Lately, the shares of Bharti Airtel Ltd have become an enigma. Although the company is expected to be a key beneficiary of the troubles at Vodafone Idea Ltd, the stock recently flirted with its post-covid lows seen in March. While he has recovered a bit for ₹430 levels, it has still underperformed the market by about 30% in the last three months.
The company’s September quarter results will certainly challenge the pessimistic sentiment surrounding the stock. Bharti Airtel’s performance in almost all of its operating segments was well above expectations. In India’s key mobile business, revenue grew 7.4% sequentially to ₹13,832 crore. Their customer base increased 5% sequentially after being flat for several quarters. Growth was driven by high-value 4G customers, which increased 10.4% quarter-on-quarter.
With a majority of subscribers consuming data, the average revenue per user (ARPU) increased to ₹162, 3.3% more than in the June quarter. Most of the incremental revenue flowed into the earnings line and the mobile division’s Ebitda margins increased by more than 500 basis points sequentially. Ebitda stands for earnings before interest, taxes, depreciation, and amortization.
The result: Airtel’s mobile Ebitda in India increased 12.8% sequentially and up 47.6% year-on-year. In perspective, analysts at Kotak Institutional Equities and Jefferies India estimated Ebitda growth of 3.5-4% sequentially for the division. “The big jump in the subscriber base suggests huge market share gains for Vodafone Idea,” said an analyst at a national institutional brokerage.
The segment also reported earnings before interest and taxes from ₹Rs 2,440 crore, which means it has returned to earnings to the pre-tax level after a long gap. While the company does not break down its borrowing costs across divisions, the financial costs of its mobile business in India are estimated to be ₹1,100-1,200 crore.
Other highlights included a 5% sequential growth in residential broadband customers and a 5-6% sequential increase in Ebitda from the business and digital television divisions. Airtel Africa had reported a huge 16% sequential jump in earnings in constant currency terms.
While Airtel’s stock hasn’t really moved since it reported impressive results for its business in Africa, investors must now grapple with the fact that the company has delivered strong results across several divisions. And compared to the expected 2-3% increase in consolidated Ebitda, the company reported a sequential 11.4% increase in earnings.
Analysts on the sell side have been yelling to buy for the stock for a while now, and all 27 analysts followed by Bloomberg have a buy / overweight rating. The median target price of the stock is ₹684, almost 60% higher than the current market price. Investors may be concerned about Reliance Jio’s growing dominance in the Indian telecom market, especially after its record fundraiser earlier in the year. But as Airtel’s second-quarter results show, it’s clearly premature to rule it out just yet.
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