Bharti Airtel maintains Arpu in Q4, but needs a tariff hike

Bharti Airtel Ltd’s March quarter (Q4FY23) results were decent. Consolidated revenue at 36,009 crore was up 14% year-on-year. Growth was mainly led by the India mobile business, which saw a 12% increase in its revenue driven by healthy subscriber addition and improved realisation. Sequentially, consolidated and India revenue were flattish.

Vodafone Idea Ltd’s subscriber base has been declining, and this, to an extent, contributed to the customer additions for other companies in the industry during the quarter, including Airtel. As such, Airtel’s India mobile business customer base was 335 million as on 31 March compared to 332 million at December-end. India mobile revenue improved on account of 4G customer additions in the year, as per management. Also, company’s continued focus on improving subscriber mix, that is, on quality customer base, have helped.

However, the absence of tariff hikes last quarter meant that the average revenue per user (Arpu) did not see significant growth, though it remained stable sequentially. Arpu at 193 was up 8% year-on-year and flat sequentially despite lower number of days during the quarter. This was partly due to an improving subscriber mix (postpaid and data subscriber addition at an 8-quarter high), and partly due to increase in voice tariffs in 4Q, said Jefferies India analysts . “On normalized basis, Arpu would have been 195,” said Airtel management. Overall, reported consolidated net profit was up 50% year-on-year to 3,005 crore. Company’s capex was high in Q4 due to a sharp increase in India capex amid 5G rollouts. Capex intensity is expected to remain elevated in FY24. This means return ratios are likely to remain under pressure and could weigh on investors’ sentiment for stock, which is nearly 8% below its 52-week high of 860.55 apiece in November.

In the near term, there are two key challenges. One is the lack of tariff hikes in the industry. “With the competitive intensity between Bharti Airtel and Jio continuing to remain high, tariff hikes are likely to get delayed,” said an analyst requesting anonymity. Further, considering the expenses made on network upgrades for 5G, the lack of monetisation of the same acts as a near-term overhang.

“Aggressive customer focused growth plans will create a virtuous cycle of growth for Bharti,” said a Prabhudas Lilladher report on 17 May. The brokerage has ‘Buy’ rating on stock and has sum-of-the-parts based price target of 875 ( 977 earlier) as it has increased debt and increased India mobile multiple to 9.0 times (8.5 times earlier).

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