20/09/2020
Bharti Airtel– An Essential Service
Cmp-495
Market Cap- 2,69,805 cr
Industry- Telecommunications
Key Events are over
AGR Verdict– Bharti Airtel had already provided for the worst dues in FY20. The Supreme Court of India (SC) allowed telecom players to pay Adjusted Gross Revenue (AGR)-related dues to the Department of Telecommunications (DoT) on a staggered basis over next 10 years subject to certain conditions.
The apex court has directed telecom companies to make a 10% upfront payment of outstanding AGR dues by March 31, 2021, and the balance over a 10-year timeline starting February 7, 2022. As per the SC verdict, Bharti Airtel will have to pay Rs. 2,600 crore upfront in FY2021 and Rs. 3,500 crore annually from FY2022.
Most Interesting point in the verdict, Bharti Airtel and Reliance Jio may not liable to pay the dues of RCom, Aircel and Videocon. Payment of AGR liabilities would result in cash outgo of ~Rs. 3,500 per annum for Bharti Airtel over FY2022-FY2031.
MSCI Weightage- : In the August review, Bharti Airtel’s weightage decreased from 3.5% to 1.8%. Another round of selling by means of FTSE ETF selling was also done on Friday, 18th September, around 5.5 cr shares were sold
Fun Fact- JIO vs Airtel
| FY20 | Subscribers (cr) | ARPU | EBIDTA (cr) | Data per user (GB) | Voice data in minutes per month per user |
| JIO | 37 | 132 | 6,200 | 11.3 | 771 |
| Bharti Airtel | 32 | 155 | 18,000 | 15 | 965 |
In spite of having smaller customer base vs JIO, Airtel has higher data & voice consumed per user. Most important part to notice Standalone Airtel’s FY20 EBIDTA is almost 3 times that of JIO.
Best Telecom Play available at a commodity valuation
Post COVID19 era and work from home trends have given the telecom space the title of essential service. Imagine all activities personal & professional without telecom/internet services. With plethora of offerings from enterprise solutions, broadband, Xtreme entertainment to voice calling Bharti Airtel is very attractively placed to take advantage of the digital future of the country.
Huge Growth in ARPUs– At number of occasions from investor meets to company’s AGM the senior management has clearly hinted that for the survival of the sector ARPUs have to go to 200 in the medium term and 250-300 in the long term placing the path for huge operating leverage in next 2-3 years.
Due to improving ARPUs, we are expecting superior growth in operating profits & decreasing trend in Net Debt levels. Bharti Airtel is available at an attractive valuations of 7x EV/EBIDTA FY22. Historically the stock has got 15x EV/EBIDTA.
Mainly due to low capex for next 2 years, Cash Flow from Operations of Bharti Airtel are expected to almost triple by FY22.
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