Overview

Bharti Airtel Limited (NSE:BHARTIARTL) is a leading global telecommunications company with operations in 18 countries across Asia and Africa. Headquartered in New Delhi, India, the company ranks amongst the top 3 mobile service providers globally in terms of subscribers. In India, the company's product offerings include 2G, 3G and 4G wireless services, mobile commerce, fixed line services, high speed home broadband, DTH, enterprise services including national & international long distance services to carriers. In the rest of the geographies, it offers 2G, 3G, 4G wireless services and mobile commerce. Bharti Airtel had over 403 million customers across its operations at the end of June 2019.1

The Company also deploys and manages passive infrastructure pertaining to telecom operations through its subsidiary, Bharti Infratel Limited, which also owns 42% of Indus Towers Limited. Together, Bharti Infratel and Indus Towers are the largest passive infrastructure service providers in India.

The Company’s Africa business is creating a strong foundation for a solid and sustainable business. Airtel targets to increase the mobile revenue and market share through widest smartphone network leadership, data penetration, introduction of new products and addition of quality customers. Airtel Money provides a unique opportunity to build a scalable business at a minimal incremental capex while fully leveraging the existing platform to provide a solution to the low banking penetration seen across the continent.

Business Divisions

B2C Services

Mobile Services (India)

The company offer postpaid, pre-paid, roaming, internet and other value added services. The company's distribution channel is spread across 1.0 Mn outlets with network presence in 7,906 census and 786,719 non-census towns and villages in India covering approximately 95.3% of the country’s population.2

The company's 3G and 4G services are spread across the country offering high-speed internet access and a host of innovative services like Mobile TV, video calls, live-streaming videos, gaming, buffer-less HD video streaming and multi-tasking capabilities to its customers.

The company's national long distance infrastructure provides a pan-India reach with 299,592 Rkms of optical fiber.

Homes Services

The Company provides fixed-line telephone and broadband services for homes in 103 cities pan-India. The product offerings include high-speed broadband on copper and fiber and voice connectivity, up to the speeds of 100 mbps for the home segment.

Digital TV Services

The company's Direct-To-Home (DTH) platform offers both standard and high definition (HD) digital TV services with 3D capabilities and Dolby surround sound. The company currently offer a total of 648 channels including 86 HD channels, 7 international channels and 4 interactive services.

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B2B Services

Airtel Business

Bharti Airtel is India’s leading and most trusted provider of ICT services with a diverse portfolio of services to enterprises, governments, carriers and small and medium business. For small and medium business, Airtel is a trusted solution provider for fixed-line voice (PRIs), data and other connectivity solutions like MPLS, VoIP, SIP trunking. Additionally, the Company offers solutions to businesses Audio, Video and Web Conferencing. Cloud portfolio is also an integral part of its office solutions suite, which offers Storage, compute, Microsoft office 365, ecommerce package through shopify and CRM packages on a pay as you go model.

Along with voice, data and video, its services also include network integration, data centers, managed services, enterprise mobility applications and digital media. Airtel Business provides ‘One solution, bill, support, face’ experience to its customers. The company offer global services in both voice and data including VAS services like International Toll Free Services and SMS hubbing. The company's strategically located submarine cables and satellite network enable its customers to connect across the world including hardto-reach areas. The company's global network runs across 250,000 Rkms, covering 50 countries and 5 continents.

Tower Infrastructure Services

The company's subsidiary, Bharti Infratel Ltd (Infratel), is India’s leading provider of tower and related infrastructure and it deploys, owns & manages telecom towers and communication structures, for various mobile operators. It holds 42% equity interest in Indus towers, a joint venture with Vodafone India and Aditya Birla Telecom who hold 42% and 11.15% respectively. The Company’s consolidated portfolio of 94,244 telecom towers, which includes 41,471 of its own towers and the balance from its 42% equity interest in Indus Towers, makes it one of the largest tower infrastructure providers in the country with presence in all 22 telecom circles. The Company has been the industry pioneer in adopting green energy initiatives for its operations.

South Asia

South Asia represents its operations in Sri Lanka. In Sri Lanka, the company operate across 25 administrative districts with distribution network of over 48 K retailers across the country. The company's 3.5G services are present across major towns in Sri Lanka.Africa

Africa

The company's subsidiary, Airtel Africa plc is present in 14 countries across Africa, namely: Nigeria, Chad, Congo B, Democratic Republic of Congo, Gabon, Madagascar, Niger, Kenya, Malawi, Seychelles, Tanzania, Uganda, Zambia and Rwanda. The company offer post-paid, pre-paid, roaming, internet services, content, media & entertainment, and corporate solutions. 3G, 4G data and mCommerce (Mobile Money) are the next growth engines for the Company in Africa. The company offer 3G services, Mobile Money across all 14 countries and 4G services in 14 countries of Africa.

Partners

SingTel, its strategic equity partner, has made one of their largest investments outside Singapore with it. This partnership has enabled it to expand and further enhance the quality of services to its customers. The company also pioneered the outsourcing business model with long term strategic partnership in all areas including network equipment, information technology and call center. The company partnered with global leaders who share its drive for co-creating innovative and tailor made solutions. To name a few, its strategic partners include ZTE, Ericsson, Nokia Siemens Networks (NSN), Huawei, Cisco, IBM, Avaya, etc.

Industry Overview

Indian Telecom Sector

India’s total customer base stood at 1,183.51 Mn as on March 31, 2019. The completion of the consolidation within the Indian Telecom Market into three large private players accelerated the SIM consolidation leading to drop in customer base by 1.9% from 1,206.22 Mn last year. Consequently, the tele-density also contracted to 90.11% from 92.84% last year. The urban tele- density stood at 159.96%, whereas the rural tele-density stood at 57.47%, as on March 31, 2019.3

Among the service areas excluding metros, Himachal Pradesh has the highest tele-density (146.39%) followed by Kerala (126.15%), Punjab (125.35%), Tamil Nadu (117.05%), Gujarat (107.21%), Haryana (97.66%), Andhra Pradesh (97.55%), Jammu & Kashmir (89.43%). Among the metros, Delhi tops with 238.58% tele-density. On the other hand, the service areas, such as Bihar (59.95%), Uttar Pradesh (68.63%), Assam (68.81%) and Madhya Pradesh (70.11%) have comparatively low tele-density.

With the tele-density at its current levels, there remains a significant headroom for expansion, especially in rural areas. Differentiated services and personalized digital offers will be the key drivers for the market in urban areas.

The broader industry, having consolidated to three large players, started seeing some return of stability and green shoots of growth. Prices however have remained subdued and need to move up in the long term to ensure industry viability. With imminent digitization, the sector also needs to make a dynamic shift from simply being a pipe providing connectivity to being an ecosystem of digital services. The sector needs to identify new growth areas which combine the potential of digitization and existing core competencies of telecom in addition to making the core business more cost efficient and agile to be able to drive the fourth industrial revolution.

The sector continues to witness data boom and rising consumption of content and related services. There is a strong growth in internet users fuelled by increased availability of bandwidth, affordable data plans and increased use cases; as also awareness driven by the digital India initiatives of the government. Providing a seamless, high speed network experience and building requisite capacities to cater the consumption boom will be critical for supporting the sector expansion.

The wire-line customer base stood at 21.70 Mn at the end of March 31, 2019 vis-à-vis 22.81 Mn at the end of March 31, 2018.

African Telecom Sector

Africa has been the fastest-growing mobile market in the world during the past few years fuelled by favourable macroeconomic factors manifesting in higher consumption, licensing opportunities and relatively stable regulatory and economic environment.

Continued investments by operators across the continent has led to drastic improvement in the telecommunication infrastructures. Revenue growth for Airtel in Africa has been strong, driven by mobile money and data. Airtel is the leading operator in 12 of the 14 countries in Africa in which it operates.

With the overall growth story remaining strong with a full year witnessing a double-digit revenue growth, the Company has embarked on a journey of cost consolidation and service diversification in-order to further improve profitability and enhance competitive edge. Diversification and digitization of offerings along with continued investment towards enhancing customer experience through high speed LTE network has led to a strong growth in Mobile Data and Money in addition to Voice.

Recent developments

Key Industry Developments

judgement of the Hon’ble Supreme Court of India on October 24th, 2019 (‘Court Judgement’), in the absence of any potential reliefs from the Government, the Group had recorded as a liability/provision an aggregate of Rs. 342,600 Mn as at September 30th, 2019 (of which Rs. 284,500 Mn was recorded in previous quarter as exceptional item). The Court Judgement was in relation to a long outstanding industry-wide case upholding the view considered by Department of Telecommunications (‘DoT’) in respect of the definition of Adjusted Gross Revenue (‘AGR’). The Hon’ble Supreme Court in a Supplementary Order of the same date directed the affected parties to pay amounts due to DoT within a period of three months, which ended on January 23rd, 2020. These judgements/orders have significant financial implications on the Group. A Review Petition filed by the Group and other telecom operators against the above Court Judgement was  rejected in January 2020. Thereafter, the telecom operators have filed an application for modification of the Supplementary Order before the Hon’ble Supreme Court of India, which is pending disposal.4

On December 17th, 2019 the Telecom Regulatory Authority of India (TRAI) issued “The Telecommunication Interconnection Usage Charges Amendment Regulations 2019” mentioning or wireless-to-wireless domestic calls, termination charge would continue to remain as Re. 0.06 (paise six only) per minute up to December 31st , 2020. From January 1st , 2021 onwards the termination charge for wireless to wireless domestic calls shall be zero.

On November 20th, 2019 the Union Cabinet approved a proposal which gives an option to the Telecom Service Providers (TSPs) to defer the payment of the spectrum auction instalments due for FY 2020-21 & FY 2021-22, either for one or both years. These deferred amounts will be spread equally in the remaining instalments to be paid by TSPs. The Interest as stipulated while auctioning of the concerned spectrum will however be charged so that Net Present Value (NPV) is protected.

On November 11th, 2019 TRAI released Amendment to Quality of service (QOS) regulations defining duration of alert for the called party w.e.f November 15th, 2019. The regulation defined time duration of alert for an incoming voice call on Mobile to be 30 seconds for Terminating Exchange & 90 seconds for Originating Exchange and the same on Landline to be 60 seconds on Terminating Exchange and 90 seconds on Originating Exchange.

On January 1 st , 2020 TRAI issued amendment to the DTH regulatory framework. Increasing the number of SD channels within the Network Capacity Fee (NCF) of Rs. 130/- per month from 100 to 200 and capping the NCF for more than 200 SD channels at Rs. 160/- per month

Key Company Developments

Fund Raising: Subsequent to the reporting period ended December 31st , 2019, the Company has successfully raised Rs. 215,017 Mn of additional long term financing through a combination of Rs.144,000 Mn in the form of qualified institutional placement (QIP) of equity shares (approximately 323.60 Mn fully paid up equity shares of face value Rs. 5 each were issued and allotted at a price of Rs. 445 per equity share) and Rs. 71,017 Mn in the form of 1.50% Foreign Currency Convertible Bond offerings (FCCBs) (issued at par and repayable in 2025 at 102.66% of their outstanding principal amount).

The transaction is the largest ever dual tranche Equity and FCCB offering in Asia-Pacific, largest QIP ever by a private sector issuer in India, largest FCCB offering from an India issuer in the last 12 years.

Airtel Wi-Fi Calling - In an industry first, Airtel launched its voice over Wi-Fi service that leverages innovative technology to enhance the indoor voice calling experience for Airtel smartphone customers. The service is currently live in all circles except J&K and across all broadband providers.

Airtel has been chosen as the strategic Network Solution partner by Faridabad Smart City Limited (FSCL) to transform Faridabad into a Smart City. Airtel will work closely with FSCL to design and deploy a future ready high capacity network and a range of connectivity solutions to build a digitally enabled Faridabad city.

Airtel announced a partnership with global content leader Lionsgate (the international premium subscription platform from Starz) to bring premium content from Lionsgate Play to Airtel subscribers in India. The partnership will give Airtel customers access to a deep portfolio of critically acclaimed and beloved Lionsgate feature film content. This content will be available on the Airtel Xstream app and web platforms.

In November 2019, Airtel Networks Limited (Airtel Nigeria) signed an agreement with Intercellular Nigeria Limited, in order to acquire an additional 10 MHz spectrum in the 900 MHz band in Nigeria for a consideration of $70 million, excluding NCC fees as per the Nigerian Communications Commission (NCC) Spectrum Trading Guidelines. The additional spectrum will allow Airtel Nigeria to expand and strengthen its LTE network across the country. The acquisition is subject to regulatory approval by NCC.

Airtel Tanzania has been allocated an additional spectrum of 10 MHz in 1800 MHz band with an annual fee of $0.6 Mn. In addition, Airtel Tanzania has been authorized by the Tanzania Communications Regulatory Authority (TCRA) to use 10 MHz in the 700 MHz band for 8 months from October 21st , 2019 onwards. The license of 700 MHz band will be issued post completion of a total of $12 Mn payment to the regulatory authorities in June, 2020.

SCOT Analysis

Strengths

Strong Presence: One of the leading telecom players in India and #3 worldwide. Market leadership (Rank 1 & 2) in 12 of 14 African countries

Scale of Operation: Presence in 18 countries serving over 403 Mn customers

Large Distribution Platform: Robust platform enabling company to offer services like Mobile Money, OTT applications - Wynk Music, Airtel TV and Airtel Books

QuadPlay: Only operator to leverage quad play: Mobile, Fixed Voice, Broadband and DTH

Strong Network: Future proof network across access, transport and core layers. Pan India 4G / 3G spectrum

Challenges

Integration of Operations: Geographically varied presence, integrating operations across India, South Asia and Africa leveraging common platform

Fast Changing Customer Needs: Understanding evolving customer perceptions in fast-changing multi- cultural and multi-lingual environment

Opportunities

Rising Data Demand: Data usage growth with a spurt in smartphone shipments and Government of India’s digital drive. In Africa, mobile data traffic expected to see a more than 10-fold increase by 2023

Strong Partner Ecosystem: Possibilities to have a host of strategic partnerships leading to differentiated customers experience in order to win customers

Digital payments: India’s digital payment space is expected to grow the segment by about five-fold to USD 1 trillion by 2023. Underpenetrated banking opportunity in Africa as well

Content: Spurt in digital content consumption over internet. Video consumption contributes to >70% of data consumption & India’s video streaming industry is all set to grow at a CAGR of ~22%

Infra Sharing: Active infra sharing can lead to reduced expenditures and efficient use of capex

Other non-mobile businesses: Less than 10% fixed broadband penetration in overall 250+ Mn households in India. Digitization to uplift DTH homes which are currently just 40% of overall. Also, even less than 10% of 1.5 Mn SMB / Enterprises have internet connectivity

Benefits from Consolidation: Improved industry dynamics due to the consolidation in the industry with recent mergers & exits of various telcos

Threats

Increased Competition: Pressures on Average Revenue Per User (ARPU) due to increased competition

Regulatory Changes: Uncertainties around political and economic environment across regions

Currency Exposures: Volatility in currencies due to global macro-economic uncertainties and global trade tensions

Awards and Recognition

  • In October 2019, Airtel has been ranked #1 by OpenSignal as having India’s Best Video Experience in its Mobile Network experience report. OpenSignal is an independent mobile analytics company specializing in quantifying mobile network experience.
  • App Annie ranked Wynk Music as India’s #1 musicstreaming app in terms of Daily Active Users in October 2019. The performance metric underlines the massive user preference for Wynk Music when it comes to consuming music on smartphones.
  • Airtel Thanks campaign won Bronze at EFFIES 2020 for its marketing campaign effectiveness. The EFFIE Award is a pre-eminent award in the advertising industry, which recognizes all forms of marketing that contributes to a brand’s success.
  • Airtel Business won three prestigious awards at Global Carrier Awards 2019, namely, Best Global Wholesale Carrier – Voice, Best Voice Service Innovation – Emerging Markets and Best Security Solution.

Financial highlight

As on Dec 31, 2019, the Company had 419 Mn customers, an increase of 3.7% as compared to 403.7 Mn in the corresponding quarter last year. Total minutes of usage on the network during the quarter were 836 Bn, representing a growth of 8.9% as compared to 768 Bn in the corresponding quarter last year. Mobile Data traffic grew 72.7% to 5,753 PBs during the quarter as compared to 3,332 PBs in the corresponding quarter last year.

Consolidated revenues for the quarter stood at Rs 219,471 Mn, up 8.5% (up 10.5% on a comparable basis) compared to Rs 202,310 Mn in the corresponding quarter last year. India revenues for the quarter stood at Rs 157,974 Mn, up 7.0% (up 9.7% on a comparable basis) compared to Rs 147,683 Mn in the corresponding quarter last year primarily led by increase in prepaid mobile revenue. Consolidated net revenues, after netting off access costs, license fees and cost of goods sold, stood at Rs 171,278 Mn, up 8.6% (up 11.2% on comparable basis) as compared to Rs 157,652 Mn in the corresponding quarter last year.

Consolidated EBITDA was at Rs 93,501 Mn during the quarter, compared to Rs 63,069 Mn in the corresponding quarter last year (up 48.3% Y-o-Y) and Rs 89,363 Mn in the previous quarter (up 4.6% Q-o-Q). EBITDA margin for the quarter was at 42.6% as compared to 31.2% in the corresponding quarter last year and 42.3% in the previous quarter. India EBITDA margin for the quarter was at 41.2% as compared to 27.9% in the corresponding quarter last year and 41.2% in the previous quarter.

The resultant loss before tax and exceptional items for the quarter ended Dec 31, 2019 was Rs 4,526 Mn as compared to loss of Rs 12,135 Mn in the corresponding quarter last year and a loss of Rs 6,231 Mn in the previous quarter.

The capital expenditure for the quarter was Rs 51,831 Mn as compared to Rs 65,679 Mn in the corresponding quarter last year and Rs 37,901 in the previous quarter. The consolidated operating free cash flow during the quarter was Rs 41,670 Mn as compared to cash burn of Rs 2,609 Mn in the corresponding quarter last year and cash flow of Rs 51,461 in the previous quarter.

Consolidated net debt for the Company has decreased to Rs 1,149,193 Mn from Rs 1,181,065 Mn in the previous quarter. The Net Debt-EBITDA ratio (annualized) as at Dec 31, 2019 at 3.07 times as compared to 4.41 times as on Dec 31, 2018 and 3.30 times in the previous quarter. The Net Debt-Equity ratio was at 1.67 times as at Dec 31, 2019 as compared to 1.57 times as on Dec 31, 2018 and 1.69 times as on Jun 30, 2019

Divisions

Mobile Services

As on Dec 31, 2019, the Company had 283.0 Mn customers as compared to 279.4 Mn in the last quarter, an increase of 1.3% Q-o-Q. Minutes traffic growth of 8.0% to 759 Bn during the quarter as compared to 703 Bn in the corresponding quarter last year.

The current quarter has witnessed total data customer addition of 14.2 Mn on a sequential basis with 4G data customer base growing faster at 20.7 Mn; overall 4G customer base stood at 123.8 Mn at the end of the quarter. With increased data penetration, the total MBs on the network have increased by 72.4% to 5,547 PBs as compared to 3,217 PBs in the corresponding quarter last year. Mobile Data usage per customer witnessed an increase of 32.3% to 13.6 GBs during the quarter as compared to 10.3 GBs in the corresponding quarter last year.

Homes Services

As on Dec 31, 2019, the Company had Homes operations in 103 cities with 2.35 Mn customers.

For the quarter ended Dec 31, 2019, revenues from Homes operations were Rs 5,546 Mn as compared to Rs 5,503 Mn in the corresponding quarter last year. During the quarter, the Company accelerated its Local cable Operators (LCO) partnership model and continued up-gradation of its copper network to FTTH. The company also launched Integrated Homes offering in Bangalore.

Digital TV Services

As on Dec 31, 2019, the Company had its Digital TV operations in 639 districts. DTH had 16.3 Mn customers at the end of the quarter, which represents an increase of 8.7%, as compared to the corresponding quarter last year. During the quarter, the Company collaborated with Sony to bundle Airtel XStream Stick, revamped regional pack offerings in select markets. The company also collaborated with TV panel makers – Samsung and MI, to bundle TV and DTH sales. Underlying ARPU for the quarter was at Rs 245 as compared to Rs 231 in the corresponding quarter last year, an increase of 5.9% Y-o-Y. Underlying revenue from Digital TV services was at Rs 11,940 Mn vis-à-vis Rs 10,330 Mn in the corresponding quarter last year.

Airtel Business

Airtel Business segment revenues for the current quarter was at Rs 33,176 Mn as compared to Rs 31,116 Mn in the corresponding quarter last year. The company has designed industry-specific solutions like Enterprise Hub, a one-stop digital self-care portal, to improve customer engagement, experience and life cycle management.

Tower Infrastructure Services

As at the end of the quarter, Infratel had 41,471 towers with average sharing factor of 1.85 times compared to 1.95 times in the corresponding quarter last year. Including proportionate share of Indus in which Infratel holds 42% of stake, on a consolidated basis, Infratel had 94,244 towers with an average sharing factor of 1.85 times as compared to 1.89 times in the corresponding quarter last year.

Africa

As on Dec 31, 2019, the Company had an aggregate customer base of 107.1 Mn as compared to 97.9 Mn in the corresponding quarter last year, an increase of 9.4%. Customer churn for the quarter has increased to 5.2% as compared to 4.5% in the previous quarter. Total minutes on network during the quarter registered a growth of 24.1% to 65.1 Bn as compared to 52.4 Bn in the corresponding quarter last year.

Data customers during the quarter increased by 3.6 Mn to 32.9 Mn as compared to 29.3 Mn in the corresponding quarter last year. Data customers now represent 30.7% of the total customer base, as compared to 29.9% in the corresponding quarter last year. The total MBs on the network grew at a healthy growth rate of 80.2% to 189.8 Bn MBs compared to 105.3 Bn MBs in the corresponding quarter last year. Data usage per customer during the quarter was at 1,967 MBs as compared to 1,248 MBs in the corresponding quarter last year, an increase of 57.6%.

The total customer base using the Airtel Money platform increased by 20.5% to 16.6 Mn as compared to 13.8 Mn in the corresponding quarter last year. Total value of transactions on the Airtel money platform has witnessed a growth of 31.7% to $ 8,576 Mn in the current quarter as compared to $ 6,509 Mn in the corresponding quarter last year. Airtel Money revenue is at $ 83.9 Mn as compared to $ 64.2 Mn in the corresponding quarter last year reflecting a growth of 30.6%.

The Company had 22,253 network towers at end of the quarter as compared to 20,582 network towers in the corresponding quarter last year. Out of the total number of towers, 19,133 are mobile broadband towers. The Company has total 43,174 mobile broadband base stations as compared to 29,650 mobile broadband base stations at the end of the corresponding quarter last year.

Africa revenues at $ 896 Mn grew by 14.2% as compared to $ 785 Mn in the corresponding quarter last year as a result of continued strong performance in Nigeria and East Africa and an improvement in the performance of the Rest of Africa.

Opex for the quarter is at $ 313 Mn as compared to $ 321 Mn in the corresponding quarter last year and $ 305 Mn in the previous quarter. EBITDA was at $ 404 Mn as compared to $ 306 Mn in the corresponding quarter last year and $ 376 Mn in the previous quarter. EBITDA margin was at 45.1% for the quarter (up 6.1% Y-o-Y, up 1.1% Q-o-Q). Depreciation and amortization charges were at $ 155 Mn as compared to $ 114 Mn in the corresponding quarter last year and $ 154 Mn in the previous quarter. EBIT for the quarter was at $ 248 Mn as compared to $ 191 Mn in the corresponding quarter last year and $ 221 Mn in the previous quarter.

The resultant profit before tax and exceptional items for the quarter was at $ 175 Mn as compared to $ 114 Mn in the corresponding quarter last year and $ 143 Mn in the previous quarter.

Capital expenditure during the quarter was $ 150 Mn for Africa operations. Operating free cash flow during the quarter was at $ 254 Mn, as compared to $ 136 Mn in the corresponding quarter last year and $ 228 Mn in the previous quarter.

References

  1. ^ https://www.airtel.in/about-bharti/equity
  2. ^ https://www.bseindia.com/xml-data/corpfiling/AttachHis/5234a023-cc61-478e-850c-a9b5959e00c4.pdf
  3. ^ https://www.bseindia.com/bseplus/AnnualReport/532454/5324540319.pdf
  4. ^ https://www.bseindia.com/xml-data/corpfiling/AttachHis/5234a023-cc61-478e-850c-a9b5959e00c4.pdf
Created by Asif Farooqui on 2020/04/27 08:37
     
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