPIs 18.5

Public & Others 2.0 Source : BSE

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

BHARTI AIRTEL : RESULTS REVIEW 1QFY19

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Quarterly Financial Snapshot: Consolidated Rs Bn 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 % chg YoY % chg QoQ Total revenues 219.3 219.6 217.8 203.2 196.3 200.8 -8.6% 2.3% Access charges 22.8 25.0 25.6 19.5 20.3 21.4 -14.6% 5.3% Net revenue 196.6 194.6 192.2 183.6 176.1 179.4 -7.8% 1.9% License fees 20.9 20.8 19.7 17.5 17.5 17.0 -18.5% -2.9% Network costs 51.6 51.6 50.5 47.4 48.1 50.7 -1.8% 5.4% Employee costs 10.5 10.1 10.1 9.6 9.9 9.7 -4.8% -2.9% S&M 16.9 14.2 12.9 14.6 14.1 13.0 -8.9% -8.3% G&A 18.1 20.2 19.8 19.9 17.1 21.9 8.6% 27.9% Total Opex 118.0 117.0 112.9 109.0 106.8 112.2 -4.1% 5.1% EBITDA 78.6 77.6 79.2 74.7 69.3 67.3 -13.3% -2.9% D&A 49.4 48.2 46.9 48.4 49.0 51.5 6.8% 5.0% EBIT 29.2 29.4 32.3 26.3 20.3 15.8 -46.2% -22.2% Finance cost (net) 19.2 18.3 23.3 20.9 18.3 21.3 16.4% 16.3% Share in JVs/Associates 2.5 2.9 3.7 2.3 1.8 1.7 -42.1% -10.0%

Other (inc)/exp 3.0 3.3 4.2 3.0 2.6 2.7 -20.7% 2.4% PBT 12.5 14.8 13.0 8.4 4.4 (2.8) -119.2% -164.5% Tax expense 1.8 8.1 5.3 0.4 (3.0) (11.3) -238.5% 273.0% EO exp/(inc) 6.1 0.5 1.8 2.4 3.2 3.6 619.9% 11.5% PAT (after EO items) 4.7 6.2 5.9 5.6 4.2 4.8 -22.4% 14.5% Minority Interests 1.0 2.5 2.4 2.5 3.4 3.8 52.7% 13.8% Net Income 3.7 3.7 3.4 3.1 0.8 1.0 -73.5% 17.4% Source: Company, HDFC sec Inst Research

YoY and QoQ numbers are not comparable owing to acquisition of Telenor YoY revenue and access costs are not comparable owing to 57% cut in termination rate from 14p/min to 6p/min Despite intense competition, Bharti has held on well to its revenue Increase in access costs QoQ owing to 15% increase in minutes Increase in costs owing to consolidation of Telenor operations


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Margin Analysis (%)

4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 chg YoY (bps) chg QoQ (bps) Access charges 10.4 11.4 11.8 9.6 10.3 10.6 -76 30 License fees 9.5 9.5 9.1 8.6 8.9 8.5 -103 -45 Network costs 23.5 23.5 23.2 23.3 24.5 25.2 173 75 Employee costs 4.8 4.6 4.6 4.7 5.1 4.8 19 -26 Sales & marketing 7.7 6.5 5.9 7.2 7.2 6.5 -2 -74 G&A 8.2 9.2 9.1 9.8 8.7 10.9 173 219 Total Opex 53.8 53.3 51.9 53.6 54.4 55.9 260 150 EBITDA 35.8 35.3 36.4 36.8 35.3 33.5 -184 -180 D&A 22.5 21.9 21.5 23.8 25.0 25.6 368 67 EBIT 13.3 13.4 14.9 13.0 10.3 7.9 -551 -247 Finance costs 8.7 8.3 10.7 10.3 9.3 10.6 227 127 Profit before Tax 5.7 6.7 6.0 4.1 2.2 (1.4) -817 -367 Net Income 1.7 1.7 1.6 1.5 0.4 0.5 -119 6 Source: Company, HDFC sec Inst Research

Bharti has protected its margin well despite the pressure on revenue led by its focus on costs management ‘war on waste’


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Segment-wise Financial Performance Revenues (Rs Bn) 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 % chg

YoY % chg

QoQ FY17 FY18 % chg YoY

Mobile 129.7 129.1 122.5 107.5 103.5 104.8 -18.8% 1.2% 565.5 462.6 -18.2% Home 6.8 6.7 6.4 6.2 6.0 5.7 -14.3% -4.9% 27.5 25.3 -8.2% Digital 8.7 9.0 9.4 9.6 9.6 9.9 10.6% 3.5% 34.3 37.6 9.5% Business 25.8 27.9 28.3 29.1 28.3 29.9 7.4% 5.8% 109.4 113.2 3.5% Towers 16.0 16.0 16.6 16.9 16.7 16.9 6.1% 1.3% 60.8 66.3 9.0% Others 0.9 1.0 1.0 1.0 1.0 0.4 -63.4% -62.9% 3.7 4.0 7.5% India 187.9 189.7 184.1 170.4 165.2 167.7 -11.6% 1.5% 801.3 709.0 -11.5% South Asia 1.0 1.0 1.0 1.0 1.0 1.1 9.1% 2.6% 11.7 4.0 -65.6% Africa 50.5 48.5 52.0 51.3 49.7 52.8 8.9% 6.3% 219.6 201.6 -8.2% (-) Intersegment (19.0) (18.6) (18.3) (18.5) (18.6) (18.8) 0.8% 1.3% (66.2) (73.7) 11.3% Total 219.3 219.6 217.8 203.2 196.3 202.8 -7.6% 3.3% 954.7 836.9 -12.3%

EBITDA (Rs Bn) 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 % chg

YoY % chg

QoQ FY17 FY18 % chg YoY

Mobile 47.9 44.3 42.1 35.1 29.4 27.6 -37.7% -6.2% 227.7 150.9 -33.7% Home 3.3 3.0 2.7 3.1 3.0 2.9 -5.1% -4.7% 13.0 11.8 -9.2% Digital 3.2 3.3 3.5 3.7 3.7 4.0 21.5% 8.3% 12.2 14.2 16.4% Business 9.4 9.4 9.9 11.7 11.5 10.4 11.0% -9.1% 33.9 42.3 24.8% Towers 7.9 8.0 8.1 8.3 8.1 7.8 -1.8% -4.0% 29.2 32.5 11.5% Others (2.4) (0.9) (0.9) (1.8) (0.7) (1.2) 30.9% 84.5% (3.8) (4.3) 11.4% India 69.3 67.0 65.5 60.1 55.1 51.5 -23.2% -6.5% 312.2 247.5 -20.7% South Asia (0.1) (0.1) (0.0) 0.0 0.1 0.0 -116.1% -85.1% 0.2 0.0 -96.6% Africa 13.1 13.6 16.8 18.2 17.9 19.2 41.7% 7.6% 52.3 66.5 27.3% (-) Intersegment (3.7) (2.9) (3.0) (3.6) (3.2) (3.3) 11.5% 2.7% (11.4) (12.7) 11.7% Total 78.6 77.6 79.2 74.7 69.8 67.5 -13.1% -3.4% 353.3 301.3 -14.7%

Margin % 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 chg YoY (bps)

chg QoQ (bps) FY17 FY18 chg YoY

(bps) Mobile 36.9% 34.3% 34.4% 32.6% 28.4% 26.3% -795 -209 40.3% 32.6% -766 Home 49.0% 45.0% 42.6% 49.9% 49.7% 49.8% 480 9 47.2% 46.7% -52 Digital 36.4% 36.8% 37.5% 38.5% 38.6% 40.4% 364 179 35.6% 37.9% 225 Business 36.6% 33.7% 35.1% 40.1% 40.5% 34.8% 113 -571 31.0% 37.4% 639 Towers 49.6% 49.8% 48.9% 49.1% 48.7% 46.1% -366 -255 48.0% 49.1% 114 India 36.9% 35.3% 35.6% 35.3% 33.3% 30.7% -463 -265 39.0% 34.9% -405 South Asia -11.1% -6.4% -1.4% 1.8% 6.5% 0.9% 735 -553 2.0% 0.2% -182 Africa 25.9% 28.0% 32.2% 35.4% 35.9% 36.4% 842 45 23.8% 33.0% 921 Blended 35.8% 35.3% 36.4% 36.8% 35.3% 33.3% -208 -231 37.0% 36.0% -100 Source: Company, HDFC sec Inst Research

Bharti see revenue decline bottoming led by new subscriber growth and decline in rate of subscriber downgrades India business has been the key laggard in FY18 while Africa delivered a strong EBITDA performance


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Operating KPIs

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

% chg QoQ

India Wireless KPIs Customer Base ('000s) 2,59,941 2,65,853 2,73,648 2,80,647 2,82,047 2,90,113 3,04,192 3,44,564 22.8% 13.3% VLR (%) 97.4% 97.2% 97.3% 96.9% 96.5% 99.2% 107.2% 99.8% 3.0% -6.9% Net Additions ('000s) 4,206 5,912 7,796 6,999 1,400 8,066 14,079 40,372 476.8% 186.8%

Pre-Paid (as % of total base) 93.7% 93.7% 93.7% 93.8% 93.7% 93.7% 93.9% 94.6% 89 bps 69 bps Monthly Churn (%) 3.7% 4.1% 3.6% 3.8% 3.9% 3.3% 2.8% 2.0% -182 bps -78 bps ARPU (Rs/month) 187.9 172.0 157.6 154.5 144.7 122.8 115.6 105.4 -31.8% -8.8% MOU (min/month) 406 419 471 507 518 575 670 700 38.1% 4.5% Minutes on network (mn mins) 3,13,403 3,30,217 3,81,236 4,21,912 4,37,142 4,94,546 5,92,657 6,84,191 62.2% 15.4% Data KPIs Data subs ('000s) 62,659 54,915 57,362 62,560 65,769 70,836 86,077 94,783 51.5% 10.1% - Mobile Broadband subs 41,335 37,690 42,716 48,911 55,218 62,149 76,578 85,706 75.2% 11.9% Total MBs on the network (mn MBs) 1,78,125 1,71,817 2,25,109 4,72,385 7,83,809 11,05,839 15,39,746 21,50,645 355.3% 39.7% Usage per customer (MBs/month) 1,000 972 1,331 2,611 4,087 5,349 6,585 7,864 201.2% 19.4% DTH Digital TV Customers ('000s) 12,405 12,588 12,815 13,314 13,521 13,937 14,168 14,646 10.0% 3.4% Net additions 256 183 228 499 207 416 230 479 -4.1% 107.8% Average Revenue Per User (ARPU) 232 232 228 228 233 233 228 229 0.3% 0.5% Monthly Churn 1.23% 1.34% 1.15% 0.92% 1.36% 1.23% 1.10% 0.72% -19 bps -37 bps Africa Customer Base ('000s) 78,145 80,356 80,061 80,039 78,742 84,130 89,262 91,193 13.9% 2.2% VLR (%) 81.2 81.1 80.5 80.3 82.1 82.1 83.7 83.3 303 bps -37 bps Net Additions 1,159 2,211 (295) (22) (1,297) 5,388 5,133 1,930 - - Pre-Paid (as % of total base) 99.2 99.2 99.1 99.1 99.0 99.1 98.8 99.2 13 bps 35 bps Monthly Churn (%) 5.3 4.9 5.2 5.0 4.7 4.2 4.1 4.9 -8 bps 74 bps ARPU (US$/month) 3.4 3.3 3.1 3.1 3.4 3.2 3.0 2.9 -5.6% -2.4% MOU (min/month) 159.0 152.0 141.0 149.0 164.0 172.4 171.6 183.2 22.9% 6.7% Minutes on network (mn mins) 36,570 35,913 33,977 35,773 38,406 41,928 44,688 49,666 38.8% 11.1% Source: Company, HDFC sec Inst Research

Overall and data subs additions remains healthy


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Key Assumptions

FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E India Wireless Subs (Mn) 188.2 205.5 226.0 251.2 273.6 304.2 362.2 386.2 405.4 Net Adds (Mn) 6.9 17.3 20.5 25.2 22.4 30.5 58.0 24.0 19.2 Implied ARPU (Rs)* 188.3 193.7 197.9 192.9 177.0 133.4 102.1 104.9 105.7 Revenue (Rs Bn) 417.4 457.7 512.3 552.2 557.4 462.6 408.1 471.2 501.9 Incremental Rev (Rs Bn) 30.1 40.3 54.6 39.9 5.1 (94.7) (54.5) 63.1 30.6 EBITDA (Rs Bn) 136.1 157.6 193.7 219.1 226.8 150.9 109.5 155.2 192.2 Incremental EBITDA (Rs Bn) (0.6) 21.5 36.1 25.4 7.6 (75.9) (41.3) 45.7 37.0 EBITDA Margin (%) 32.6 34.4 37.8 39.7 40.7 32.6 26.8 32.9 38.3

Africa Subs (Mn) 63.7 69.4 76.3 80.6 80.1 89.3 91.7 93.5 94.7 Net Adds (Mn) 10.6 5.7 6.8 4.3 (0.5) 9.2 2.4 1.8 1.2 Implied ARPU (Rs) 342.9 341.1 307.8 267.1 227.8 196.6 199.6 210.4 220.6 Revenue (Rs Bn) 240.4 272.5 269.1 251.3 219.6 199.8 216.7 233.7 249.0 Incremental Rev (Rs Bn) 42.2 32.1 (3.4) (17.7) (31.8) (19.8) 16.9 17.1 15.3 EBITDA (Rs Bn) 63.1 71.3 61.1 52.9 52.3 66.7 74.4 82.5 88.8 Incremental EBITDA (Rs Bn) 10.4 8.1 (10.2) (8.2) (0.6) 14.5 7.7 8.1 6.3 EBITDA Margin (%) 26.3 26.2 22.7 21.0 23.8 33.4 34.4 35.3 35.7

Consolidated Revenue (Rs Bn) India Wireless 417 458 512 552 557 463 408 471 502 Telemedia services 38 39 44 25 28 25 27 28 29 Enterprise 53 63 67 97 109 113 125 135 143 Passive Infra 103 51 54 56 61 66 71 74 77 DTH - 21 25 29 34 38 44 50 56 Others 20 3 3 3 3 4 4 4 5 South Asia 23 27 23 25 20 4 4 5 5 Wireless - Africa 240 273 269 251 220 202 217 234 249 Gross revenues 895 934 998 1,038 1,032 915 901 1,001 1,067 (-) Intersegment 92 77 77 73 78 74 73 81 86 Net revenues 803 857 920 965 955 841 828 920 980 Intersegment as % of gross 10.2 8.2 7.8 7.0 7.5 8.1 8.1 8.1 8.1


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FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E Consolidated EBITDA (Rs Bn) India Wireless 136 158 194 219 227 151 110 155 192 Telemedia services 16 15 18 11 13 12 12 12 12 Enterprise 9 14 14 30 34 42 44 47 49 Passive Infra 39 23 26 26 29 33 34 36 39 DTH - 3 7 10 12 14 16 19 21 Others (10) (2) (1) (2) (3) (4) (4) (4) (4) South Asia (1) 1 (0) (1) 0 0 (0) 0 0 Wireless - Africa 63 71 61 53 52 67 74 83 89 Gross EBITDA 252 282 318 347 365 314 287 348 399 (-) Intersegment 4 5 5 7 11 13 11 12 13 Net EBITDA 249 277 313 340 353 301 276 336 386

EBITDA Margin % India Wireless 32.6 34.4 37.8 39.7 40.7 32.6 26.8 32.9 38.3 Telemedia services 42.5 37.5 40.6 42.5 47.2 46.7 43.0 42.0 42.5 Enterprise 17.6 21.8 20.7 31.3 31.0 37.4 35.5 35.0 34.5 Passive Infra 37.4 44.7 47.3 47.1 48.0 49.1 48.7 49.3 50.0 DTH - 16.1 27.3 34.2 35.6 37.9 37.5 37.0 37.5 Others (50.7) (69.7) (38.1) (51.1) (93.8) (106.7) (95.0) (95.0) (95.0) South Asia (4.2) 3.9 (0.9) (3.2) 1.2 0.2 (1.0) 4.0 9.0 Wireless - Africa 26.3 26.2 22.7 21.0 23.8 33.0 34.4 35.3 35.7 Blended Margin 31.0 32.3 34.0 35.2 37.0 35.8 33.3 36.5 39.4 Source: Company, HDFC sec Inst Research


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Valuation Snapshot

Segments Jun-20 EBITDA (Rs Bn)

Jun-20 EBITDA/ Share (Rs) Multiple (X) Enterprise Value

(Rs Bn) Value Per Share

(Rs) India Wireless 164 41 9.0 1,480 370 Telemedia services 12 3 7.5 90 22 Enterprise 48 12 7.5 358 89 DTH 19 5 9.0 173 43 Wireless - Africa 84 21 7.5 631 158 Others* (16) (4) 9.0 (147) (37) Sub-total 311 78 2,585 646 Passive Infra** 301 75 Enterprise Value 2,886 721 (-) Net Debt 1,067 267 Target Price 1,819 455 * Others include South Asia, Corporate costs etc; ** Passive Infra business value is basis our Infratel value of Rs 301bn @ TP of Rs 306 Change in estimates

Old New % change

FY19 FY20 FY19 FY20 FY19 FY20 Revenue 841.0 917.7 827.7 920.0 (1.6) 0.3 EBITDA 301.1 352.7 276.0 335.5 (8.3) (4.9) EBITDA margin % 35.8 38.4 33.3 36.5 (246) (196) APAT (5.1) 11.5 (12.2) 8.4 139.1 (27.1) Peer Set Comparison

Company Mcap

(Rs bn)

CMP (Rs)

TP (Rs)

Rating (Rs)

EV/EBITDA (X) P/E (X) ROE (%)

FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E

Bharti Airtel 1,458 365 455 BUY 8.1 9.2 7.6 76.7 NA 173.0 1.6 NA 1.3 Idea Cellular 248 57 70 BUY 13.0 27.7 13.5 NA NA NA NA NA NA Bharti Infratel 531 287 306 NEU 7.8 8.3 7.7 20.9 20.9 18.8 15.7 15.2 17.2 Source: Company, HDFC sec Inst Research


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Consolidated Income Statement (Rs bn) FY17 FY18 FY19E FY20E FY21E Revenues 954.7 836.9 827.7 920.0 980.4 Interconnect costs 102.8 90.4 80.7 82.8 58.8 License fee 92.8 75.6 74.2 82.5 87.9 Network costs 219.2 197.5 185.1 201.1 211.4 Employee costs 43.0 39.8 43.1 47.4 50.1 SG&A expenses 143.6 132.8 168.7 170.6 186.3 Total costs 601.4 536.1 551.8 584.5 594.5 EBITDA 353.3 300.8 276.0 335.5 385.9 D&A 197.7 192.4 217.0 238.0 252.2 EBIT 155.6 108.4 59.0 97.5 133.7 Net finance costs 77.1 78.4 79.1 82.2 86.1 PBT 78.5 30.0 (20.1) 15.3 47.6 Tax expense 44.2 10.8 (9.0) 6.1 18.3 PAT before minority/others 34.3 19.2 (11.1) 9.2 29.3 Minority interest 6.6 10.8 11.3 11.8 12.3 Share of associate profits 10.4 10.6 10.2 11.0 11.8 PAT before Eo Items 38.1 18.9 (12.2) 8.4 28.8 Eo (loss)/gains (0.1) (7.9) - - - RPAT 38.0 11.0 (12.2) 8.4 28.8

Source: Company, HDFC sec Inst Research

Consolidated Balance Sheet (Rs bn) FY17 FY18 FY19E FY20E FY21E SOURCES OF FUNDS Equity Capital 20.0 20.0 20.0 20.0 20.0 Reserves & Surplus 654.6 675.4 640.9 635.8 642.5 Shareholders Fund 674.6 695.3 660.9 655.8 662.5 Minority Interest 68.8 88.1 99.5 111.3 123.7 ST Borrowings 177.9 263.9 263.9 263.9 263.9 LT Borrowings 896.4 849.4 852.7 852.7 852.7 Total Loans 1,074.3 1,113.3 1,116.6 1,116.6 1,116.6 Other non-current liabilities 58.4 90.5 90.4 91.3 91.9 Total Liabilities 1,876.0 1,987.3 1,967.4 1,975.0 1,994.6 PP&E 644.0 706.1 891.5 939.4 962.1 Net intangible assets 1,246.7 1,263.4 1,135.3 1,065.7 996.1 Investment in associates 82.3 86.8 97.0 108.1 119.9 Other non-current assets 151.3 114.5 114.5 114.5 114.5 Total non-current assets 2,124.4 2,170.8 2,238.3 2,227.6 2,192.6 Inventories 0.5 0.7 0.9 0.7 0.9 Trade and other receivables 49.8 58.8 52.6 57.1 64.0 Other current assets 119.7 139.8 118.5 135.6 144.4 Current Assets 170.1 199.3 171.9 193.4 209.3 Deferred revenue 48.8 48.7 48.7 48.7 48.7 Trade & other payables 392.1 456.1 405.8 400.6 413.4 Other current liabilities 10.6 13.7 13.7 13.7 13.7 Current Liabilities 451.5 518.5 468.1 463.0 475.8 Net Current Assets (281.5) (319.2) (296.2) (269.6) (266.5) C&CE 33.1 135.7 25.4 17.0 68.6 Total Assets 1,876.0 1,987.3 1,967.4 1,975.0 1,994.6

Source: Company, HDFC sec Inst Research


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Consolidated Cash Flow Year ending March (Rs bn) FY17 FY18 FY19E FY20E FY21E Reported PAT 38.0 11.0 (12.2) 8.4 28.8 Depreciation 197.7 192.4 217.0 238.0 252.2 Interest 77.1 78.4 79.1 82.2 86.1 Working Capital Change (33.3) 37.7 (23.0) (26.6) (3.0) OPERATING CASH FLOW ( a ) 279.5 319.5 260.9 302.0 364.1 Capex (308.5) (271.2) (274.2) (216.4) (205.4) Free Cash Flow (29.0) 48.3 (13.3) 85.6 158.7 Investments & Others 7.1 98.4 (9.2) (9.3) (10.8) INVESTING CASH FLOW ( b ) (301.4) (172.8) (283.4) (225.7) (216.1) Capital Issuance - - - - - Debt Issuance 69.8 39.1 3.3 - - Interest (77.1) (78.4) (79.1) (82.2) (86.1) Dividend & others (4.8) (4.8) (12.0) (2.5) (10.3) FINANCING CASH FLOW ( c ) (12.1) (44.1) (87.9) (84.6) (96.3) NET CASH FLOW (a+b+c) (34.0) 102.6 (110.3) (8.4) 51.6 Closing C&CE 33.1 135.7 25.4 17.0 68.6 Source: Company, HDFC sec Inst Research

Key Ratios FY16 FY17 FY18E FY19E FY20E PROFITABILITY (%) EBITDA Margin 37.0 35.9 33.3 36.5 39.4 EBIT Margin 16.3 12.9 7.1 10.6 13.6 APAT Margin 4.0 1.3 (1.5) 0.9 2.9 RoE 5.7 1.6 (1.8) 1.3 4.4 RoIC (or Core RoCE) 3.8 3.7 1.7 3.0 4.2 RoCE 3.7 3.6 1.6 3.0 4.1 EFFICIENCY Tax Rate (%) 56.4 36.1 45.0 40.0 38.4 Fixed Asset Turnover (x) 0.5 0.4 0.4 0.5 0.5 Inventory (days) 0 0 0 0 0 Debtors (days) 19 26 23 23 24 Other Current Assets (days) 46 61 52 54 54 Payables (days) 150 199 179 159 154 Other Current Liab & Provns (days) 23 27 28 25 23 Cash Conversion Cycle (days) (108) (139) (131) (107) (99) Net D/EBITDA (x) 2.9 3.3 4.0 3.3 2.7 Net D/E (x) 1.5 1.4 1.7 1.7 1.6 Interest Coverage (x) 2.0 1.4 0.7 1.2 1.6 PER SHARE DATA (Rs) EPS (Rs/sh) 9.5 4.7 (3.1) 2.1 7.2 CEPS (Rs/sh) 59.0 50.9 51.2 61.6 70.3 DPS (Rs/sh) 1.0 1.0 2.5 0.5 2.1 BV (Rs/sh) 168.8 173.9 165.3 164.1 165.7 VALUATION P/E (x) 38.0 76.7 (119.0) 173.0 50.3 P/BV (x) 2.2 2.1 2.2 2.2 2.2 EV/EBITDA (x) 7.1 8.1 9.2 7.6 6.5 EV/Revenues (x) 2.6 2.9 3.1 2.8 2.5 OCF/EV (%) 11.2 13.1 10.3 11.8 14.6 FCF/EV (%) (1.2) 2.0 (0.5) 3.4 6.3 FCFE/Mkt Cap (%) (4.3) (1.2) (3.6) 0.1 2.9 Dividend Yield (%) 0.3 0.3 0.7 0.1 0.6 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 3-Nov-17 543 BUY 618 10-Jan-18 511 BUY 618 20-Jan-18 498 BUY 600 13-Apr-18 381 BUY 490 26-Apr-18 420 BUY 487 6-Jul-18 363 BUY 460

29-Jul-18 365 BUY 455

RECOMMENDATION HISTORY

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8

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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