Bharti Airtel share price: Kotak Institutional Equities says buy with target price of Rs 710

Bharti Airtel India wireless business was marked by a strong net subscriber addition of 14.2 mn, well above our expectations and ahead of Jio’s reported number of 5.2 mn, higher ARPUs at Rs166, 7/11% qoq increase in voice/data volumes and further expansion of network. Africa business reported a sustained 22% yoy growth in revenues and highest-ever EBITDA margins at 46.9%. Enterprise business reported 4.8% sequential increase in EBITDA driven by modest revenue growth and healthy expansion in margins.

Overall Bharti Airtel revenues of Rs 265.2 bn (+5.8% qoq, +24.2% yoy) were 3.6% above Kotak's estimate. EBITDA at Rs 120.5 bn (+8.9% qoq, +38% yoy), was 6% ahead of Kotak’s estimate. PBT remained positive at Rs 6.3 bn despite higher interest expense at Rs 39.7 bn, including interest on the pending AGR dues.

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Bharti Airtel performance post the tariff hikes in December 2019 has been fairly strong on several parameters as compared to Reliance Jio and Vodafone Idea. Bharti Airtel’s India wireless EBITDA has jumped 62% from pre-tariff hike base of Q2 FY20, a tad ahead of Jio’s overall reported increase of 58% (including contribution from fixed broadband business) in the same period led by:

(1) Bharti Airtel's superior gains in ARPU, which is now at 10% premium to Jio’s overall number from being at same levels pre tariff hike
(2) Bharti Airtel's higher incremental margins with costs increasing at a pace much lesser than Jio
(3) Bharti Airtel's stronger 29% growth in voice traffic and 75% growth in data traffic as compared to Jio’s 20% and 32% respectively.

Reliance Jio’s net subscriber additions have indeed been higher in the given period; however, Bharti Airtel seems to be gaining ground in the recent quarters.

Bharti Airtel’s Q3 FY21 performance was underscored by:

(1) industry-leading subscriber additions, enhanced operating metrics and network expansion in India wireless business
(2) continued healthy growth and improvement in margins for Africa
(3) further rise in contribution from the enterprise segment.

Kotak continues to like Bharti Airtel as a definite play on industry repair as well as consolidation, the visibility on either may improve in 12-18 months. BUY stays with FV of Rs 710.