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Bharti Airtel Ltd

| Transcript of the Earnings Call

BULLISH SENTIMENT

Report Source

⬤4th Nov 25

Summary : Bharti Airtel delivered strong Q2 performance driven by mobile, broadband, and digital growth, with strategic investments in 5G and data centers, while navigating regulatory and competitive challenges.

Management Perspective positive : Management repeatedly used phrases like 'consistent performance,' 'significant progress,' 'strong traction,' 'solid balance sheet,' and 'industry-leading revenue growth' to describe Q2 results and strategic execution.

Concall Report Analysis & Insights

Business Overview

  1. Delivered consistent Q2 performance with consolidated revenues of Rs.52,000 Crores.
  2. India revenues (ex-Indus) reached Rs.34,900 Crores with an EBITDAaL margin of 51.5%.
  3. Operating free cash flow was strong at Rs.10,750 Crores, with Q2 capex at Rs.7,200 Crores.
  4. Mobile segment showed industry-leading revenue growth and added 1.4 million revenue-earning customers.
  5. Broadband saw sustained growth, adding 951,000 net customers, with FWA base crossing 2.3 million.

Future Growth Prospects

  1. Accelerating home pass deployment and FWA expansion to capitalize on home broadband growth.
  2. Significant investments in Nxtra data centers, aiming for 1 gigawatt capacity with Google partnership.
  3. Scaling digital portfolio across Cloud, Cybersecurity, Financial Services, IoT, and CPaaS.
  4. Upgrading 90 million credit-scored customers to postpaid services using data analytics.
  5. Building gold-standard high-capacity fiber networks and submarine cables for B2B segment.

Management Insights

  1. We delivered another quarter of consistent performance, reinforcing our diversified portfolio strength.
  2. Significant progress on ESG agenda, solarizing over 2900 sites and optimizing energy with AI.
  3. Our strategy to premiumize the portfolio and drive execution rigor is delivering consistent results.
  4. We see Indus as a clearly undervalued asset and a strong dividend-paying company.
  5. We are obsessed with delivering brilliant customer experience, validated by Opensignal awards.

Signs of Skepticism

  1. Management noted a 'bump-up' in data center capex, but stated it would not be 'meaningful,' which might be an understatement given the scale.
  2. The 'land grab' phase in home broadband could lead to ARPU depression, which management acknowledges but doesn't provide a clear mitigation strategy beyond future tariff repair.
  3. The claim that 5G standalone capex is 'really no meaningful capex' due to being software-led might overlook associated infrastructure costs.
  4. The company's market share in Nxtra (10-12%) is not satisfactory, indicating a need for aggressive investment without clear long-term capex guidance.

Risk Factors

  1. AGR judgment of 2019 was a significant industry challenge, though reassessment is now permitted.
  2. Digital TV business experienced seasonality, leading to a customer loss of 340,000 in Q2.
  3. Intense competition in subscriber acquisition, leading to high commissions and churn.
  4. Potential for elevated capex in the near future due to aggressive home pass rollout and 5G deployment.
  5. ARPU depression in home broadband due to generous bundled offerings and land grab phase.

Good To Know

  1. The Supreme Court permits government reassessment of AGR dues up to FY 2016-2017.
  2. Airtel directly employs over 20,000 people and indirectly supports 760,000 jobs.
  3. India net debt to EBITDAaL stands at 1.32, with Africa's net debt to EBITDAaL at 0.7.
  4. Airtel Payments Bank crossed 100 million monthly transacting users, with deposits growing 35% year-on-year.
  5. AI-powered anti-spam solution identified 57 billion spam calls and reduced financial losses by 69%.

Key Drivers

  1. 5G expansion drives network traffic.
  2. Data center growth with Google partnership.
  3. Broadband land grab accelerates customer acquisition.
  4. Digital services portfolio scales rapidly.

Key Analyst Discussions

Competitive Environment

  1. Airtel aims to step up home broadband performance to gain significant incremental net adds.
  2. Market share is tracked via OTT platforms and revenue market share, showing consistent gains.
  3. Focus on quality customer acquisition to avoid churn from deal-seeking subscribers.
  4. Hexacom's mobile revenue growth was slightly lower than Airtel's due to pronounced seasonality.
  5. Airtel believes Indus Towers is a highly undervalued asset compared to global tower companies.

Market Trends & Consumer Behavior

  1. Home broadband market is expected to grow to 100 million connected homes in the medium term.
  2. Convergence (broadband plus content) is a compelling proposition for customers due to bundled pricing.
  3. India's ARPU and rate per gigabyte are lowest globally, indicating room for tariff repair.
  4. Growing affluence in India is expected to drive upgradation to higher-priced plans.
  5. FWA plays a very important role in penetrating Wi-Fi in less urbanized circles.

Financial Highlights

  1. Capex for home broadband is elevated due to accelerated rollout and 5G deployment.
  2. 5G standalone capex is minimal, primarily software-led, not impacting overall capex guidance significantly.
  3. Data center investments will be substantial, but overall capex impact is still being assessed.
  4. Home pass cost per connected home is $28-$32, with utilization around 28-30% over years.
  5. SG&A cost decline in Hexacom was partly due to a one-off item.

Product Composition

  1. Postpaid net adds accounted for 68% of total net adds, driven by international roaming plans.
  2. IPTV offer is gaining strong traction, driving the convergence agenda.
  3. Dual-mode 5G network (NSA+SA) is live in 13 circles for fixed wireless access, with mobile pilots underway.
  4. Cross-selling across 365 million wireless customers is a major focus, especially for 90-100 million credit-approved users.
  5. Home broadband ARPU sees a mix impact as more customers opt for content-driven packs.

Strategic Considerations

  1. Partnership with Google involves building data centers, cable landing stations, and terrestrial networks in Vishakhapatnam.
  2. Airtel Cloud is gaining traction with 70 ongoing customer conversations and six deals signed.
  3. Increasing stake in Indus Towers is strategic, viewing it as an undervalued, strong dividend-paying asset.
  4. 5G network transition to standalone mode is a gradual process, refarming spectrum over 3-4 years.
  5. 6G is considered too far out; focus remains on delivering customer experience with current 5G technology.