Airtel Outperforms Peers in Q4; Debt reduction is disappointing

Bharti Airtel Ltd’s (Q4FY22) March quarter results were good in many respects. On the one hand, sequential net additions in the mobile subscriber base amounted to 3 million. This compares to Reliance Jio’s drop in net subscribers of 10.8 million and Vodafone Idea’s drop of 3.4 million. However, Airtel’s churn remained high at 2.8%.

Airtel’s average revenue per user (Arpu) increased to 178 of 163 at Q3. For perspective: Q4 Arpu from Reliance Jio and Vodafone Idea was at 168 and 124, respectively. As a result, Airtel’s Mobile Services India segment recorded a 9.5% increase in revenue quarter-over-quarter to 17,617 crores. By comparison, Jio and Vodafone’s sequential revenue growth was 8% and 5%, respectively. Airtel’s strong revenue performance can be attributed to rising Arpu thanks to a healthy stream of tariff revisions and strong 4G customer additions.

In contrast, fourth-quarter Africa revenue rose 1% sequentially and was below expectations. India’s non-mobile segments, homes and the airtel business, also saw strong revenue growth of 10% and 2%, respectively. The household segment added 323 customers compared to Q3, thanks to an increase in reconciliations with local cable operators.

Overall, Bharti Airtel’s consolidated revenue increased 5.5% sequentially to 31,500 crores. Ebitda (earnings before interest, tax, depreciation and amortization) margin increased 170 basis points sequentially to 50.9%. One basis point equals 0.01%.

Ebitda growth along with the 2% decline in capital expenditures in the fourth quarter led to a significant increase in free cash flow (FCF). According to Nomura Financial Advisory and Securities (India), the consolidated operating FCF amounts to 10,000 crore, up about 14% quarter-on-quarter.

Nevertheless, debt reduction remains disappointing. “Airtel’s net debt (excluding lease debt) of 1,23,500 crores saw a limited reduction due to the acquisition of Indus Towers stake and AGR (Adjusted Gross Income) interest capitalization,” said analysts at Motilal Oswal Financial Services.

As such, management commentary on further price increases and 5G spectrum auctions remains critical. “With improved free cash flow generation, cash flow relief from the moratorium on government dues and the ongoing rights issue, we believe Bharti remains well positioned to compete with R-Jio on the 5G rollouts,” Nomura analyst Aditya Bansal said in a May 18 report. .

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