Bharti Airtel: 4G, Africa growth key triggers

Company eyeing higher data revenue and more cash flow from Africa

The Bharti Airtel stock gained 7.4 per cent since the announcement of a restructuring in Africa last week. Bharti had on Sunday announced it had deployed India's first commercial long-term-evolution-(LTE)-advanced (4G+) network to deliver mobile data speeds of up to 135 Mbps in Kerala; gradually, similar roll-outs would happen in the rest of India. There has been a surge in 4G (fourth generation) handsets as well as usage, which the company is looking to take advantage of. About 15 million handsets were shipped in the December quarter (current base 12 million).

While there is little doubt about 4G growth, analysts are worried about a price war once Reliance Jio Infocomm (RJio) rolls out its services. Analysts at Fitch group's India Ratings say the proposed launch could disrupt data pricing, leading to data realisations softening 30-40 per cent from the current levels in FY17. While consumption volumes are growing at 30-35 per cent annually, a steeper decline in data realisations could lower data revenue per user.

The bigger monitorable is voice pricing. As voice continues to bring in 70 per cent of revenues for the sector, Bharti Airtel is experimenting with voice over LTE (VoLTE) trials. RJio, which is expected to launch its 4G services in the second half of 2016, is to offer VoLTE. However, voice growth has been muted even in a seasonally strong December quarter, with data driving revenue. Currently, the cost of an LTE voice call is a fifth of normal voice call. So, RJio's entry is a threat. But, Bharti's VoLTE launch provides some comfort due to its ability to retain customers, if the worse comes true.

 

Bharti Airtel outperformed the sector both on data revenue growth and Ebitda (earnings before interest, taxes, depreciation, and amortisation) margins, with the former growing at 10 per cent (Idea Cellular seven per cent) while margin expansion was 50 basis points (contraction for Idea Cellular). It is increasing its proportion of post-paid subscribers, which has grown to six per cent now from 5.4 per cent a year ago. On spectrum, too, Bharti is better-placed than most incumbents, as it has built up enough airwaves in recent auctions across frequencies.

 

In Bharti's Africa operations, the recent restructuring should help it gain traction in revenue and cash flow. Bharti is merging its Bangladesh operations with Axiata and monetising its Sri Lanka operations, which should cut losses and improve liquidity.