Bharti steps up capex plans ahead of Jio's launch

To raise capital expenditure by Rs 1,300-2,600 cr to spruce up 3G and 4G sites across India

Bharti Airtel, India’s largest telecom operator by subscribers, is getting ready for the data war that is likely to break out with the launch of Reliance Jio. The company is looking at increasing its capital expenditure by $200-400 million (Rs 1,300-2,600 crore) in the current financial year from the initially estimated $3 billion (Rs 19,506 crore).

In an analyst call on Monday, Bharti Airtel’s India Chief Executive Officer, Gopal Vittal, said: “Capital expenditure could be higher by $200-400 million this year than the $3 billion we guided for earlier this year. If we can pull it off, we would like to do it; but the question is whether we will have the capability to execute.”

The company is looking at an exhaustive coverage of 3G and 4G across the country. At the end of the second quarter, it had a total of 62,000 3G sites, which it could double by the end of FY16. The investment is not only to drive data revenue, but also to unclog 2G networks, where its spectrum has reduced, as in Delhi.

Investors are viewing this positively, as it is indicative of the telecom player's intent to protect the market share it has garnered with the high-decibel launch of its 4G services in August. IIFL Institutional Equities says: “Bharti will attempt to accelerate its capital expenditure by Rs 1,300-2,600 crore and we estimate Bharti to have enough capacity by (120,000 base transceiver stations in 3G and 4G sites) by end-FY16, leaving it comfortably placed to drive rapid data growth and match Jio when it launches in FY17.”

Some analysts have also upgraded the company's revenue estimates for FY16 following the firm’s decision to accelerate capacity addition this year. Among the incumbents, Bharti is best placed to give a tough fight to Reliance Jio, thanks to its ability to invest in the network to leverage its superior spectrum holding.

Bank of America Merrill Lynch says the company’s operational metrics are in line, but there is an upside risk to capex. Bharti's capital expenditure in the second quarter was Rs 5,030 crore, translating to capex/sales of 21 per cent.

Indian telecom players have among the lowest capex to sales ratio in the region, but with a generational shift in technologies (4G rollout), operators will need to increase this beyond 20 per cent levels, say analysts.