The swift ~20% recovery in the stock just after the current fall has triggered deliberations on its earnings outlook, the possibility of a tariff hike, and capex intensity. Based on our current channel checks, we note that: BHARTI’s earnings outlook remains sturdy, offered the steady 4G subscriber additions, which are most likely to see 2-3% q-o-q ARPU development, and sturdy Ebitda development.
A cost hike, which looked uncertain in the final 6-9 months, has now began to appear imminent with the weakening of market subscriber development. Our current interactions with market professionals indicate a possible cost hike of 15-20% in the subsequent two months. Competitive pricing in postpaid and FTTH segment by peers have had a restricted effect on earnings.
Capex could lessen by ~15% in FY21e. Spectrum auction, which could entail investments of Rs 130 bn, appears unlikely to occur by Q4FY21e. We continue to stay bullish on BHARTI (with a TP of Rs 650), offered its sturdy earnings outlook, possible tariff hikes quickly, effectively-capitalised balance sheet, possible FCF generation, and sturdy competitive position.
See India wireless income/Ebitda q-o-q development steady at 2-3%/4-5%
4G subscriber additions to stay healthful: Our channel checks indicate that BHARTI continues to acquire competitive ground, adding sturdy 4G subscribers in the festive season, just after the current healthful additions in Q2FY21. The business ought to be capable to preserve its 35-40% incremental 4G subscriber market place share. This would turn out to be 3-4 m month-to-month 4G subscriber additions in Q3FY21e.
ARPU to develop by means of mix advantage: In line with the final two quarters, we anticipate an improvement in the subscriber mix to create ~2% ARPU development. Our channel checks indicate that BHARTI saw a restricted effect from the not too long ago launched competitive postpaid tariffs by its peers, offered the sticky nature of its buyer profile and stick to-up cost cuts in FTTH. IDEA’s current Rs 50 tariff rise could help market tariff hikes.
Valuation and view
We continue to stay bullish on BHARTI offered its sturdy earnings outlook (even with no a cost hike) and enhancing RoCE and FCF generation possible. We anticipate it to create post-interest FCF of Rs 64 bn in FY22E just after factoring in the spectrum renewal expense of Rs 130 bn. We worth BHARTI on a SoTP basis to arrive at our target cost of Rs 650/share –we assign an FY22e EV-to-Ebitda of 11x to the Indian small business and 6x to the African small business. Our larger target numerous for the India Wireless small business captures anticipated gains from any possible ARPU boost or larger market place share gains – each of which are not totally captured in our model.