Bharti Airtel Q1 Review: Analysts See Spectrum Usage Charge Savings To Aid Operating Profit

Analysts raise Bharti Airtel Ltd.’s operating profit estimates for the ongoing and the next fiscal on spectrum usage charge savings.

This comes after the telecom operator’s profit fell 33.5% sequentially to Rs 2,468.8 crore in the quarter ended June. The earnings still met the consensus analyst estimates of Rs 2,451.4 crore.

Bharti Airtel Q1 FY23 (Consolidated, QoQ)

• Revenue increased 4% to Rs 32,804.6 crore (Estimate: Rs 32,556.3 crore).

• Operating profit increased 3% to Rs 16,529.40 crore (Estimate: 16,390.1 crore).

• Ebitda margin narrowed to 50.39% from 50.92% as of March.

The carrier’s profit declined due to higher costs. Total costs in the first quarter rose 5% over the previous three months and 15% year-on-year.

Tariff hikes and 4G customer acquisitions, however, lifted its average revenue per user by 2.8% quarter-on-quarter to Rs 183.

Shares of Bharti Airtel closed 3.02% higher compared with a flat Nifty 50.

Of the 33 analysts tracking the company, 30 maintain a ‘buy’, two suggest a ‘hold’ and one recommends a ‘sell’, according to Bloomberg data. The 12-month consensus price target implies an upside of 21.5%.

Here’s what analysts have to say about Bharti Airtel’s Q1 FY23 results.

• Maintains ‘buy’ with a target price of Rs 950 apiece.

• Spectrum investment improves competitive positioning and lowers spectrum usage charges, while return on invested capital may expand despite 5G investments.

• Expects robust mobile revenue growth as users migrate to 4G connection from 2G with high-value subscribers, while the carrier continues to make segmented tariff hikes.

• Bharti Airtel’s competitive positioning has strengthened owing to its recent spectrum investment of $5.4 billion or Rs 42,927.30 crore, driving the carrier to significantly expand its network capacity and offer nationwide 5G technology.

• The 5G network rollout is unlikely to prevent the rise in return on invested capital as the intensity of Bharti Airtel’s India network Capex is expected to be about 25% of revenues.

• The company has an opportunity to introduce differentiated tariffs with 5G launch and raise the average revenue per user, which remains an upside risk to house forecasts.

• Expects consolidated revenue and Ebitda to grow 12% and 14%, respectively, over FY22-25.

• Maintains ‘buy’, but cuts target price to Rs 885 apiece.

• Spectrum usage charge savings leads to a 1% increase in FY23 and FY24 Ebitda expectations, while higher interest and amortisation costs owing to 5G spectrum investment lead to EPS cuts of 6% and 12%, respectively.

• The telecom operator’s revenues for India mobile business last quarter disappointed estimates with 3.4% sequential growth, while strong user additions and expansions lifted home business revenues and kept the non-mobile business strong.

• Keeps ‘neutral’ call on the stock on balanced risk-reward with price objective of Rs 770 a share.

• Sees upside risks to capital expenditure on the back of the 5G rollout.

• Bharti Airtel is likely to benefit from the Indian telecom market moving to a largely duopoly market, while tariff hikes may not happen in the near term.

• Raises FY23 and FY24 EPS estimates by 3.3% each and roll forward.

• Bharti Airtel has outperformed on the back of strong net additions and market share gains, expectations of market-cap-weighted indexes, or MSCI, rebalancing. A majority of the good news is factored in the price at these levels.

• Reiterates ‘buy’, raises target price to Rs 865 from Rs 811 on Ebitda upgrade.

• Factors in 300 basis points of spectrum usage charge savings leading to an Ebitda upgrade of 1.5% and 3% for FY23 and FY24.

• Bharti Airtel may not witness any adverse impact from Reliance Jio Infocomm acquiring 700 MHz in the next two to three years. The operator has stated that it would not bid for the 700 MHz spectrum.

• However, it may not dismiss an opportunity to acquire low-frequency spectrum if the Department of Telecommunications or Telecom Regulatory Authority of India cuts reserve prices.

• Builds in Rs 30,000 crore spectrum liability in FY24, factoring in renewals for 2024 and low-frequency spectrum along with recent spectrum purchase.

• Predicts 22% Ebitda CAGR over FY22-24 on healthy revenue market share gains and tariff hikes.

• Reiterates ‘buy’ as it expects more tariff hikes. Cuts target price to Rs 920 from Rs 940 due to a rise in net debt.

• The telecom sector could see significant rerating, and Bharti Airtel could gain significantly given its ‘sticky and premium’ quality of its subscribers, ensuring that tariff hikes flow through to ARPU.

• Raises FY23-25 Ebitda assumptions by 1-2% factoring in a reduction in spectrum usage charges as the spectrum acquired by the telecom operator will have no spectrum usage charges.

• Tariff hikes are likely to be more frequent going forward with Reliance Jio's heightened willingness to raise tariffs as it needs to focus on its profitability in the advent of a potential listing in the next one to two years.

• Keeps ‘buy’ with a target price of Rs 866 apiece.

• The evolution of the 5G ecosystem and its execution will be the 'key' metrics to watch.

• Building in higher capital expenditure on account of the 5G rollout. The speed of the rollout, competitive response and customer adoption will determine capex’s quantum.

• Bharti Airtel’s execution versus Reliance Jio's and the development of their respective ecosystems will chart the course of their market share.