Airtel closing the gap with Jio on revenue trends, well placed to capitalize on expected rate hikes: Analysts

Bharti Airtel is well placed to capitalize on tariff increases expected over the next two-three years, after reporting stellar earnings for the January-March period which beat Street estimates on key parameters such as average revenue per user (ARPU), lifting its stock price to an all-time high on Tuesday.

“We believe that the result was materially better than consensus & investor expectations and see continued momentum in the stock price on back of tariff hike benefits,” brokerage firm Bank of America said in a report.

Airtel’s stock price touched an all-time high of Rs 594.55 per piece, surging by almost 10% during market hours on Tuesday on the back of strong earnings reported last evening.

“That Bharti has (a) added as many LTE customers as it has in the past few quarters while (b) maintaining network quality leadership despite significant jump in both data and voice traffic and at the same time (c) passed on a significant price increase, almost completely, is commendable,” Kotak Institutional Equities said.

Bharti’s top-notch execution places it well to capitalize on what should be a good two-three year phase of price increases in the sector, it added.

Bharti Airtel’s 4QFY20 results were encouraging with consolidated revenues up 8% on quarter, its highest in a decade and ahead of estimates, Jefferies said.

The biggest driver of India’s mobility business was Bharti’s sharp uptick in average revenue per user (ARPU) 14% on quarter, (2% for Reliance Jio), with its ARPU now plus Rs24 compared with September levels compared with plus Rs3 for Jio).

“This print reinforces our view that Bharti may have closed the gap with Jio on revenue trends, and market share between the two players should not diverge from here on,” brokerage Goldman Sachs said.

Bharti Airtel’s strong data subscriber additions despite sharp tariff hikes reflects consumer acceptance of higher tariffs, Jefferies said. “We raise our FY21-23 India-mobile ARPU estimates by 5-6%, which lifts our FY21-23 consolidated revenue and Ebitda estimates by 3-6%.”

While the overall subscriber base remained flattish on quarter (as the company continues to shutdown 3G network), the company added 12.5 million 4G subscribers during the quarter.

“Pace of 4G subs net adds was higher than average quarterly net add of 8-10 million except in December 2019 quarter when 4G subs gains were higher (+20.6 million) as Jio started charging for off-net outgoing calls,” as per brokerage firm Credit Suisse.

Analysts are positive on the COVID-19 situation for the telco as it drives adoption of service across segments. The lockdown situation would aid the ARPU growth in the medium term, Edelweiss expects.

“Covid-19 could drive inflection and create some incremental value in India Homes and Enterprise businesses as well,” Kotak said.

Goldman Sachs expects moderation in wireless revenue growth in 1QFY21 due to some negative impact of the ongoing lockdown in India. “However, we believe investor focus is now likely to be on when Bharti (and the industry) takes the next round of tariff increases,” it said.

Bharti’s 4QFY20 print was solid on all fronts – 16% on quarter growth in India wireless revenues, 27% on quarter growth in India wireless EBITDA, healthy LTE subs additions, strong data volume growth with another 7% jump in industry-leading data usage per data sub metric to nearly 15 GB a month, voice minutes of usage growing 7.5% on quarter to as high as 965 minutes/sub/month, and healthy performance in other businesses – Africa wireless, India Homes, India Enterprise, and India DTH, Kotak said.

“Bharti Airtel remains our preferred pick in the sector given its (a) strong competitive positioning; (b) turnaround in the sector in India; and (c) continued strong performance in Africa,” Axis Capital said.