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Bharti Airtel – BUY

Strong performance in tough conditions

Financial summary (Rs bn)

Y/e 31 Mar, Consolidated FY19A FY20A FY21ii FY22ii FY23ii

Revenues (Rs bn) 808 879 971 1,101 1,341

Ebitda margins (%) 31.9 41.9 43.3 46.6 49.1

Pre-exceptional PAT (Rs bn) 4 (98) (158) 55 137

Reported PAT (Rs bn) 4 (322) (158) 55 137

Pre-exceptional EPS (Rs) 1.0 (17.9) (28.9) 10.0 25.1

Growth (%) (62.7) NA NA NA 149.9

IIFL vs consensus (%) 381.3 (28.2) 10.0

PER (x) 498.8 (28.5) (17.7) 51.0 20.4

ROE (%) 0.5 NA NA 7.0 17.0

Net debt/equity (x) 1.3 1.2 1.6 1.9 1.7

EV/Ebitda (x) 13.7 11.9 10.5 8.8 6.9

Price/book (x) 2.4 2.7 3.5 3.6 3.3

OCF/Ebitda (x) 0.8 0.5 0.9 1.0 0.9

Source: Company, IIFL Research. Priced as on 27 August 2020

G V Giri | [email protected] 91 22 4646 4676

Balaji Subramanian | [email protected] 91 22 4646 4644

|

CMP Rs511

12-mth TP (Rs) 619 (21%)

Market cap (US$m) 37,767

Enterprise value(US$m) 53,417

Bloomberg BHARTI IN

Sector Telecom

Shareholding pattern (%)

Promoter 56.2 Pledged (as % of promoter share) 0.0

FII 20.2

DII 18.4

52Wk High/Low (Rs) 612/326

Shares o/s (m) 5456

Daily volume (US$ m) 170.7

Dividend yield FY21ii (%) 0.7

Free float (%) 43.8

Price performance (%)

1M 3M 1Y

Absolute (Rs) (8.7) (9.3) 46.7

Absolute (US$) (7.1) (6.6) 42.6

Rel. to Sensex (11.8) (33.0) 42.8

Cagr (%) 3 yrs 5 yrs

EPS NA NA

Stock performance

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Vol('000, LHS) Price (Rs., RHS)

Company update

FY20 ARA

28 August 2020

The key takeaways from Bharti’s FY20 AR are:

• Bharti’s underlying standalone (SA) Ebitda margin expanded 330bps

YoY and Ebitda growth was 30%. This is after removing the 150bps

boost to reported margin due to spreading of customer acquisition

cost over the life of the customer.

• Opex Cagr of 1.7% in India in the past 3 years is impressive (ex LF,

SUC and access charges).

• Comparing Bharti’s and JIO’s cost structure, the difference in S&D

and other expenses is partly due to JIO’s opex capitalisation and

lower salience in enterprise and post-paid.

• Consol WC (ex capex creditors) for Bharti deteriorated from -27% of

sales in FY19 to -20% of sales in FY20 mostly due to Africa.

• Bharti SA’s underlying WC position at -16% of sales in FY20 was

marginally better than JIO’s -14%.

• The proportion of online top-ups rose to 70% during lockdown vs.

35% before. If this remains sticky, there could be ~50bps Ebitda

margin boost.

• Effective interest rate rose to 11.1% in FY20 vs. 10.8% in FY19.

• Contingent liabilities towards DoT came down sharply to Rs51bn as

Bharti made AGR provisions in its balance sheet. Separately, Bharti

has provided for Rs56bn one-time spectrum charges (OTSC) split as

Rs18bn principal and Rs38bn interest. With DoT’s total demand at

Rs84bn, the remaining part of the principal and potential interest on

this could result in incremental Rs200bn+ liability in the event of an

adverse outcome (currently sub judice).

We build in Rs17/share regulatory hit: If the SC orders Bharti/JIO

to pay AGR dues of insolvent telcos (whose spectrum is in use by the

surviving telcos), the worst case AGR liabilities could be

Rs138bn/Rs252bn. If the telcos are ordered to surrender this spectrum,

it may be a blessing in disguise. We build in Rs17/share hit assuming

25% probability of adverse outcome on OTSC case and 50% probability

for AGR dues of insolvent telcos. We also tweak AGR hit/share from

Rs54 to Rs49 earlier to factor in indemnity asset from Telenor. Our TP

comes down to Rs619 from Rs630. The stock trades at 10.5x FY21

EV/Ebitda and we forecast 25% Ebitda Cagr over FY21-23.

gvgiri@i i flcap.com


2

Interesting stats from FY20 AR

• The proportion of online top-ups rose to 70% during lockdown vs.

35% before. We think that this may settle around 50% once

normalcy resumes post COVID. This is positive since dealer payouts

are ~4% of revenue for physical top-ups vs. <1% for online top-

ups. Pre-paid dealer commission is netted off from reported

revenue. Hence any savings in dealer commissions would manifest

as higher revenue and not as lower costs.

• 38m subs can use VoWi-Fi based on device compatibility; 2m are

the daily active subs and 5m+ users have used this service till now

at least once. Post VoWi-Fi rollout, there has been a 73% increase in

call duration and 42% reduction in call attempts due to improved

indoor experience.

• 37% of voice traffic has been offloaded to VoLTE.

• There are >80k sites and 0.5 m outlets in rural areas, which works

out to >40% of total sites and ~50% of total outlets.

• Bharti has 10 large data centres, 120+ edge data centres, 2k+

enterprise and government clients, and 500k+ SME clients.

• There are 160m+ users across Airtel Thanks, Wynk and Xstream.

Airtel Thanks customers pay higher ARPU compared to non-Airtel

Thanks customers. Bharti also monetises some of these digital

assets through ad revenue (currently miniscule). It plans to deploy

ad platforms to improve monetisation. Further, it earns revenue

from insurance companies (HDFC Life and Bharti AXA) who use

Bharti’s digital assets for distribution.

• 850MHz acquired from Tata is actively used by Bharti. Bharti has

850MHz in 5 circles though it has 5MHz in none of these. In two

circles, it uses the 850 band for LTE. Being sub 1 GHz spectrum, it is

used to improve reach and indoor coverage. Also, in 2 out of these 5

circles, Bharti did not have sub-1GHz spectrum before Tata

acquisition; this strengthens its spectrum portfolio in those circles.

• The long running dispute with Tanzanian government has been

resolved. News shares in Airtel Tanzania were issued to Tanzanian

government such that the shareholding of the opco becomes 51-49

(with the government having 49%). Earlier, this was 60-40. In

return, US$874m tax claim on BAIN, US$183m fine, US$47m tax

claim on the opco have been waived off. Carry forward tax loss

balance has been allowed. Special dividend of up to 25% of 2019

Ebitda will be paid.

Airtel Thanks delivers ARPU uplift

Bharti relaunched My Airtel app during FY19, with rewards, privileges

and personalised offers. Airtel Thanks customers pay higher ARPU

compared to non-Airtel Thanks customers though the extent of boost

is unclear.

Airtel Thanks packs are offered in three tiers (corporate and add-on

plan users are not eligible)

• Silver (for prepaid subs who top up for unlimited plans of Rs119

but less than Rs249) – This comes bundled with Wynk and Airtel

Xstream

• Gold (for prepaid subs who top up for unlimited plans of Rs249 or

above, for post-paid Infinity Plan users and fixed BB users below

Rs1099) - In addition to Wynk and Airtel Xstream in the silver

tier, this offers ZEE5, HOOQ and Eros Now.

• Platinum (for post-paid plan users of Rs499 or above, fixed BB

users of Rs1099 or above) - In addition to the benefits in the

gold tier, this offers 1 year of Amazon Prime, free handset

damage protection, Airtel Books and priority customer

support. Amazon Prime membership comes with video,

shopping, unlimited free shipping and early and exclusive access

to deals on Amazon.



3

Standalone – 330bps underlying Ebitda margin expansion YoY

We look at the P&L of Bharti standalone (which includes India mobile ex

Rajasthan and North East + Home broadband + Enterprise).

• Revenue grew 10% YoY in FY20 vs. 8% decline seen in FY19.

Reported Ebitda had two positive influences and a negative

influence: 1) Ind-AS 116 related tailwind of Rs43.1bn; and 2)

spreading of customer acquisition cost as the average life of

customer is derived to be more than 12 months, which boosted SA

Ebitda by Rs7.9bn; and 3) accounting change in enterprise and

home segments where some costs which were earlier below the

Ebitda are now part of opex. Though Bharti did not quantify this, by

extrapolating historical trends, we estimate that this was a headwind

of Rs3.3bn.

• After removing the above three factors from reported numbers, opex

grew 4.6% YoY and Ebitda grew 30% YoY. Ebitda margin expanded

330bps YoY to 28.5%.

• We look at opex (excluding LF, SUC and access charges) since these

are costs that can be controlled by Bharti. This was up 2.2% YoY

and it is commendable that it has increased only 5% from FY17

level.

• Passive infra charges (tower rentals) rose by 8% YoY while power

and fuel costs were up 11%. Repair and maintenance costs were flat

YoY. Mobile broadband unique locations/BTS are up 11%/21% YoY.

• Sales and marketing expenses (adjusted for the Rs7.9bn tailwind

from spreading of customer acquisition cost) remained flat as % of

revenue.

• Content costs had risen 30% YoY in FY19 reflecting the impact of

content deals with ZEE5 and Netflix. In the absence of new deals,

content costs came off in FY20. Further, reduction in VAS revenue

was also accompanied by a reduction in content costs.

• Bad debt provisions + write-offs which have historically remained at

Rs8-9bn came down to Rs4.4bn in FY20. Bharti stated that FY20 saw

higher recoveries in the enterprise business and lower ICR bad debt.

Figure 1: Bharti Standalone: Lower bad debt provisions and other expenses drove most of the 330bps Ebitda margin expansion

FY18 FY19 FY20 FY18 FY19 FY20

Rs bn Rs bn Rs bn % of rev % of rev % of rev

Revenue 536.6 496.1 543.2

Ebitda (reported) 178.7 124.8 202.6 33.3 25.2 37.3

Ebitda (ex accounting change) 178.7 124.8 159.5 33.3 25.2 28.5

Opex (ex LF, SUC, IUC) 223.4 240.0 248.5 41.6 48.4 45.7

Passive infra charges (ex Ind-AS) 64.4 72.6 74.3 12.0 14.6 13.7

Power and fuel costs 45.6 55.6 61.7 8.5 11.2 11.4

Repair and maintenance 16.2 20.9 20.7 3.0 4.2 3.8

Internet bandwidth and leased line 7.1 10.3 13.6 1.3 2.1 2.5

Other network opex 6.2 6.1 5.8 1.1 1.2 1.1

Sales distribution commission* 22.2 16.6 17.7 4.1 3.3 3.3

Content costs 5.7 7.5 5.9 1.1 1.5 1.1

IT expenses 3.8 5.9 5.7 0.7 1.2 1.0

Bad debts W/O + provisions 8.8 8.5 4.4 1.6 1.7 0.8

Collection and recovery exp. 3.7 1.3 1.2 0.7 0.3 0.2

Customer care expenses 4.7 5.3 4.7 0.9 1.1 0.9

Others 9.5 8.8 5.8 1.8 1.8 1.1 Source: Company, IIFL Research; *After adding back Rs7.9bn pertaining to accounting change in FY20 and removing est. Rs3.3bn leased line costs which was earlier below Ebitda



4

Cost comparison with JIO

We compare the opex (ex LF, SUC and access charges) of Bharti stand-

alone+Hexacom and JIO. The main differences are in sales and

marketing expenses and other expenses.

Figure 2: Opex comparison of Bharti SA and JIO

Rs bn JIO As % of rev Bharti SA + Hexacom As % of rev

Employee cost 14.6 2.7% 15.8 2.7%

Network opex* 183.3 33.7% 190.3 32.7%

Sales and marketing exp 12.8 2.4% 27.3 4.7%

Other expenses 15.6 2.9% 28.6 4.9%

Total 226.3 41.7% 262.0 45.0%

Revenue 543.2 581.9

Source: Company, IIFL Research; *after adjusting for Ind-AS 116 impact

Unit rental/energy costs 12%/25% lower for JIO vs. Bharti:

Though JIO has ~32% more locations than Bharti, it has ~7% lower

revenue than Bharti. This suggests that Bharti’s revenue per location is

significantly higher. In our view, this is on account of JIO’s network

being significantly bigger since it carries 2x data traffic of Bharti. With

Bharti deriving est. ~30% of its revenue from 2G users, the capacity

and the equipment count required to support this revenue is

significantly lower. Thus it makes sense for Bharti to continue

supporting 2G users in the near term. Over time, as Bharti expands its

4G footprint and converts existing 2G users to 4G, we expect the

revenue per location for both telcos to converge (after adjusting for

spectrum holding differences).

On a per location basis, JIO’s rental cost/energy cost per month was

~12%/25% lower than Bharti’s. If we assume that JIO’s energy cost per

location is the same as Bharti with the difference being capitalised by

JIO, the annual energy cost capitalised comes to Rs25bn.

Figure 3: Comparison of network opex components for Bharti and JIO

Rs m Bharti SA + Hexacom JIO

FY19 FY20 FY19 FY20

Average est. location count 173,414 187,744 195,000 247,500

Reported rental costs 73,523 33,683 42,710 77,340

Ind-AS adjustment

44,521

13,230

Effective rental costs 73,523 78,204 42,710 90,570

As % of revenue 13.9% 13.4% 10.5% 16.7%

Rental costs per location per month 35,331 34,712 18,252 30,495

Energy costs 61,133 68,202 50,830 67,070

As % of revenue 11.6% 11.7% 12.5% 12.3%

Energy costs per location per month 29,377 30,273 21,722 22,582

Source: Company, IIFL Research

Bharti’s sales and marketing costs have declined by 20% in 3

years: JIO’s sales and marketing expense as % of revenue in FY20 was

2.4% vs. Bharti’s 4.7%. JIO does not split this line item further. For

Bharti, subscriber acquisition costs (SAC) account for almost 2/3rds of

this line item with the remaining being ad spend and others.



5

Figure 4: We estimate that JIO may have capitalized sales and marketing expenses to the tune of 3.7% of revenue if one assumes similar SAC as Bharti

Bharti's sales and marketing exp as % of revenue 4.7%

Bharti's ad spend and others as % of revenue 1.5%

SAC as % of revenue 3.2%

Bharti's SAC (Rs m) 18,516

Bharti's gross adds in FY20 (m) 84.8

Implied SAC per sub (Rs) 218

JIO's gross adds in FY20 ( m) 126.4

JIO's estimated SAC assuming similar SAC per sub as Bharti (Rs m) 27,586

As % of revenue 5.1%

JIO's est. ad spend and others as % of revenue 1.0%

Total est. sales and marketing exp as % of revenue 6.1%

JIO's reported sales and marketing exp as % of revenue 2.4%

Est. capitalised sales and marketing expenses 3.7% Source: Company, IIFL Research

The above table indicates that JIO potentially capitalised sales and

marketing expenses worth 3.7% of revenue or Rs20bn. Total estimated

capitalised opex including Rs25bn energy costs comes to Rs45bn for

JIO. This largely validates our calculation of Rs47bn opex capitalisation

in FY20 in JIO’s ARA note.

Most of Bharti’s reduction in sales and marketing (20% in absolute

terms in 3 years) has happened on SAC, which is on account of

improvement in subscriber acquisition quality. This also reflects in lower

churn which has come down from 3.7% to 2.5% during this period. CEO

Gopal Vittal had emphasised on acquisition of quality subscribers when

we met him a few years back and he has delivered on this count.

Figure 5: Reduction in SAC and churn for Bharti reflects improved quality of subscriber acquisition


Higher other expenses for Bharti vs. JIO partly due to higher

post-paid and enterprise presence: JIO’s other expenses at Rs15bn

(2.9% of revenue) are significantly below Bharti’s Rs27bn (4.9% of

revenue). About 75% of this gap is account of Bharti’s higher bad debt

provisions (due to higher enterprise, post-paid salience) and content

costs (JIO’s content costs are housed in RIL’s other subsidiaries). The

remaining is mostly on account of customer care expenses (Rs4.6bn for

Bharti vs. Rs2.1bn for JIO), which is probably due to Bharti’s customers

being spread across mobile, enterprise and home broadband.

3.2% 3.5%

4.1%

3.3% 3.2% 3.4% 3.7%

3.5%

4.0%

2.5%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

FY16 FY17 FY18 FY19 FY20

SAC as % of rev Churn

(%)

https://www.iiflcap.com/researchpack/ResearchDownload.aspx?Pid=0NpDQnyFJJg%3d&Cid=Y0nEHBeeJ0M%3d&fName=Cmda67ZI4G%2btBqlOjKGSo8zgC80F6p9N%2f1krt7lPts9ETAWM95b9SrKmxcdNXBSo&typ=APSSeVhmQ%2b8%3d



6

Figure 6: Other expenses as % of revenue for Bharti and JIO

Source: Companies, IIFL Research

Steady WC in SA; some deterioration in subsidiaries

Figure 7: Consol WC cycle: Some deterioration in overall WC days

Rs m FY17 FY18 FY19 FY20

Revenue 954,683 834,481 807,802 879,324

Inventory – A 488 0 0 0

Trade receivables – B 47,402 58,830 43,006 46,058

Unbilled revenue – C 15,880 16,136 17,072 19,221

Trade payables – D 268,537 268,537 263,138 250,199

Capex creditors less capital advances – E 62,899 79,793 119,704 129,349

Other net current liabilities – F 18,216 20,170 17,176 (7,628)

Net current assets (A+B+C)-(D+E+F) (285,882) (293,534) (339,940) (306,641)

Net current assets as a % of revenue -29.9% -35.2% -42.1% -34.9%

Net current assets as a % of revenue (ex capex creditors)

-23.4% -25.6% -27.3% -20.2%


If one removes capex creditors, working capital deteriorated from -23%

of sales in FY17 to -20% of sales in FY20.

The below table suggests that WC deterioration was mainly in the

subsidiaries even though SA WC was stable.

Figure 8: Working capital (excluding capex creditors) deterioration was in the subsidiaries

% of revenue FY17 FY18 FY19 FY20

Consol -23.4% -25.6% -27.3% -20.2%

SA -17.7% -22.8% -28.4% -26.2%

Subsidiaries -34.0% -30.6% -25.5% -10.4% Source: Company, IIFL Research

Trade payables were down from Rs263bn to Rs250bn YoY. This was flat

for SA at Rs192bn and hence the reduction is entirely in the

subsidiaries. With Airtel Africa disclosing its balance sheet, we also note

6.6% 6.2%

6.7%

7.5%

4.9%

3.4% 3.0% 2.9%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%


Bharti JIO(Other exp as % of rev)



7

that the deterioration in FY20 was partly on account of Airtel Africa.

Build-up of prepaid expenses in subsidiaries also resulted in WC

deterioration.

Figure 9: FY20’s WC deterioration was mostly in Africa

% of revenue FY18 FY19 FY20

Africa -20.3% -35.9% -18.0%


Bharti SA’s -16% WC as % of sales superior to JIO’s -14%: On

the SA WC front, net current assets (ex capex creditors) as a % of

revenue which had improved from -17% to -28% from FY17 to FY19

marginally deteriorated to -26%. This is superior to JIO’s -14% with the

main difference being on account of Bharti’s higher trade payables.

Bharti’s trade payables at Rs192bn is 4x that of JIO’s Rs47bn. Bharti’s

trade payables include OTSC provision of ~Rs56bn, LF & SUC due for

the quarter (Rs15bn) and tower company payables for the quarter. If

we exclude Bharti’s OTSC provision, its net current assets (ex capex

creditors) would be -16% vs. JIO’s -14%.

Figure 10: FCF likely to be negative for the next two years due to elevated capex

Rs bn FY17 FY18 FY19 FY20 FY21ii FY22ii FY23ii

OCF (post interest) 215.9 223.9 124.5 89.5* 218.7 275.9 450.2

Capex (ex spectrum) (218.6) (259.8) (305.3) (221.3) (230.7) (225.5) (250.2)

Spectrum capex (165.5) (13.0) (45.5) (30.7) (1.8) (66.7) (147.7)

FCF (pre inorganic) (168.1) (49.0) (226.3) (162.5) (13.8) (16.2) 52.3

Proceeds from stake sale 140.2 205.6 45.3 0.0 0.0 0.0 0.0

FCF (27.9) 156.7 (181.0) (162.5) (13.8) (16.2) 52.3

Source: Company, IIFL Research; *after Rs120bn AGR cash payout which resulted in unwinding of liability

Figure 11: ROE and ROCE have bottomed out in FY20


Figure 12: Elements of DuPont analysis

FY17 FY18 FY19 FY20 FY21ii FY22ii FY23ii

Asset Turnover 0.42 0.35 0.31 0.28 0.27 0.30 0.35

EBIT margin 16.3% 13.0% 5.5% 10.4% 12.5% 17.6% 23.7%

Interest Burden 0.5 0.3 -0.4 -4.7 -0.8 0.5 0.7

Financial Leverage 3.1 3.2 3.2 3.4 3.9 4.6 4.7

Tax burden 0.5 0.3 -0.2 0.1 -0.3 0.6 0.6

ROE 5.2% 1.4% 0.5% -5.1% 2.9% 7.0% 17.0%


Key balance sheet movements

• Bharti’s US$1bn FCCBs (issued in Jan 2020) have a conversion price

of Rs534. The stock has remained well above this in recent months.

The FCCB holder has the option of conversion any time. As the

FCCBs are tradable in open market, a holder looking to liquidate the

holding could sell the FCCB in the market, instead of converting.

• Indemnification assets have jumped from Rs9bn in FY19 to Rs204bn

in FY20. Out of this jump, Rs190bn pertains to AGR dues of Tata

(Rs160bn) and Telenor (Rs30bn). Bharti’s balance sheet carries the

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

FY17 FY18 FY19 FY20 FY21ii FY22ii FY23ii

ROE ROCE(%)



8

AGR provision for both Tata and Telenor. Since Tata Group and

Telenor (parent) will bear the AGR dues, Bharti also carries an

indemnification asset on its balance sheet.

• Deferred tax asset (DTA) is up YoY from Rs89bn to Rs270bn. Most of

the increase is due to carry forward losses. DTL is also up from

Rs11bn to Rs16bn. Net DTA is up fromRs78bn to Rs254bn.

• Bharti SA has not recognized DTA in respect of carry forward losses

of Rs389bn/Rs494bn in FY19/20 pertaining to capital losses since it

is not probable that relevant capital gains will be available in future.

The above pertains to MTM capital losses on subsidiaries such as

Infratel and Airtel Africa. On the other hand, Bharti has created

Rs149bn DTA in FY20 for P&L losses as it expects to make taxable

profits over time as industry prospects improve.

• Taxes recoverable (mostly GST receivable) is Rs126bn as of end-

FY20 vs. Rs113bn as of end-FY19. With revenue growth likely to

accelerate and capex likely to come off, GST receivables should

come off.

Contingent liabilities + potential OTSC liabilities

Contingent liabilities came down: Contingent liabilities pertaining to

DoT demand had seen a sharp jump YoY from Rs40bn in FY18 to

Rs93bn in FY19. This largely pertained to the AGR case. With AGR

related liability now part of the balance sheet, contingent liabilities

towards DoT came down to Rs51bn.

Figure 13: Contingent liabilities for Bharti SA: Non-DoT items have fallen as % of revenue

Contingent liabilities (Rs m) FY15 FY16 FY17 FY18 FY19 FY20

DoT claims 4,766 4,809 36,540 40,344 93,522 51,129

Sales and service tax 11,120 11,259 11,245 8,738 8,032 8,343

Income tax 16,635 16,282 12,527 9,951 9,950 10,439

Customs duty 4,254 4,254 4,317 4,883 4,883 2,868

Entry tax 4,221 5,061 5,509 6,010 6,169 1,991

Access charge litigation 6,952 8,196 8,733 10,021 11,839 13,487

Others 854 1,954 2,086 2,509 2,291 2,303

Total 48,802 51,815 80,957 82,456 136,686 90,560

Standalone revenue 554,964 603,003 622,763 536,630 496,080 543,171

As of % of standalone revenue 8.8% 8.6% 13.0% 15.4% 27.6% 16.7%

Non-DoT claims 44,036 47,006 44,417 42,112 43,165 39,431

As of % of standalone revenue 7.9% 7.8% 7.1% 7.8% 8.7% 7.3%


Further, Bharti’s share of contingent liabilities for JVs/associates was

Rs49bn as of end-FY20 vs. Rs28bn as of end-FY19. This was primarily

due to Indus’ tax disputes.

OTSC not part of contingent liabilities: On the longstanding OTSC

(one-time spectrum charges) dispute, DoT had increased its demand

from Rs51bn to Rs84bn during FY19, inline with the higher spectrum

prices discovered in 2014 and 2015 auctions. OTSC demand has two

parts: 1) on spectrum held up to 6.2MHz; and 2) on spectrum beyond

6.2MHz.

Recently, the Supreme Court made an adverse ruling against VIL that

OTSC can be charged on spectrum beyond 6.2MHz. Consequently, in its

4QFY20 results, Bharti booked an exceptional loss of Rs56bn (Rs18bn

principal and Rs38bn interest). The remaining Rs66bn (Rs84bn demand

minus Rs18bn provision for principal already made) and potential

interest of Rs140bn on the same could be at risk in the event of an

adverse verdict (i.e. if the SC orders that OTSC is applicable on

spectrum up to 6.2MHz).



9

Figure 14: In the event of an adverse verdict on the OTSC case, Rs206bn could be potentially at risk

Rs m

OTSC demand from DoT as of end-FY19 - A 84,140

Provision made in FY20 after adverse SC verdict on part of the demand - B 18,075

Interest provision made on the above Rs18bn - C 38,345

Provision yet to be made - D = A - B 66,065

Potential interest provision on the above - E = C*D/B 140,153

Total provision incl interest that may have to be made - F = D + E 206,218


Bharti has till date made AGR provisions of Rs475bn. Contingent

liabilities towards DoT is Rs51bn. Then there is the above Rs206bn

OTSC. Further, there is the risk of Rs138bn AGR dues of Videocon and

Aircel, from which Bharti acquired spectrum. Rs3.5bn penalty on 3G ICR

is also not part of contingent liability. Overall potential regulatory

liability comes to ~Rs875bn, indicating the extremely harsh stance that

the DoT, TRAI and the Supreme Court have taken on the industry.

Figure 15: Total regulatory liabilities add up to almost Rs875bn

Rs m

AGR provision made* 475,000

Contingent liabilities 51,129

Potential OTSC provision 206,218

3G ICR related liability 3,500

Aircel's AGR liability 124,000

Videocon's AGR liability 14,000

Total 873,847 Source: Company, IIFL Research; *Bharti has paid Rs180bn out of this

Key subsidiaries

• The key subsidiaries of Bharti saw PAT losses widening in FY20.

• Airtel Sri Lanka saw a slowdown in revenue and higher PAT loss.

• Bharti’s Hexacom’s FY20 loss of Rs27bn included AGR provision of

Rs22bn. Adjusted for this, PAT was flat.

• Airtel DTH saw lower revenue due to: 1) content costs being netted

off from both revenue and costs; and 2) activation revenue being

recognized over the life of the customer from FY20 (vs. upfront

recognition earlier).

• Airtel DTH PBT jumped 80% YoY but PAT came down YoY as FY19

PAT had benefited from one-time tax credit. OCF saw a sharp jump

from Rs10bn in FY19 to Rs26bn in FY20. Ebitda growth explained

1/3rd of this jump with the remaining due to improved WC which in

turn was recovery of security deposit from a broadcaster.

• Airtel Payments Bank saw a 2.5x revenue jump and a similar

increase in PAT loss to Rs3.7bn. Airtel Payments Bank was an

associate of Bharti only for 5 months in FY19 hence on an

annualized basis, the numbers are almost flat for FY20 vs. FY19. In

FY17 and FY18, PAT loss for Airtel Payment Bank was

Rs2.4bn/Rs2.7bn, thereby indicating that losses have increased in

FY19 and FY20.

• Wynk revenue was down 10% YoY. PAT loss widened from Rs60m to

Rs0.6bn. Bharti explained that this was due to change in transfer

pricing model.



10

Figure 16: Performance of key subsidiaries and associates

Rs m FY16 FY17 FY18 FY19 FY20

Airtel Sri Lanka

Revenue 3,948 3,838 4,032 4,436 4,552

PAT (2,643) (2,483) (1,984) (1,622) (2,165)

Bharti Hexacom

Revenue 51,878 51,255 44,083 36,136 38,741

PAT 10,278 6,601 (1,119) (7,220) (27,165)

Bharti Telemedia (Airtel DTH)

Revenue 29,178 34,305 37,570 41,001 29,238

PAT 1,277 1,315 2,829 13,498 3,857

Airtel Payment Bank

Revenue 395 264 1,591 1,434 3,798

PAT (346) (2,443) (2,726) (1,541) (3,721)

Wynk

Revenue 490 1,285 2,812 6,130 5,466

PAT 16 41 141 (60) (628)


Africa – Strong show continues

In Africa, focus on distribution, data, mobile money, existing customers,

network, and the right-cost model and people have borne fruit as Bharti

saw 27% YoY reported Ebitda growth in FY20 in USD terms. Even after

adjusting for the spreading of customer acquisition costs and Ind-AS

116, Ebitda growth was robust at 20% and Ebitda has almost doubled in

USD terms from FY17 levels.

In all African countries, Bharti has an opco. In some cases, there is a

mobile money entity, a holdco and a towerco. Bharti reports revenue,

PBT and PAT for its various Africa subsidiaries.

Bharti explained that:

• One should not look at the PBT and PAT losses of these opcos nor

add these up as one may have lent to the other.

• In some cases, there would be a separate towerco, the revenue of

which would entail the opco’s cost. A holdco may have extended

loan to an opco ─ and the holdco will book interest income as

revenue and the opco will show this as cost, and so on.

Hence, the PBT and PAT do not provide an underlying picture of the

business. Opco revenue is the only relevant number.

It can be seen that

• Nigeria posted robust revenue growth (24% in each of the past two

years in cc terms). In Nigeria, stable market conditions and head-

start on 4G (vs. the leader MTN) has helped Bharti.

• Uganda, Malawi, Kenya, DRC and Tanzania are other fast growing

markets. Zambia, Niger, Congo B and Madagascar have seen

declines.

Airtel Africa had US$3.25bn debt as of end-FY20, of which Bharti has

provided guarantees for US$2.5bn.

Figure 17: Nigeria has been the key growth driver in the past 2 years

Revenue (Rs m) CY17 CY18 CY19 YoY (CY18) YoY (CY19)

Nigeria 57,112 76,591 92,056 34% 20%

DRC 13,929 19,157 20,798 38% 9%

Gabon 9,771 9,506 9,430 -3% -1%

Tanzania 14,151 14,982 16,441 6% 10%

Zambia 15,100 11,999 9,077 -21% -24%

Niger 12,225 10,392 9,039 -15% -13%

Uganda 20,398 23,594 27,844 16% 18%

Congo B 11,038 9,193 8,444 -17% -8%

Kenya 10,813 14,066 15,375 30% 9%

Chad 8,823 7,637 7,875 -13% 3%

Malawi 7,610 9,834 11,779 29% 20%

Madagascar 3,488 3,114 2,636 -11% -15%

Seychelles 1,551 1,691 1,788 9% 6%

Rwanda 1,226 3,838 3,481 213% -9%

Africa 187,235 215,594 236,063 15% 9%




11

Figure 18: Africa’s performance has significantly improved in the past 3 years

US$m FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

Revenue 4,137 4,417 4,491 4,407 3,839 3,270 3,091 3,077 3,422

Ebitda 1,097 1,158 1,175 1,002 807 777 1,031 1,196 1,515

Ebitda margin* 26.5% 26.2% 26.2% 22.7% 21.0% 23.8% 33.4% 38.9% 44.3%

FCF** (1,010) (295) (93) (946) (553) (87) 45 151 453

Source: Company, IIFL Research *Sale of tower assets in FY15 had an adverse impact on Ebitda but Ind-AS adoption from FY20 has offset this **For FY12-18, we have calculated FCF = Ebitda - capex - interest expense – tax; For FY19 and FY20, we have used Airtel Africa’s reported FCF

Debt profile: Net debt to Ebitda at 4.35x; Adverse regulatory outcomes could take this to 5.4x

Bharti had consolidated gross debt of Rs1,174bn, as of end-FY20. The

main observations are:

Figure 19: Debt maturity profile (end-FY20) – Rs265bn or 22% maturing within a year (vs. 30% as of end-FY19) which is an improvement in liquidity position


Liquidity position improved in FY20: Liquidity position improved as

of end-FY20 with ~22% of debt maturing in a year vs. ~30% as of end-

FY19.

Figure 20: Currency mix of debt - INR debt was steady at 64% YoY


Figure 21: FX sensitivity: Similar to FY19

FX sensitivity (Rs m) Change P&L impact BS impact Total

USD-INR 5% (8,017) (10,567) (18,584)

EUR-INR 5% (2,696) (681) (3,377)

Total (10,713) (11,248) (21,961)


If we consider the notional FX debt to be 20x the sensitivity to a 5%

move, we come to Rs439bn, which is 37% of the gross debt, and which

largely matches the proportion displayed in figure 20 (also disclosed by

the company). The sensitivity to FX has been largely constant in recent

years as seen in the below table.

Figure 22: FX sensitivity to 5% change in USD-INR and EUR-INR

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

Impact (Rs m) 6,223 7,145 9,178 17,497 23,609 23,044 20,433 21,175 23,336 21,961


265,528

148,738

279,559

487,647

0

100,000

200,000

300,000

400,000

500,000

600,000

<1 year 1-2 years 2-5 years >5 years

Borrowings (m)

(Rs m)

37% 50% 54%

65% 64%

46% 38% 34%

25% 22%

18% 12% 12% 10% 13%

0%10%20%30%40%50%60%70%80%90%

100%


FX-hedged FX- unhedged INR(%)



12

Figure 23: Annual PBT hit from 100bps change in interest rates

Change (bps) PBT impact FY20 (Rs m)

INR - borrowings 100 (2,166)

USD – borrowings 100 (644)


We also look at the time-series of sensitivity of PBT to 1% interest rate

increase in INR, USD and EUR. We also compare the same with the 10-

year government bond yields in India and the US. The PBT sensitivity

has come down in recent years. This suggests lesser and progressively

decreasing proportion of floating rate borrowings, prima facie

suggesting good positioning when long yields are at rock bottom levels.

However, the accounting IFRS norms are that PV fluctuations in the

underlying instrument (e.g. fixed rate bond outstanding) will hit the

balance sheet directly so this does not give the full picture of sensitivity

to interest rate fluctuation. But we understand Bharti has reduced the

interest rate hedges and locked in greater proportion of borrowings in

low fixed rates.

Figure 24: Sensitivity of PBT to 1% interest rate increase– In recent years, this has come down suggesting better treasury operations

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

10-yr Ind. govt bond yield (%)

7.9% 8.4% 8.2% 8.3% 8.3% 7.7% 7.0% 6.9% 7.7% 6.7%

10-yr US govt bond yield (%)

3.1% 2.4% 1.8% 2.5% 2.3% 2.1% 2.0% 2.4% 2.9% 1.8%

Sensitivity

(Rs m) 5,121 6,293 6,357 6,742 5,052 4,293 3,495 3,679 3,245 2,810


Effective interest cost rose marginally: In our view, a holistic

picture of effective cost of borrowing would include interest cost, finance

charges, FX losses/gains in both the P&L and balance sheet. This

number rose to 11.1% in FY20 vs. 10.8% in FY19 as seen in the table

below.

Figure 25: Finance cost: Effective interest cost marginally rose YoY to 11.1%

Rs bn FY18 FY19 FY20

Finance costs incl FX 93 110 137

FX impact in balance sheet 7 16 -5

Total finance costs 100 126 132

Average debt 1,099 1,166 1,192

Effective finance cost 9.1% 10.8% 11.1%


Figure 26: Including accrued interest, other payables and AGR dues, net debt stood at Rs1602bn as of end-FY20; Out of the total Rs475bn AGR dues, Rs180bn has been paid and already reflects in reported net debt; We add the Rs295bn provided for but not paid

Rs m FY17 FY18 FY19 FY20

Reported net debt 970,547 1,001,060 1,129,899 1,188,590

Accrued interest 7,364 28,341 33,419 8,874

Payables towards acquisition 4,104 13,523 5,575 4,296

Advance received against agreement to sell investment

0 27,317 29,146 34,407

Perpetual bond*

71,383

AGR dues provided for but not paid 295,000

Adjusted net debt 982,015 1,070,241 1,198,039 1,602,550

Net debt to TTM Ebitda 2.78 3.56 4.65 4.35

Net debt to 1YF Ebitda 3.26 4.15 3.25 3.82

Source: Company, IIFL Research; In the initial 5 years post perpetual bond issue, accounting standards permit treating them as equity

Figure 27: If all these liabilities were to be added to debt, net debt to Ebitda could rise to ~5.4x

FY20 Rs m

Adjusted net debt from Fig 26 1,602,550

Potential OTSC dues and contingent liabilities from Fig 14 260,847

Potential AGR dues of Aircel and Videocon 138,000

Overall net debt 2,001,397

Net debt to TTM Ebitda 5.43




13

Figure 28: Net debt/Ebitda: Strong Ebitda growth should bring this to 2.5x by FY23; if one adds AGR dues (including Aircel and Videocon) and OTSC, leverage ratio should still fall below 3x by FY23


AGR dues on traded spectrum pose risks for Bharti and JIO

With the Supreme Court training its guns on insolvent telcos and

insisting that telcos that bought spectrum from them are liable for the

former’s AGR dues, there are risks to Bharti (on spectrum bought from

Aircel and Videocon) and JIO (on spectrum bought from/shared with

RCOM). The worst scenario for Bharti would be the SC directing to pay

the entire Rs138bn (Rs124bn dues of Aircel and Rs14bn dues of

Videocon as per the latest DoT affidavit).

Figure 29: In the worst case, AGR dues of Rs138bn of Aircel and Videocon could come on Bharti

Rs bn Total dues Pending dues

Bharti incl Telenor 440 260

Tata 168 126

Aircel 124 124

Videocon 14 14

Total 745 523

Source: Supreme Court, IIFL Research

Further to their deal in 2016, JIO-RCOM tried another deal in 2017,

which included a clause that limited potential liabilities for JIO only to

those relating to the specific spectrum being bought. DoT had

challenged this in the Telecom Court, which had ruled in telcos’ favour.

But the deal did not go through. The 2016 deal liabilities of Rs252bn are

a risk for JIO.

Cancellation of traded spectrum may prove a blessing in

disguise: The worst outcome would be if the SC ordered JIO and Bharti

to pay. But if it orders them to return the spectrum, it could be a

blessing in disguise for the telcos since they are likely to bid for fresh,

clean spectrum with 20 year life at attractive prices in fresh auctions,

which would be more economical than paying the AGR dues of insolvent

telcos, even after accounting for the lost value of the cancelled

spectrum. Ensuring business continuity (Bharti and JIO are using the

spectrum bought in these deals) would be critical, though, and DoT

would need to make some arrangements for this.

We already factor in spectrum renewals in 2021: The first table

below captures the spectrum expiry schedule of the three large telcos.

This shows that 7%/8%/17% of Bharti/VIL/JIO’s spectrum (based on

industry revenue weighted circle average) expires in 2021.

0.0

1.0

2.0

3.0

4.0

5.0

0

400

800

1,200

1,600

2,000

FY16 FY17 FY18 FY19 FY20 FY21ii FY22ii FY23ii

Net debt (LHS) Net debt to Ebitda (RHS)(Rs bn) (x)



14

Figure 30: Details of spectrum expiring in 2021

Spectrum* (MHz) % of total Band Rs bn at reserve price

Bharti 3.0 7.3% 1800 122

VIL 3.6 8.3% 1800 107

JIO 4.6 16.7% 850 225 Source: DoT, IIFL Research; *Revenue weighted average using industry revenue as circle weights

We build in Rs1trn/Rs800bn total spectrum spending (fresh purchase +

renewal) for JIO/Bharti over the next 6 years.

Outlook and TP change

Window for next round of tariff increase somewhat narrow: In

the next 2-3 months, it may be difficult to take meaningful tariff

increases as the spending environment remains weak due to COVID. On

the other hand, we gather from handset industry sources that work on

the JIO-Google Android smartphone is making brisk progress and that

this phone may be launched in the middle of 2021. It is very difficult to

imagine an industry-wide price hike at a time when JIO is launching an

affordable handset.

The SC verdict on AGR would also have a bearing on pricing. In the

event of an adverse verdict, VIL may be compelled to move NCLT. This

would put the government in a spot since it has Rs1.5trn to be

recovered from VIL. Moreover, state-owned banks also have an

exposure to VIL. All these may pave the way for a restructuring plan

where the government nudges telcos to raise (and rationalize) tariffs.

On balance, we think tariff hikes are unlikely for the next 12 months but

should happen thereafter. But anyway, this would be neutral for Bharti

since higher tariffs would slow down RMS gains for Bharti at VIL’s

expense.

We assign 50%/25% probability of an adverse outcome in AGR

case/other regulatory issues and build in Rs17/share hit: We

continue to use DCF-based valuation for Bharti India, at 10% WACC,

and maintain 8x exit multiple in the terminal year (FY36). Our Africa

multiple is 7.5x on adjusted EV/Ebitda basis.

Figure 31: Bharti − India valuation

DCF - India

Cost of Debt 10.0%

Tax Rate 25.0%

Post Tax Cost of Debt 6.6%

Debt 32.1%

WACC 10.5%

Exit multiple (x) 8.0

EV (Rs m) 44,788,594


Figure 32: Bharti − Africa valuation

Item (US$ m) Current

Adj EV / (Adj Ebitda - Tax) 7.5

Unadjusted Ebitda 1,505

Tax 209

Ebitda - Tax 1,296

EV 9,720

EV (Rs bn) 729,025

Source: IIFL Research

Figure 33: TP derivation

(Rs bn) EV Net

debt

Equity value

Holdco discount

Bharti's stake

Equity

val

Rs per share

India 4,789 1,004 3,784 0%

3,784 694

Africa 729 232 497 20% 56% 222 41

S Asia

0 0

Total

4,007 734




15

Figure 34: Minority interest adjustments

(Rs bn) Methodology

2-YF metric

Valuation assumption

EV Net debt

Equity val

Bharti's stake

Equity value

for MI

Rs per share

Hexacom EV/Ebitda 16 8.0 128 42 86 70% 26 5

Infratel (SA)

DCF

10% WACC, 7x exit in

FY36 276 (30) 306 54% 142 26

DTH EV/Ebitda 21 8.0 167 20 147 80% 29 6

Total

38 Source: Company, IIFL Research

Figure 35: We factor in a Rs49/share hit due to the AGR case

(Rs m)

Est. AGR case-related hit 475,000

AGR case-related payment made by Bharti 180,000

AGR case-related payout est. to be materialised 295,000

Less: Indemnity payment from Telenor 30,000

AGR case hit for Bharti 265,000

PV hit per-share (Rs) 49 Source: Company, IIFL Research

Figure 36: We build in Rs17/share hit due to regulatory risk

Rs m Total hit Probability Expected hit

Potential OTSC provision 206,218 25% 51,555

3G ICR related liability 3,500 25% 875

Aircel's AGR liability 124,000 50% 62,000

Videocon's AGR liability 14,000 50% 7,000

Total 347,718

121,430

Post-tax hit

91,072

Per share (Rs) 17


Figure 37: Bharti − TP derivation

Rs/share

India 694

Africa 41

Less: adjustments for minority interest 38

Less: adjustments for AGR provisions 49

Less: perpetual debt of Rs75bn 14

Less: Other regulatory hit 17

TP (Rs) 619

CMP (Rs) 511

Upside 21.1%

Dividend per share (Rs) 2.7

Total Return 21.5% Source: IIFL Research



16

Management

Competition: JIO, Vodafone-Idea, BSNL in India; MTN, Vodacom, Safaricom and Millicom in Africa:

PE Chart EV/Ebitda

Background: Bharti Airtel, founded in 1995, is a diversified telecom service provider offering wireless, fixed line, enterprise and DTH services. It

expanded into Africa by acquiring Zain's Africa operations for US$10.7bn EV in 2010 and is present in 14 African markets. It is India's largest mobile

operator with 26% subscriber market share and 31% revenue market share as of 4QFY18. It owns 53.51% stake in Bharti Infratel, which in turn owns

42% stake in Indus Towers, a three-way JV between Bharti, Idea and Vodafone. 4G spectrum in all circles makes it well placed to ride the next wave of

growth from data.

Company snapshot

Name Designation

Sunil Mittal Chairman

Gopal Vittal MD & CEO (India and South Asia)

Raghunath Mandava CEO (Africa)

3.0

5.0

7.0

9.0

11.0

13.0

15.0

Apr-09 Jul-11 Oct-13 Jan-16 May-18 Aug-20

12m fwd EV/EBITDA Avg +/- 1SD

(x)

Assumptions

Y/e 31 Mar, Consolidated

FY19A FY20A FY21ii FY22ii FY23ii

India traffic (min bn) 2,811.3 3,034.5 3,330.6 3,741.1 4,152.6

India Ebitda margin (%) 29.9 41.2 44.2 48.0 50.3

India capex-to-sales (%) 40.2 32.3 22.9 20.9 18.9

Africa traffic (min bn) 207.3 250.1 288.8 315.5 338.3

Africa Ebitda margin (%) 38.9 44.3 40.2 40.5 42.8

Africa capex-to-sales (%) 21.1 23.7 23.8 18.5 17.0 Source: Company data, IIFL Research

0.0

15.0

30.0

45.0

60.0

75.0

90.0

Apr-09 Jul-11 Oct-13 Jan-16 May-18 Aug-20

12m fwd PE Avg +/- 1SD

(x)

India, 73.2

Africa, 26.3

South Asia, 0.5

Geography-wise rev. break-up

(%) - FY19

Mobile, 61.8%

Homes, 3.3%

Enterprise, 18.5%

DTH, 6.1%

Passive infra, 10.3%

India revenue breakup as of

FY19



17

Financial summary Income statement summary (Rs bn) Y/e 31 Mar, Consolidated FY19A FY20A FY21ii FY22ii FY23ii Revenues 808 879 971 1,101 1,341 Ebitda 258 369 420 513 659 Depreciation and amortisation (213) (277) (298) (319) (341) Ebit 44 92 122 194 318 Non-operating income 34 (376) (95) 21 41 Financial expense (96) (144) (121) (118) (133) PBT (17) (428) (95) 97 226 Exceptionals 0 0 0 0 0 Reported PBT (17) (428) (95) 97 226 Tax expense 34 122 (46) (29) (62) PAT 17 (307) (141) 67 164 Minorities, Associates etc. (13) (15) (17) (13) (27) Attributable PAT 4 (322) (158) 55 137

Ratio analysis Y/e 31 Mar, Consolidated FY19A FY20A FY21ii FY22ii FY23ii Per share data (Rs) Pre-exceptional EPS 1.0 (17.9) (28.9) 10.0 25.1 DPS 11.7 3.3 3.3 3.3 3.3 BVPS 212.5 187.2 146.1 140.4 154.6 Growth ratios (%) Revenues (3.2) 8.9 10.4 13.4 21.8 Ebitda (14.3) 43.1 13.9 22.2 28.4 EPS (62.7) (1850.1) 61.3 (134.7) 149.9 Profitability ratios (%) Ebitda margin 31.9 41.9 43.3 46.6 49.1 Ebit margin 5.5 10.4 12.5 17.6 23.7 Tax rate 197.4 28.4 (48.3) 30.3 27.6 Net profit margin 2.1 (34.9) (14.5) 6.1 12.2 Return ratios (%) ROE 0.5 (10.5) (17.4) 7.0 17.0 ROCE 3.8 (11.8) 1.0 8.2 12.9 Solvency ratios (x) Net debt-equity 1.3 1.2 1.6 1.9 1.7 Net debt to Ebitda 4.4 3.3 3.0 2.8 2.2 Interest coverage 0.5 0.6 1.0 1.6 2.4 Source: Company data, IIFL Research

Balance sheet summary (Rs bn) Y/e 31 Mar, Consolidated FY19A FY20A FY21ii FY22ii FY23ii Cash & cash equivalents 108 273 307 429 409

Inventories 0 0 1 1 1

Receivables 43 46 58 69 84

Other current assets 178 447 415 415 415

Creditors 280 250 247 268 297

Other current liabilities 269 737 774 734 734

Net current assets (220) (221) (241) (88) (122) Fixed assets 904 1,177 1,145 1,084 1,025

Intangibles 1,201 1,159 1,118 1,286 1,454

Investments 0 0 0 0 0

Other long-term assets 318 506 467 467 467

Total net assets 2,203 2,621 2,490 2,749 2,825

Borrowings 1,254 1,482 1,562 1,852 1,850

Other long-term liabilities 99 117 131 131 131 Shareholders equity 849 1,021 797 766 844 Total liabilities 2,203 2,621 2,490 2,749 2,825

Cash flow summary (Rs bn) Y/e 31 Mar, Consolidated FY19A FY20A FY21ii FY22ii FY23ii Ebit 44 92 122 194 318 Tax paid (12) (23) (18) (29) (62) Depreciation and amortization 213 277 298 319 341 Net working capital change (55) (166) (31) 9 14 Other operating items 10 1 0 0 0 Operating cash flow before interest 201 181 371 493 610 Financial expense (76) (110) (128) (158) (133) Non-operating income 0 0 22 21 41 Operating cash flow after interest 125 71 265 356 518 Capital expenditure (306) (223) (232) (292) (398) Long-term investments 0 0 0 0 0 Others 1 (11) (46) (80) (68) Free cash flow (181) (162) (14) (16) 52 Equity raising 115 502 0 0 0 Borrowings 102 (157) 66 157 (54) Dividend (47) (18) (18) (18) (18) Net chg in cash and equivalents (10) 165 34 122 (20) Source: Company data, IIFL Research



18

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and therefore, may at times have, different and contrary views on stocks, sectors and markets.

f) This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,

publication, availability or use would be contrary to local law, regulation or which would subject IIL and its affiliates to any registration or licensing requirement within such jurisdiction. The securities described

herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this Report may come are required to inform themselves of and to observe such restrictions.

g) As IIL along with its associates, are engaged in various financial services business and so might have financial, business or other interests in other entities including the subject company(ies) mentioned in this

Report. However, IIL encourages independence in preparation of research report and strives to minimize conflict in preparation of research report. IIL and its associates did not receive any compensation or other benefits from the subject company(ies) mentioned in the Report or from a third party in connection with preparation of the Report. Accordingly, IIL and its associates do not have any material conflict of interest

at the time of publication of this Report.

h) As IIL and its associates are engaged in various financial services business, it might have:-

(a) received any compensation (except in connection with the preparation of this Report) from the subject company in the past twelve months; (b) managed or co-managed public offering of securities for the

subject company in the past twelve months; (c) received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (d) received

any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (e) engaged in market making activity for the subject company.

i) IIL and its associates collectively do not own (in their proprietary position) 1% or more of the equity securities of the subject company mentioned in the report as of the last day of the month preceding the

publication of the research report.

j) The Research Analyst engaged in preparation of this Report or his/her relative:-

(a) does not have any financial interests in the subject company (ies) mentioned in this report; (b) does not own 1% or more of the equity securities of the subject company mentioned in the report as of the last day of the month preceding the publication of the research report; (c) does not have any other material conflict of interest at the time of publication of the research report.

k) The Research Analyst engaged in preparation of this Report:-

(a) has not received any compensation from the subject company in the past twelve months; (b) has not managed or co-managed public offering of securities for the subject company in the past twelve months; (c) has not received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (d) has not received any compensation for

products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (e) has not received any compensation or other benefits from

the subject company or third party in connection with the research report; (f) has not served as an officer, director or employee of the subject company; (g) is not engaged in market making activity for the

subject company.

L) IIFLCAP accepts responsibility for the contents of this research report, subject to the terms set out below, to the extent that it is delivered to a U.S. person other than a major U.S. institutional investor. The analyst whose name appears in this research report is not registered or qualified as a research analyst with the Financial Industry Regu latory Authority (“FINRA”) and may not be an associated person of IIFLCAP

and, therefore, may not be subject to applicable restrictions under FINRA Rules on communications with a subject company, public appearances and trading securities held by a research analyst account.

We submit that no material disciplinary action has been taken on IIL by any regulatory authority impacting Equity Research Analysis.



19

This research report was prepared by IIFL Securities Limited (Formerly ‘India Infoline Limited’) Institutional Equities Research Desk (‘IIFL’), a company to engage activities is not dealer United States and, therefore, is

not subject to U.S. rules of reports independence of research report is provided for distribution to U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6 of the U.S.

Securities Exchange recipient of wishing to effect any transaction to buy or sell securities or related financial instruments based on the information provided in this report should do IIFL IIFLCAP’), broker dealer in the

United States.

IIFLCAP accepts responsibility for the contents of this research report, a person whose name appears in this research report is not registered or qualified as a research analyst with the Financial Industry FINRA”) and

an person of IIFLCAP may not be subject to applicable restrictions under FINRA Rules with held by analyst IIFL has other business units with independent research teams different views stocks and This report for the

personal information of the authorized recipient and is not for public distribution. This should not be reproduced or redistributed to any other person or in any form. This report is for the general information of the

investors, and should not be construed as an offer or solicitation of an offer to buy/sell any securities.

We have exercised due diligence in checking the correctness and authenticity of the information contained herein, so far as it relates do not or completeness. The opinions expressed are our current opinions as of the

date appearing in the material and may be subject to from to time without notice. or any persons connected it accept any liability arising from the use of this document. The recipients of this material should rely on

their own judgment professional advice on this information. IIFL or any of its connected persons including its directors or or not in way for any or damage that may arise to any from any inadvertent error the

information contained, views and opinions expressed in this publication.

IIFL and/or its affiliate companies may deal in the securities mentioned herein as a broker or for any transaction as a Maker, Investment Advisor, to issuer persons. IIFL generally prohibits its analysts from having

financial interest in the securities of any of the companies that the analysts cover. In addition, company its employees from conducting Futures & Options transactions or holding any shares for a period of less than 30

days.

Past performance should not be taken as an indication or guarantee of performance, and no or warranty, express performance. estimates contained in this report reflect a judgment of its original date of publication by

IIFL and are subject to change of mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate may adverse on the price of such securities

or financial instruments.

Analyst Certification: (a) that the views expressed in the research report accurately reflect part of her compensation was, is, or will be directly or indirectly related to the specific recommendation or views contained

in the research report.

A graph of daily closing prices of securities is available at http://www.nseindia.com/ChartApp/install/charts/mainpage.jsp, www.bseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock-quotes.

(Choose a company from the list on the browser and select the “three years” period in the price chart).

Name, Qualification and Certification of Research Analyst: G V Giri(MBA), Balaji Subramanian(MBA)

IIFL Securities Limited (Formerly ‘India Infoline Limited’), CIN No.: L99999MH1996PLC132983, Corporate Office – IIFL Centre, Kamala City, Senapati Bapat Marg, Lower Parel, Mumbai – 400013 Tel: (91-22) 4249 9000 .Fax: (91-22) 40609049, Regd. Office – IIFL House, Sun Infotech Park, Road No. 16V, Plot No. B-23, MIDC, Thane Industrial Area, Wagle Estate, Thane – 400604 Tel: (91-22) 25806650. Fax: (91-22)

25806654 E-mail: [email protected] Website: www.indiainfoline.com, Refer www.indiainfoline.com for detail of Associates.

Stock Broker SEBI Regn.: INZ000164132, PMS SEBI Regn. No. INP000002213, IA SEBI Regn. No. INA000000623, SEBI RA Regn.:- INH000000248

Key to our recommendation structure

BUY - Stock expected to give a return 10%+ more than average return on a debt instrument over a 1-year horizon.

SELL - Stock expected to give a return 10%+ below the average return on a debt instrument over a 1-year horizon.

Add - Stock expected to give a return 0-10% over the average return on a debt instrument over a 1-year horizon.

Reduce - Stock expected to give a return 0-10% below the average return on a debt instrument over a 1-year horizon.

Distribution of Ratings: Out of 229 stocks rated in the IIFL coverage universe, 110 have BUY ratings, 10 have SELL ratings, 78 have ADD ratings and 30 have REDUCE ratings

Price Target: Unless otherwise stated in the text of this report, target prices in this report are based on either a discounted cash flow valuation or comparison of valuation ratios with companies seen by the analyst as

comparable or a combination of the two methods. The result of this fundamental valuation is adjusted to reflect the analyst’s views on the likely course of investor sentiment. Whichever valuation method is used there

is a significant risk that the target price will not be achieved within the expected timeframe. Risk factors include unforeseen changes in competitive pressures or in the level of demand for the company’s products. Such

demand variations may result from changes in technology, in the overall level of economic activity or, in some cases, in fashion. Valuations may also be affected by changes in taxation, in exchange rates and, in

certain industries, in regulations. Investment in overseas markets and instruments such as ADRs can result in increased risk from factors such as exchange rates, exchange controls, taxation, and political and social conditions. This discussion of valuation methods and risk factors is not comprehensive – further information is available upon request.

http://www.nseindia.com/ChartApp/install/charts/mainpage.jsp

http://www.bseindia.com/

http://economictimes.indiatimes.com/markets/stocks/stock-quotes

mailto:[email protected]

http://www.indiainfoline.com/

http://www.indiainfoline.com/



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Price TP/Reco changed date(Rs)

Bharti Airtel: 3 year price and rating history Date Close price (Rs)

Target price (Rs)

Rating

20 Jul 2020 570 661 BUY

20 May 2020 599 649 BUY

13 Apr 2020 490 564 BUY 06 Feb 2020 534 595 BUY

14 Jan 2020 469 520 BUY

29 Nov 2019 437 480 BUY

31 Oct 2019 368 424 BUY

05 Aug 2019 343 380 BUY

21 Jun 2019 349 408 BUY 03 Jun 2019 349 419 BUY

05 Mar 2019 308 335 BUY

01 Feb 2019 306 353 BUY

Date Close price (Rs)

Target price (Rs)

Rating

19 Nov 2018 333 342 BUY

23 Jul 2018 346 444 BUY

10 Jul 2018 363 503 BUY 18 Apr 2018 382 548 BUY

22 Jan 2018 498 586 BUY

02 Nov 2017 538 628 BUY

10 Aug 2017 416 498 BUY

bharti airtel buybsmedia.business-standard.com/_media/bs/data/market...bharti airtel – buy strong...

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