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RESULTS REVIEW 3QFY19 01 FEB 2019

Bharti Airtel BUY

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

Tough timesBharti Airtel’s 3QFY19 revenue at Rs 205.2bn (+0.5% QoQ) and EBITDA at Rs 62.2bn (-0.4%) was in-line. Key positives were (1) flat India wireless revenue after declining for nine consequent quarters and (2) flat consol EBITDA. This is against 6.5% CQGR decline in trailing four quarters and (3) 11mn 4G sub additions.

Strategically, we believe Bharti is moving in the right direction with aggressive 4G network roll-out, matching Jio on tariffs, mandating monthly recharge for low ARPU customers, strengthening balance sheet etc. to re-gain the lost revenue growth momentum. However, we are yet to see the meaningful growth revival as subscriber upgrades only neutralizes downgrade/churn.

That said, Jio is persistently raising the competitive bar through various innovations. Jio’s interest and aggression in media space may pose risk for Bharti.

Rising cash burn for all the telcos (including Jio) is the key hope for tariff increases. Maintain faith. We have marginally altered our revenue/EBITDA/debt assumptions. Reiterate BUY with SoTP of Rs 404 (earlier Rs 396). We value India Wireless business at 10x and Africa at 7.5x Dec-20E EV/EBITDA.

Key highlights India wireless business: Bharti altered its India wireless

subscriber definition. It now includes only revenue generating customers instead of active. This led to a 15% (48.4mn) QoQ decline in subs to 284mn, marginally ahead of Jio’s 280mn. Bharti will lag Jio in 4QFY19 on subscriber count moving to no. 3 position. We believe in management’s guidance of further decline in subscribers in 4QFY19/1QFY20 as full impact of minimum recharge plan kicks in. However, this will have negligible impact on revenues.

Reported ARPU stood at Rs 104 vs. Rs 100 QoQ. However on closing subs ARPU would stand at Rs 118.

Data subscribers grew by 9.8mn QoQ to 107.5mn viz. 38% of subscriber base. MBB subs growth was even more impressive at 11.3mn to 77mn. Data volumes grew by 21% QoQ to 3.22bn GBs and Usage/sub by 14% to 10.5GB/month.

Africa business continues to report healthy performance. Revenues/EBITDA increased by 4.5% QoQ, partly aided by rupee depreciation. EBITDA margin stood at 37% (flat QoQ and up 165 bps YoY). Subs additions were robust at 3.8mn to 97.9mn.

Near-term outlook: Competitive intensity though high, substantial pain is behind. But, resumption of revenue growth is inevitable for re-rating.

Consolidated Financial Summary (Rs bn) 3QFY19 3QFY18 YoY (%) 2QFY19 QoQ (%) FY17 FY18 FY19E FY20E FY21E Net Sales 205.2 203.2 1.0 204.2 0.5 954.7 836.9 818.0 868.4 937.4 EBITDA 62.2 74.7 (16.7) 62.4 (0.4) 353.3 300.8 256.4 281.3 329.8 APAT 0.9 3.1 (71.8) 1.2 (27.5) 38.0 11.0 (7.9) (37.7) (11.1) Diluted EPS (Rs) 0.2 0.8 (71.8) 0.3 (27.5) 9.5 2.7 (2.0) (9.4) (2.8) P/E (x) 32.8 113.5 NA NA NA EV / EBITDA (x) 6.7 7.7 9.5 8.8 7.4 RoE (%) 5.7 1.6 (1.1) (5.5) (1.7) Source: Company, HDFC sec Inst Research

INDUSTRY TELECOM

CMP (as on 01 Feb 2019) Rs 312

Target Price Rs 404

Nifty 10,894

Sensex 36,469

KEY STOCK DATA

Bloomberg BHARTI IN

No. of Shares (mn) 3,997

MCap (Rs bn) / ($ mn) 1,247/17,484

6m avg traded value (Rs mn) 2,223

STOCK PERFORMANCE (%)

52 Week high / low Rs 449/277

3M 6M 12M

Absolute (%) 6.3 (18.9) (28.9)

Relative (%) 0.3 (16.1) (30.4)

SHAREHOLDING PATTERN (%)

Promoters 67.1

FIs & Local MFs 13.9

FPIs 17.1

Public & Others 1.9

Source : BSE

Himanshu Shah

[email protected]

+91-22-6171-7315

Mansi Lall

[email protected]

+91-22-3021-2070

BHARTI AIRTEL : RESULTS REVIEW 3QFY19

Page | 2

Concall highlights

Key factors that will drive revenue growth are (a)

Subscriber upgrades from 2G to 4G. (b) Incremental

revenue contribution from minimum recharge plan.

This is despite slippage on customer number and (c)

benefits from price increase. Bharti has recently

increased prices on lowest Smartphone pack from Rs

99 to Rs 119.

Bharti’s management estimates ~750-800mn unique

sim users currently. It further expects 200-300mn

subscribers to convert into 4G subscribers over next

2-3 years i.e. largely a 4G market vs. current ~400mn

4G users.

Management highlighted that 200 of the total 700

districts accounts for 80% of the industry revenues.

Their focus remains on these districts.

Simultaneously, Bharti will expand its 4G services

from 1,000 to 5,000 cities in FY20.

In addition to revenue growth, Bharti expects the

costs structure to remain stable except access costs.

This we believe is feasible and appreciable. This is

despite increasing consumption. We have assumed a

moderate growth in operating costs.

Bharti expects capex intensity to start moderating

from FY20. This is on account of 4G capex on LTE and

transmission network rollout in FY18/19. Incremental

capacity expansion to be more modular base for TD-

LTE, negligible capex for 4G spectrum refarming in

900/2100 MHz band etc. Jio’s current data usage is

nearly 2.65x of Bharti. While there is plausibility of

Bharti’s capex moderating from current Rs 260-280bn

p.a., we still expect it to remain around Rs 200-220bn.

Bharti now treats Airtel Payments Bank operation as

associate instead of subsidiary. Bharti’s holding is

static at 80%. However, due to change in certain

shareholders rights, reclassification has got triggered.

Impact of IUC reduction from 1st Jan, 2020: With Jio

gaining market share, Bhari’s off-net minutes/total

minutes is on rise, leading to significant rise in access

costs. However, Bharti’s is net positive (IC revenue

less payout on OG). It further expects that there

would be negative impact on EBITDA as IUC is phased

out from 6p/min in Jan’20. We have estimated a

quarterly impact of ~Rs 4bn on account of this.


Page | 3

Quarterly Financial Snapshot: Consolidated Rs Bn 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 % chg YoY % chg QoQ

Total revenues 217.8 203.2 196.3 200.8 204.2 205.2 1.0 0.5

IUC costs 25.6 19.5 20.3 21.4 23.3 24.5 25.2 5.0

Net revenue 192.2 183.6 176.1 179.4 180.9 180.7 -1.6 -0.1

License fees 19.7 17.5 17.5 17.0 17.7 17.5 -0.4 -1.3

Network costs 50.5 47.4 48.1 50.7 56.1 57.5 21.5 2.6

Employee costs 10.1 9.6 9.9 9.7 9.4 9.5 -0.6 1.8

SG&A 32.7 34.5 31.3 34.9 35.4 34.0 -1.3 -3.9

Total Opex (ex IUC) 112.9 109.0 106.8 112.2 118.5 118.6 8.8 0.0

EBITDA 79.2 74.7 69.3 67.3 62.4 62.2 -16.7 -0.4

D&A 46.9 48.4 49.0 51.5 52.4 54.7 13.1 4.5

EBIT 32.3 26.3 20.3 15.8 10.1 7.5 -71.7 -25.9

Finance cost (net) 23.3 20.9 18.3 21.3 29.9 19.4 -6.9 -34.9

Share in JVs/Associates

3.7 2.3 1.8 1.7 1.6 (0.1) -104.3 -106.0

Other (inc)/exp 4.2 3.0 2.6 2.7 2.3 0.6 -80.5 -75.2

PBT 13.0 8.4 4.4 (2.8) (18.5) (12.1) -244.8 -34.5

Tax expense 5.3 0.4 (3.0) (11.3) (22.5) (1.8) -581.3 -91.9

EO exp/(inc) 1.8 2.4 3.2 3.6 1.4 (14.1) -690.3 -1075.6

PAT (after EO items) 5.9 5.6 4.2 4.8 2.5 3.8 -31.8 53.5

Minority Interests 2.4 2.5 3.4 3.8 1.3 3.0 16.3 127.3

Net Income 3.4 3.1 0.8 1.0 1.2 0.9 -71.8 -27.5

Source: Company, HDFC sec Inst Research

Sharp increase in access costs QoQ due to adverse minute mix and network costs due to rising 4G consumption and merger of Voda-Idea impacting tower rentals. This were key negatives Lower finance costs QoQ owing to derivatives and exchange gain vs. loss in previous quarter and higher investment income


Page | 4

Margin Analysis (%)

2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 chg YoY (bps) chgQoQ (bps)

IUC costs 11.8 9.6 10.3 10.6 11.4 11.9 231 52

License fees 9.1 8.6 8.9 8.5 8.7 8.5 -12 -15

Network costs 23.2 23.3 24.5 25.2 27.5 28.0 473 59

Employee costs 4.6 4.7 5.1 4.8 4.6 4.6 -7 6

SG&A 15.0 17.0 15.9 17.4 17.3 16.6 -39 -75

Total Opex (ex IUC) 51.9 53.6 54.4 55.9 58.0 57.8 415 -25

EBITDA 36.4 36.8 35.3 33.5 30.6 30.3 -646 -27

D&A 21.5 23.8 25.0 25.6 25.6 26.7 286 103

EBIT 14.9 13.0 10.3 7.9 4.9 3.6 -932 -130

Finance costs 10.7 10.3 9.3 10.6 14.6 9.5 -80 -514

Profit before Tax 6.0 4.1 2.2 (1.4) (9.1) (5.9) -1004 316

Net Income 1.6 1.5 0.4 0.5 0.6 0.4 -109 -16


Bharti protected its margin well despite the pressure on revenue led by its focus on costs management viz. ‘war on waste’ However, steep rise in access (loss of subscribers to Jio and higher bundled package sales with unlimited voice) and network costs has led to sharp erosion in margin in 1HFY19


Page | 5

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

Mobile 122.5 107.5 103.5 104.8 102.5 101.9 -5.2 -0.6

Home 6.4 6.2 6.0 5.7 5.6 5.5 -10.6 -1.9

Digital 9.4 9.6 9.6 9.9 10.2 10.3 7.1 0.9

Business 28.3 29.1 28.3 29.9 33.5 31.1 6.9 -7.0

Towers 16.6 16.9 16.7 16.9 17.2 17.3 2.2 0.7

Others 1.0 1.0 1.0 0.4 0.5 - -100.0 -100.0

India 184.1 170.4 165.2 167.7 169.6 166.2 -2.5 -2.0

South Asia 1.0 1.0 1.0 1.1 1.1 1.1 11.6 0.7

Africa 52.0 51.3 49.7 52.8 56.5 59.0 15.1 4.5

(-) Intersegment (18.3) (18.5) (18.6) (19.8) (21.8) (20.0) 8.3 -8.3

Total 217.8 203.2 196.3 200.8 204.2 205.2 1.0 0.5

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

Mobile 42.1 35.1 29.4 27.6 21.5 19.5 -44.4 -9.2

Home 2.7 3.1 3.0 2.9 2.9 2.6 -15.9 -11.9

Digital 3.5 3.7 3.7 4.0 4.0 3.8 3.2 -3.4

Business 9.9 11.7 11.5 10.4 10.8 9.9 -15.5 -8.2

Towers 8.1 8.3 8.1 7.8 8.0 8.5 2.3 6.8

Others (0.9) (1.8) (0.7) (1.2) (1.5) - -100.0 -100.0

India 65.5 60.1 55.1 51.5 45.6 44.3 -26.3 -2.9

South Asia (0.0) 0.0 0.1 0.0 0.0 0.0 130.4 39.3

Africa 16.8 18.2 17.9 19.2 20.9 21.9 20.4 4.5

(-) Intersegment (3.0) (3.6) (3.7) (3.5) (4.2) (4.0) 12.2 -3.4

Total 79.2 74.7 69.3 67.3 62.4 62.2 -16.7 -0.4

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

Mobile 34.4 32.6 28.4 26.3 20.9 19.1 -1350 -180

Home 42.6 49.9 49.7 49.8 49.8 49.7 -18 -4

Digital 37.5 38.5 38.6 40.4 39.2 39.4 94 23

Business 35.1 40.1 40.5 34.8 38.5 38.0 -218 -55

Towers 48.9 49.1 48.7 46.1 47.4 46.9 -217 -54

India 35.6 35.3 33.3 30.7 26.9 26.7 -862 -26

South Asia -1.4 1.8 6.5 0.9 2.7 3.7 191 102

Africa 32.2 35.4 35.9 36.4 37.1 37.0 164 -3

Blended 36.4 36.8 35.3 33.5 30.6 30.3 -646 -27


Segment-wise QoQ/YoY EBITDA performance is not strictly comparable as India Corporate overheads are now part of segment instead of Others

Net sub additions at 14mn and data subs at 15mn are key positives ARPU of 4G/data subscribers


Page | 6

Operating KPIs

2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 chg YoY chgQoQ

India Wireless KPIs

Customer Base ('000s) 282,047 290,113 304,192 344,564 332,764 284,224 -2.0 -14.6

Net Additions ('000s) 1,400 8,066 14,079 40,372 (11,800) (48,539) NA NA

Monthly Churn (%) 3.9 3.3 2.8 2.0 4.1 7.3 NA NA

ARPU (Rs/month) 145 123 116 105 100 104 -15.5 4.1

MOU (min/month) 518 575 670 700 686 726 26.3 5.8

Minutes on network (mn mins) 437,142 494,546 592,657 684,191 693,061 702,881 42.1 1.4

Data KPIs

Data subs ('000s) 65,769 70,836 86,077 94,783 97,666 107,511 48.5 3.0

- Mobile Broadband subs 28,306 36,367 47,862 58,281 65,731 77,068 132.2 12.8

As % of customer base 23.3 24.4 28.3 27.5 29.4 37.8

Total MBs on the network (mn MBs) 783,809 1,105,839 1,539,746 2,150,645 2,660,297 3,216,897 190.9 20.9

Usage per customer (MBs/month) 4,087 5,349 6,585 7,864 9,221 10,528 96.8 14.2

DTH

Digital TV Customers ('000s) 13,521 13,937 14,168 14,646 14,779 15,001 7.6 1.5

Net additions 207 416 230 479 133 222 -46.6 67.5

Average Revenue Per User (ARPU) 233 233 228 229 232 231 -1.0 -0.3

Monthly Churn 1.36% 1.23% 1.10% 0.72% 1.34% 1.31% 8 bps -3 bps

Africa

Customer Base ('000s) 78,742 84,130 89,262 91,193 94,096 97,922 16.4 4.1

Net Additions 1,881 5,388 5,133 1,930 2,903 3,827 -29.0 31.8

Monthly Churn (%) 4.7% 4.1% 4.1% 4.9% 4.8% 4.7% 12.8 -3.3

ARPU (US$/month) 3.2 3.2 3.0 2.9 3.0 3.0 -5.6 0.4

MOU (min/month) 164 172 172 183 189 183 6.2 -2.9

Minutes on network (mn mins) 38,406 41,928 44,688 49,666 52,357 52,445 25.1 0.2


Decline in subscriber base is owing to change in definition to revenue generating from active subscribers, a welcome move in our view as it provides true representation.


Page | 7

Key Assumptions

FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E

India Wireless

Subs (Mn) 188.2 205.5 226.0 251.2 273.6 304.2 279.2 299.2 339.2

Net Adds (Mn) 6.9 17.3 20.5 25.2 22.4 30.5 (25.0) 20.0 40.0

Implied ARPU (Rs)* 194.3 197.6 200.7 195.8 179.6 133.4 117.6 121.0 120.8

Revenue (Rs Bn) 430.7 466.8 519.6 560.8 565.5 462.6 411.7 419.9 462.6

Incremental Rev (Rs Bn) 43.4 36.1 52.8 41.1 4.8 (102.9) (50.9) 8.2 42.7

EBITDA (Rs Bn) 129.6 157.6 194.7 219.2 227.7 150.9 90.0 96.3 131.5

Incremental EBITDA (Rs Bn) (7.1) 28.0 37.2 24.5 8.5 (76.8) (60.9) 6.3 35.2

EBITDA Margin () 30.1 33.8 37.5 39.1 40.3 32.6 21.9 22.9 28.4

Africa

Subs (Mn) 63.7 69.4 76.3 74.7 80.1 89.3 101.1 113.7 124.7

Net Adds (Mn) 10.6 5.7 6.8 (1.6) 5.4 9.2 11.9 12.6 10.9

Implied ARPU (Rs) 342.9 341.1 307.8 277.5 236.5 198.4 201.5 203.6 197.9

Revenue (Rs Bn) 240.4 272.5 269.1 251.3 219.6 201.6 230.2 262.5 283.1

Incremental Rev (Rs Bn) 42.2 32.1 (3.4) (17.7) (31.8) (18.0) 28.6 32.4 20.6

EBITDA (Rs Bn) 63.1 71.3 61.1 52.9 52.3 66.4 85.6 105.1 118.7

Incremental EBITDA (Rs Bn) 10.4 8.1 (10.2) (8.2) (0.6) 14.1 19.2 19.6 13.5

EBITDA Margin () 26.3 26.2 22.7 21.0 23.8 32.9 37.2 40.0 41.9

Consolidated Revenue (Rs Bn)

India Wireless 431 467 520 561 566 463 412 420 463

Home Broadband 36 39 44 25 28 25 22 21 21

Digital 16 21 25 29 34 38 41 46 51

Enterprise 53 63 67 97 109 114 124 130 137

Passive Infra 50 51 54 56 61 66 68 69 69

Others 3 3 3 3 4 4 1 1 1

India Business 589 645 713 771 801 709 669 687 742

South Asia 12 17 16 16 12 4 4 5 5

Africa 240 273 269 251 220 202 230 263 283

Gross revenues 842 934 998 1,039 1,033 915 904 954 1,030

(-) Intersegment (60) (58) (62) (57) (66) (74) (82) (86) (93)

Net revenues 782 876 936 982 966 841 821 868 937

Intersegment as of gross 7.1 6.2 6.2 5.5 6.4 8.1 9.1 9.0 9.0

Revival in revenue growth is the key re-rating trigger


Page | 8

FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E

Consolidated EBITDA (Rs Bn)

India Wireless 130 158 195 219 228 151 90 96 132

Home Broadband 15 15 18 11 13 12 11 10 10

Digital 0 3 7 10 12 14 16 17 20

Enterprise 9 14 14 30 34 42 41 42 44

Passive Infra 23 23 26 26 29 33 32 29 28

Others (2) (2) (1) (2) (4) (4) (4) (3) (3)

India Business 174 210 258 295 312 248 186 193 231

South Asia 0 0 (0) (1) 0 0 0 0 0

Wireless - Africa 63 71 61 53 52 66 86 105 119

Gross EBITDA 237 281 319 347 365 314 272 298 350

(-) Intersegment (5) (4) (8) (7) (11) (13) (15) (17) (20)

Net EBITDA 233 278 312 340 353 301 256 281 330

EBITDA Margin

India Wireless 30.1 33.8 37.5 39.1 40.3 32.6 21.9 22.9 28.4

Home Broadband 41.1 37.5 40.7 42.5 47.2 46.7 49.7 49.2 49.2

Enterprise 2.8 16.1 27.3 34.2 35.6 37.9 38.7 38.1 38.1

Passive Infra 16.6 21.8 20.9 31.3 31.0 37.4 32.9 32.4 32.4

DTH 45.1 44.7 47.4 47.1 48.0 49.1 46.6 42.9 41.0

India Business 29.6 32.6 36.2 38.2 39.0 34.9 27.8 28.1 31.2

Wireless - Africa 26.3 26.2 22.7 21.0 23.8 32.9 37.2 40.0 41.9

Net EBITDA 29.7 31.7 33.3 34.6 36.6 35.8 31.2 32.4 35.2


Improvement in India Wireless EBITDA margin is premised on revenue growth and optically on account of abolition of 6p/min IUC wef 1st Jan, 2020


Page | 9

Valuation Snapshot

Segments Dec-20 EBITDA

(Rs Bn) Dec-20 EBITDA/

Share (Rs) Multiple

(X) Enterprise Value

(Rs Bn) Value Per Share

(Rs)

India Wireless 125 31 10.0 1,253 313

Telemedia services 10 3 7.5 76 19

Enterprise 44 11 7.5 329 82

DTH 19 5 9.0 172 43

Wireless – Africa*** 115 29 7.5 605 151

Others* (3) (1) 10.0 (28) (7)

Sub-total 311 78 7.7 2,407 602

Passive Infra**

339 85

Enterprise Value

2,746 687

(-) Net Debt

1,132 283

Target Price

1,614 404

* Others include South Asia, Corporate costs etc; ** Passive Infra business value is basis our Bharti Infratel (incl Indus) value of Rs 920bn @ TP of Rs 344 pro-rated for Bharti's 37% stake *** We have assumed Bharti’s stake and debt in Africa @ 70%

Change in estimates

Old New change

FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E

Revenue 813.6 844.8 904.4 818.0 868.4 937.4 0.5 2.8 3.7

EBITDA 252.8 269.5 323.5 256.4 281.3 329.8 1.5 4.4 1.9

EBITDA margin 31.1 31.9 35.8 31.3 32.4 35.2 28 bps 50 bps -59 bps

APAT (18.8) (34.4) (4.1) (7.9) (37.7) (11.1) (58.1) 9.8 169.4

Source: HDFC sec Inst Research

Peer Set Comparison

Company Mcap

(Rs bn) CMP (Rs)

TP (Rs)

Rating (Rs)

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

FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E

Bharti Airtel 1,247.4 312 404 BUY 9.5 8.8 7.4 NA NA NA (1.1) (5.6) (1.8)

Idea Cellular 490.6 31 43 BUY 17.2 34.5 17.2 NA NA NA (48.5) (26.9) (20.8)

Bharti Infratel 548.0 296 344 BUY 7.9 8.9 9.1 21.5 21.5 21.0 16.1 17.9 17.5

Source: HDFC sec Inst Research

Reduction in our FY20-21E revenue estimate is owing to persistent down-trading of customers, delayed recovery in ARPU and the impact of abolition of 6p/min IUC wef Jan’2020 Decline in EBITDA is led by revenue drop further accentuated by steep increase in access and network opex


Page | 10

Consolidated Income Statement (Rs bn) FY17 FY18 FY19E FY20E FY21E

Total revenues 954.7 836.9 818.0 868.4 937.4

Access charges 102.8 90.4 93.9 94.0 70.0

Net revenue 851.9 746.4 724.1 774.4 867.4

License fees 92.8 75.6 69.2 71.8 80.3

Network costs 209.2 197.5 222.2 244.0 268.8

Employee costs 43.0 39.8 38.4 40.8 43.8

SG&A 153.7 132.8 137.8 136.5 144.6

Total Opex 498.6 445.6 467.7 493.1 537.6

EBITDA 353.3 300.8 256.4 281.3 329.8

EBITDA / Total revenues 37.0 35.9 31.3 32.4 35.2

D&A 197.7 192.4 213.6 224.0 227.7

EBIT 155.6 108.4 42.9 57.3 102.1

Finance cost (net) 77.0 80.7 93.5 99.2 100.2

JV / Associates gain/(loss) 10.4 10.6 3.9 1.3 1.1

Other income 1.2 2.5 3.1 2.7 2.7

Non-operating income / expenses, (net)

(1.3) (0.1) (1.8) - -

Profit before Tax 88.9 40.6 (45.6) (37.8) 5.7

Income tax expense 34.8 10.8 (39.8) (13.2) 2.0

Exceptional Items (net of tax) 11.7 7.9 (9.1) - -

Profit after tax (after exceptional items)

42.4 21.8 3.3 (24.6) 3.7

Non Controlling Interest 4.4 10.8 11.1 13.2 14.8

Net income 38.0 11.0 (7.9) (37.7) (11.1)


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 654.6 675.4 680.2 642.5 631.4

Shareholders Fund 674.6 695.3 700.2 662.5 651.4

Minority Interest 68.8 88.1 124.0 137.2 152.0

ST Borrowings 246.1 345.1 332.1 323.7 304.7

LT Borrowings 899.1 854.8 1,000.9 976.1 919.5

Total Loans 1,145.2 1,200.0 1,333.0 1,299.8 1,224.2

Other non-current liabilities 55.6 85.1 79.9 84.8 90.0

Total Liabilities 1,944.2 2,068.6 2,237.1 2,184.3 2,117.6

APPLICATION OF FUNDS

PPE 644.0 758.2 885.8 911.8 909.1

Net intangible assets 1,246.7 1,211.3 1,212.3 1,212.3 1,212.3

Investment in JV/Associates 82.3 86.8 90.1 93.8 97.6

Other non-current assets 151.3 114.5 173.2 180.2 187.6

Non-current assets 2,124.4 2,170.8 2,361.4 2,398.1 2,406.6

Trade and receivables 49.8 58.8 49.6 51.4 58.0

Other current assets 120.2 140.5 169.1 176.1 178.8

Current assets 170.1 199.3 218.6 227.5 236.8

Deferred revenue 48.8 48.7 44.8 47.5 50.5

Trade & other payables 268.5 277.7 257.8 273.7 290.4

Other current liabilities 66.0 110.9 181.6 192.7 204.5

Current Liabilities 383.3 437.3 484.2 513.9 545.4

Net Current Assets (213.3) (238.0) (265.5) (286.4) (308.7)

C&CE 33.1 135.7 141.2 72.5 19.7

Total Assets 1,944.2 2,068.6 2,237.1 2,184.3 2,117.6



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Consolidated Cash Flow Year ending March (Rs bn) FY17 FY18 FY19E FY20E FY21E

Reported PAT 42.4 21.8 3.3 (24.6) 3.7

Depreciation 197.7 192.4 213.6 224.0 227.7

Interest 77.0 80.7 93.5 99.2 100.2

Working Capital Change (98.1) 24.7 27.6 20.8 22.3

OPERATING CASH FLOW ( a ) 219.0 319.6 338.0 319.5 353.9

Capex (308.5) (271.2) (342.2) (250.0) (225.0)

Free Cash Flow (89.5) 48.4 (4.2) 69.5 128.9

Investments & Others 15.5 61.8 (67.2) (5.8) (5.9)

INVESTING CASH FLOW ( b ) (293.0) (209.4) (409.4) (255.8) (230.9)

Capital Issuance (17.0) 44.1 49.5 16.9 24.1

Debt Issuance 138.7 54.8 133.0 (33.2) (75.6)

Interest (77.0) (80.7) (93.5) (99.2) (100.2)

Dividend & others (4.8) (25.7) (12.1) (16.9) (24.1)

FINANCING CASH FLOW ( c ) 40.0 (7.6) 76.9 (132.4) (175.8)

NET CASH FLOW (a+b+c) (34.0) 102.6 5.5 (68.7) (52.8)

Opening C&CE 67.1 33.1 135.7 141.2 72.5

Closing C&CE 33.1 135.7 141.2 72.5 19.7


Key Ratios FY17 FY18 FY19E FY20E FY21E

PROFITABILITY ()

EBITDA Margin 37.0 35.9 31.3 32.4 35.2

EBIT Margin 16.3 12.9 5.2 6.6 10.9

APAT Margin 4.0 1.3 (1.0) (4.3) (1.2)

RoE 5.7 1.6 (1.1) (5.5) (1.7)

RoIC (or Core RoCE) 5.2 4.1 0.3 1.8 3.2

RoCE 5.1 4.0 0.3 1.7 3.1

EFFICIENCY

Tax Rate () 39.2 26.7 87.3 35.0 35.0

Fixed Asset Turnover (x) 0.5 0.4 0.4 0.4 0.4

CA (days) 65 87 98 96 92

CL (days) 147 191 216 216 212

Cash Conversion Cycle (days) (82) (104) (118) (120) (120)

Net D/EBITDA (x) 3.15 3.54 4.65 4.36 3.65

Net D/E (x) 1.65 1.53 1.70 1.85 1.85

Interest Coverage (x) 2.0 1.3 0.5 0.6 1.0

PER SHARE DATA (Rs)

EPS 9.5 2.7 (2.0) (9.4) (2.8)

CEPS 59.0 50.9 51.5 46.6 54.2

Dividend 1.0 5.3 2.5 3.5 5.0

Book Value 168.8 173.9 175.2 165.7 162.9

VALUATION

P/E (x) 32.8 113.5 NA NA NA

P/BV (x) 1.8 1.8 1.8 1.9 1.9

EV/EBITDA (x) 6.7 7.7 9.5 8.8 7.4

EV/Revenues (x) 2.5 2.8 3.0 2.8 2.6

OCF/EV () 9.3 13.8 13.9 12.9 14.4

FCF/EV () (3.8) 2.1 (0.2) 2.8 5.3

FCFE/Mkt Cap () (13.4) (2.6) (7.8) (2.4) 2.3

Dividend Yield () 0.3 1.7 0.8 1.1 1.6



Page | 12

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

13-Apr-18 381 BUY 490

26-Apr-18 420 BUY 487

6-Jul-18 363 BUY 460

29-Jul-18 365 BUY 455

9-Oct-18 295 BUY 410

27-Oct-18 297 BUY 340

9-Jan-19 313 BUY 396

1-Feb-19 312 BUY 404

RECOMMENDATION HISTORY

200

300

400

500

600

700

Feb

-18

Mar

-18

Ap

r-1

8

May

-18

Jun

-18

Jul-

18

Au

g-1

8

Sep

-18

Oct

-18

No

v-1

8

De

c-1

8

Jan

-19

Feb

-19

Bharti Airtel TP


Page | 13

Disclosure: We, Himanshu Shah, CA & Mansi Lall, MBA, authors and the names 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. No.: INH000002475, CIN - U67120MH2000PLC152193 Mutual Funds Investments are subject to market risk. Please read the offer and scheme related documents carefully before investing.

mailto:[email protected]


Page | 14

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