Cloud, B2B And Postpaid Offer Major Opportunities, Says Bharti Airtel

Bharti Airtel Ltd. considers Cloud, Postpaid and B2B as the biggest opportunities going ahead.

It is crucial to reach an average revenue per user of Rs 300 to have an adequate return, it said in its investor conference call on Tuesday.

The company reported its first quarter results on Monday. It had a 128% quarter-on-quarter advance in net profit, beating analysts' estimates. Revenue was up 2.4% to Rs 38,506.40 crore, as against an estimate of Rs 39,096.4 crore.

Here are key takeaways from the investor conference call:

The management said that they have seen some consolidation around 2G customers. As far as data is concerned, they have not seen much of a change except for a delay in recharge, but expect this to unwind going into the second quarter as flow-through happens.

Customers using 5G will have to pay more after the recent tariff hike. Its management said that they have not seen any cool-off in terms of 5G users after the tariff hike. They do not see any challenge for users adapting to 5G. The opportunity to monetise 5G will now be looked at by the company in the coming quarters, it said.

• The company successfully renewed licenses in areas where they were expiring.

• It has the largest mid-band spectrum pool.

• It will continue to expand 5G coverage.

• Flow-through will start reflecting in the next two quarters.

• "We need a minimum of Rs 300 ARPU for a sustainable business," it said.

• Focus on southern states, Maharashtra and West Bengal remains.

• Seeing green shoots in the deal pipeline getting converted to revenue in the next few quarters.

• Postpaid and B2B have strong room for growth.

• The company will continue to deleverage.

• Tariffs should improve return ratios.

• The company will continue to invest in infrastructure.

• It will continue to invest in data centres as demand continues to remain strong.

• The return on capital is around 9%, which is low. If an ARPU of Rs 300 is achieved, it would lead to healthy returns.

• It has some debt wherein the coupon is much higher than the industry rate. So, it will focus on retiring such debt, and then it will think of increasing any payout.

• Three areas of focus are cloud, CPaaS (communications platform as a service) and security. These areas are getting a lot of attention, it said.

1. Portfolio: According to the management, they see strong growth in non-mobile B2B despite immediate weakness.

2. Win quality customers: The top 60 million homes account for 70% of revenue, it said. The strategy is to continue to expand WiFi penetration and build stickiness. "The opportunity is large in postpaid and B2B. Expansion programme in the rural segment is delivering as expected. We have a low market share in a few circles due to lower network coverage. Rollout is underway to reduce this gap," the management said. The cloud is a major focus.

3. Deliver a brilliant customer experience: Focus stays on the digital experience and network experience, it said. Efforts will be without additional capex, according to the company.

4. To leverage digital capabilities: "Cloud has huge growth potential. Enterprises are moving to the cloud. Our strengths lie in building data centres," it said.

5. War and waste: The management mentioned that efforts to optimise site running costs have delivered a strong outcome, leading to a per-site reduction in cost in Q1.

Bharti Airtel reported healthy numbers in its India operations, with wireless business revenue up 2% on a quarter-on-quarter basis. The consolidated numbers were weak because of weak performance in the African region. This was attributed to the African currency devaluation.

The average revenue per user for Q1 FY25 came in at Rs 211, versus Rs 209 in Q4 FY24.

The higher free cash flow due to rate hikes and deleveraging was a key positive, it said.

CLSA has maintained 'outperform' on the stock, with a target price of Rs 1,540 and an upside of 7%. The brokerage believes that immediate funding might not be required because of healthy free cash flow.

Goldman Sachs currently has a 'buy' rating on Bharti Airtel. The brokerage believes that growth in recent quarters was largely led by organic initiatives (no tariff hike). Given the tariff hike, the brokerage sees sharp growth acceleration. It expects the India business to sustain 20% Ebitda, and free cash flow to improve with further declines in capex and higher tariffs. It expects the company to resume shareholder payouts in the next 12 months.

Jefferies has maintained its 'outperform' rating, with a target price revised to Rs 1,260 versus Rs 1,230 previously. It mentioned that the cash flow from operations was up due to the working capital release. It believes that the growth outlook is strong but high valuations limit upside. It expects a 16% revenue CAGR and a 20% Ebitda CAGR in FY24–FY27.