378

August 28, 2018

Bharti Airtel (BHARTI IN)

SELL
Sometime Away Share Price
12m PriceDescription
Company Target
INR 378
INR 320 (-15%)
Bharti
PreviousAirtel is India's second
Price Target INR 320largest private mobile
operator and has operations in Africa, Sri Lanka and
Bangladesh.

Unabated wireless competition; reiterate SELL

Statistics
1Q19E EBITDA was inline and forms 23% of our FY19E EBITDA. We believe
Telecommunications

52w high/low (INR) 543/337

BHARTI’s India wireless ARPU will remain under stress from competition. 3m avg turnover (USDm) 24.9
This could heighten capex and pressure on its balance sheet. We now Free float (%) 32.9
forecast net losses for FY19E, with a return to profitability in FY20E. The Issued shares (m) 3,997
stock trades at 1SD above its 5-year EV/EBITDA mean, which is Market capitalisation INR1,512.4B
unwarranted, in our view. We roll forward to FY20E, which doesn’t USD21.6B
change our SOTP TP of INR320. We continue to value its telco business Major shareholders:
using DCF (WACC 10.5%, LTG 3%) and its stake in Bharti Infratel (BHIN IN, Bharti Telecom Ltd. 50.1%
Singapore Telecommunications Ltd. 14.8%
Not Rated) at INR54/share.
Life Insurance Corp. of India 3.8%

ARPU pressure remains high Price Performance

ARPU slumped 9.5% QoQ to INR105 in 1QFY19. We believe pressure came 550 190

from both the upper / mid-segment, from discounting and downtrading; 500 170
and lower end, from Reliance (RIL IN, Not rated) Jio’s feature phones.
450 150
Reliance Jio’s 14% QoQ revenue increase and ARPU of INR135 suggest
India

market-share gains. Finally, cuts in interconnection usage charges or IUC 400 130

from six paise to zero effective 1 Jan 2020 should bite in 4Q20. We 350 110
forecast ARPUs of INR107-109 for FY19-21E, down from INR132 in FY18.
300 90

High capex to hamper de-leveraging 250

Aug-16 Nov-16 Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18
70

We factor in capex of INR275b for FY19E, as guided. This should drift

Bharti Airtel - (LHS, INR) Bharti Airtel / BSE SENSEX 30 Index - (RHS, %)
down to INR225-235b in FY20-21E. The money will be used for
fiberisation, 4Q deepening and VoLTE rollout. Net debt to the last 12 -1M -3M -12M
months’ EBITDA increased to 3.5x in 1Q19 from 2.6x in 1Q18. We believe Absolute (%) 4 0 (13)
it will peak in FY19E at 3.6x. It could still be high at 3.2x in FY20E. Relative to index (%) 1 (8) (28)
Source: FactSet

Await stability
Uncertainty prevails in the telecom sector. Consensus continues to cut
forecasts every quarter. Even though we believe BHARTI is better placed
to combat Reliance Jio with its timely capex, low churns, monetisable
assets and green shoots in its Africa business, sliding ARPUs are a near-
term de-rating catalyst, in our view.

FYE Mar (INR m) FY17A FY18A FY19E FY20E FY21E

Revenue 955,889 839,367 839,213 903,803 957,417
EBITDA 354,504 303,279 292,485 327,576 378,629
Core net profit 49,695 18,921 (10,147) 933 24,703
Core EPS (INR) 12 5 (3) 0 6
Core EPS growth (%) 7.4 (61.9) nm nm 2,548.9
Net DPS (INR) 1 5 4 4 4
Core P/E (x) 27.3 90.1 nm nm 59.6
P/BV (x) 2.0 2.5 2.2 2.3 2.2
Net dividend yield (%) 0.3 1.3 0.9 0.9 0.9
ROAE (%) 5.7 1.6 (2.0) 0.1 3.8
ROAA (%) 2.2 0.8 (0.4) 0.0 1.0
EV/EBITDA (x) 6.9 8.8 8.9 8.0 6.8
Net gearing (%) (incl perps) 133.1 124.8 137.4 138.6 129.1
Consensus EBITDA - - 288,628 343,656 415,221
MKE vs. Consensus (%) - - 1.3 (4.7) (8.8)

Neerav Dalal
neerav@maybank-ke.co.in
(91) 22 6623 2606

THIS REPORT HAS BEEN PREPARED BY KIM ENG SECURITIES INDIA PVT LTD
SEE PAGE 13 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS
Bharti Airtel

Forecast losses
We cut our India revenue by 17.1-18.8% for FY19-20E. Wireless revenue has been
cut by 18.9-22.6% to factor in lower ARPUs, buffered by subscriber additions. The
latter is expected from: a) the completion of its Telenor acquisition in May 2018,
which added 28m subscribers; and b) subscribers’ switch following Aircel’s filing
for bankruptcy.

We cut ARPUs by 30% to INR106.4–107.7. This reflects downtrading by high-ARPU

customers to lower bundled plans and discounting by BHARTI to keep them on its
network. The company is offering 28-day bundled voice and data packs at as low
as INR99. At the lower end, Reliance Jio’s INR49 / month offer for Jiophones is
putting pressure on only-voice users. Lower revenue and high network costs
cause us to cut India EBITDA by 23.8–27.4% and EBITDA margins by 310-400bps.

We raise Africa revenue by 3.4–4.1% for higher-than-expected subscribers. We

raise EBITDA for higher revenue and better cost control.

Overall, we cut revenue by 13.4–14.6% and EBITDA by 15.2–17.5% for FY19-20. We

raise capex to INR235-275b from INR191.4b. Lower EBITDA and higher capex will
raise net debt. We increase net interest costs by 7.5–17.4% accordingly. We now
forecast FY19E net losses and a small profit in FY20E.

Fig 1: Earnings and TP changes

FY19E Chg FY20E Chg
FYE March (INRb) New Old (%) New Old (%)
Revenue 839.2 982.9 -14.6% 903.8 1,043.3 -13.4%
EBITDA 292.5 354.5 -17.5% 327.6 386.1 -15.2%
EBITDAM 34.9% 36.1% -120bp 36.2% 37.0% -70bp
Recurring net profit -10.1 33.2 n.a. 0.9 47.2 n.a.
Recurring EPS (INR) -2.5 8.3 n.a. 0.2 11.8 n.a.

TP (INR) 320 320 0.0%

Source: Maybank Kim Eng

No. 2 in adjusted gross revenue

Data from the Telecom Regulatory Authority of India (TRAI) indicate BHARTI has
maintained its leading subscriber market share. At 30% in Jun 2018, this was
higher than Mar 2018’s 26% and Jun 2017’s 24%. The impetus was its merger with
Telenor India in May 2018 and gains from Aircel’s bankruptcy. On an adjusted
gross revenue basis, BHARTI was No. 2 behind Reliance Jio in 1Q19. This was
mainly due to its declining ARPUs vis-a-vis stable ARPUs for Reliance Jio.

Fig 2: Industry wireless subscribers (m) Fig 3: BHARTI remained No. 1 (by subscriber market share)
1,250 1,170 1,187 1,183 1,167 1,183 100% 2%
1,146
17% 12% 10%
25% 22% 22%
1,000 80% 10%
10% 19%
9% 9%
9% 16%
14%
9% 10% 12%
750 60% 19%
17% 18%
16% 17% 16%
500 40% 19%
18% 18% 18% 19%
18%

250 20%
25% 26% 30%
23% 24% 24%

0 0%
Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18

Number of subscribers (m) BHARTI Vodafone IDEA Reliance Jio BSNL+MTNL Others

Source: TRAI Source: TRAI

August 28, 2018 2

Bharti Airtel

Fig 4: Industry adjusted gross revenue (INRb) Fig 5: Reliance Jio took the No. 1 slot in 1Q19
350.0 100% 2% 3%
307.5 12% 13% 14% 11% 5% 5%
297.2
283.3 3%
273.9 7% 6% 5%
280.0 80% 0% 0% 26%
242.8 240.5 20% 30%
22% 14%
22%
210.0 60% 17% 17%
17%
16%
24% 25%
140.0 40% 20% 21% 21% 19%

70.0 20% 35% 35%

29% 28% 29% 28%

0.0 0%
Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18

Adj. gross revenue (INRb) BHARTI Vodafone IDEA Reliance Jio BSNL+MTNL Others

Source: TRAI Source: TRAI

Subscriber additions & usage up but ARPUs slid

Thanks to small telcos going out of business and the completion of its Telenor
acquisition in May 2018, BHARTI added 63.9m subscribers in the last 12 months.
This was, however, dwarfed by Reliance Jio’s 91.9m, though better than the
industry’s churns of 40.3m. The advent of bundled plans has led to a surge in
both voice and data usage. Voice minutes / user / month increased 38.5% YoY to
703 in 1Q19. Data MBs/user/month more than doubled YoY to 7,864MB. Despite
this explosion, shrinking voice and data yields drought down 1Q19 ARPU by 31.8%
YoY to INR105. Excluding its Telenor acquisition, ARPU would have been INR109,
still down 29.2% YoY. Finally, monthly churns dropped to 2% in 1Q19 from 3.8% in
1Q18.

Fig 6: Subscriber additions steady Fig 7: Broadband subscribers at 90% of data subscribers

400 100 94.8

350 344.6 85.7
300 80

250
193.5 60
200
150 40 28.0
94.8
100
28.0 20
50 7.4
0 0
1Q17

2Q18
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16

2Q17
3Q17
4Q17
1Q18

3Q18
4Q18
1Q19

1Q17
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16

2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19

Total subscribers (m) Data subscribers (m) Data subscribers (m) 3G/4G subscribers (m)

Source: Company Source: Company

August 28, 2018 3

Bharti Airtel

Fig 8: Minutes of usage / sub up 38.5% YoY Fig 9: Data usage surging

750 10,000

600 8,000

450 6,000

300 4,000

150 2,000

0 0
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19

2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
MOU per sub (minutes) data usage per sub. (MB)

Source: Company Source: Company

Fig 10: ARPU declined to INR105 in 1Q19 Fig 11: Industry ex-incoming ARPU declining

250 140

120
200
100
150 80

100 60

40
50
20

0 0
4Q17
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17

1Q18
2Q18
3Q18
4Q18
1Q19

2Q15
3Q15
2Q14
3Q14
4Q14
1Q15

4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
ARPU (INR) Industry ARPU (INR)

Source: Company Source: TRAI

Competition & IUC cuts

We believe competition will remain the main threat to ARPUs. We think Reliance
Jio will remain aggressive until it achieves a one-third subscriber market share
from its current 18.8%. Reliance has plans for both data- and voice-heavy users.
Its JioPhones are targeted at the feature-phone market where voice usage is
higher. Subscribers have reached 25m for Jio. The company’s target is 100m
subscribers. Additionally, the newly-approved IDEA-Vodafone entity could start to
ring-fence their subscribers and become competitive in the market.
Come 1 Jan 2020, IUC charges will also be slashed to zero from six paise. This
could reduce Bharti’s ARPUs by 11% QoQ in 4Q20E. Earlier IUC cuts from 14 paise
to six on 1 Oct 2017 already caused an 11% QoQ slide in its ARPUs to INR16, in
3Q18. While we expect ARPUs to recover from FY20E with the aid of usage and
low-end users uptrading to higher bundled packs, IUC cuts could annul the
benefits. We forecast ARPUs of INR107-109 for FY19-21E, down from INR132 in
FY18.

August 28, 2018 4

Bharti Airtel

Fig 12: ARPUs to improve from 1Q20E onwards, but benefits could be erased
by IUC cuts
115
112
111 110
111 109
108
107 106
105
103 103 103
103
103
101

99

95
3Q19E

4Q21E
2Q19E

4Q19E

1Q20E

2Q20E

3Q20E

4Q20E

1Q21E

2Q21E

3Q21E
1Q19

ARPU (INR)

Source: Company, Maybank Kim Eng

Other businesses to be steady, except home broadband

Wireless constitutes 70% of its India revenue. The balance 30% comes from
direct-to-home, enterprise, home broadband and towers. Its DTH business has
been steady, adding 480k subscribers in 1Q19 with stable ARPUs of INR229.
EBITDA margins also improved to 40.4%. BHARTI closed the quarter with 14.7m
subscribers for a 25% market share.

Enterprise revenue was up 7.7% YoY. EBITDA margins rose 120bps YoY to 34.8%.

Home broadband is where we detect the next threat. This business contributes
only 4% to revenue. The launch of JioFibre could intensify competition. We
believe ARPUs will decline in this business as JioFibre spreads its wings.

Fig 13: India revenue mix

INRb FY17 FY18 FY19E FY20E FY21E
Wireless business 565.5 462.6 438.3 483.4 509.2
Home broadband 27.5 25.3 22.2 21.1 21.5
DTH 34.3 37.5 40.8 45.7 50.0
Enterprise business 109.4 113.2 122.3 134.5 148.0
Tower business 60.8 66.3 65.9 65.7 69.4
Others 3.7 4.0 4.2 4.4 4.6
Adjustments -78.0 -77.7 -69.4 -75.5 -80.3
Total 723.4 631.2 624.4 679.3 722.4
Source: Company, Maybank Kim Eng

August 28, 2018 5

Bharti Airtel

Africa showing green shoots, but not much upside left

BHARTI has been making strides in Africa, with: a) business consolidation; and b)
strict cost control. It is now No. 1 or 2 in 12 of the 14 African countries it
operates in. This has bumped up its EBITDA margins, by 750bps YoY to 35% in
1Q19. Management sees sustainability. We believe the improvement from hereon
will be minimal as EBITDA is close to its peak 35-36%. This is similar to the
EBITDA margin of its competitor - MTN (MTN SJ, Not Rated), which is also
expected to peak out at 36% as per consensus’ forecast.

Fig 14: Africa business

Particulars FY17 FY18 FY19E FY20E FY21E
No of subscribers (m) 80.1 89.3 97.2 103.2 108.2
ARPU (USD) 3.4 3.1 2.9 2.8 2.8
Revenue (USDb) 3.3 3.1 3.2 3.3 3.5
Revenue (INRb) 219.6 201.6 217.5 227.4 238.1
EBITDA (INRb) 52.3 65.4 77.3 81.9 85.8
EBITDA margin 23.8% 32.5% 35.5% 36.0% 36.0%
Source: Company, Maybank Kim Eng

Monetising assets to fund capex, in the price

BHARTI has brought down its stake in Bharti Infratel to 53.5%, from 61.68% in Mar
2017. It is awaiting approval from India’s Department of Telecom to sell its 15%
stake in its DTH subsidiary to Warbug Pincus for USD260-270m.

Elsewhere, it plans to list its Africa business on the London Stock Exchange
sometime in the next one year. Pegging the Africa business at MTN’s consensus
FY20 EV/EBITDA of 5.2x, EV works out to USD6.2b.

Finally, it is in the midst of transferring its fibre assets to a 100% subsidiary,

Telesonic Networks Ltd, by way of a slump sale. We believe its fibre business
may go down the same lane as its tower business.

We believe monetising these assets will help it better compete with Reliance Jio.
Though we have not factored any of the above into our forecasts, we believe
that at the current valuation of 8.9x FY19 EV/EBITDA, it is factored in the price.

August 28, 2018 6

Bharti Airtel

Fig 15: Results summary

Quarterly
FY March (INRb) 1Q19 1Q18 % YoY 4Q18 % QoQ
Revenue 202 220 -8 197 2
License fees & WPC charges (17) (21) -18 (17) -3
Network operating expense (51) (52) -2 (48) 5
Roaming & access charges (21) (25) -15 (20) 5
Employee cost (10) (10) -5 (10) -3
Selling, Gen & Admin costs (35) (34) 1 (31) 12
EBITDA 68 78 -13 70 -3
Depreciation (51) (48) 7 (49) 5
Operating profit 17 30 -44 21 -20
Net Interest expense (21) (18) 19 (18) 15
Pretax Profit (5) 12 -138 3 -275
Tax 11 (8) n.a. 3 273
Minority interests (2) 0 n.a. (2) 42
Recurring net profit 5 4 10 4 13
Exceptional items (4) (1) 620 (3) 12
Reported net profit 1 4 -74 1 17

Recurring EPS (INR) 1.1 1.0 10 1.0 13

Gross Margin (%) 25.6 29.2 -360bps 26.5 -90bps
EBITDA Margin (%) 33.8 35.5 -170bps 35.5 -170bps
EBIT Margin (%) 8.3 13.6 -530bps 10.7 -240bps
Tax rate (%) 250.2 68.0 n.a. - 117.1 n.a.
Source: Company

Fig 16: 1-year forward EV/EBITDA

11.0

9.0 9.2x
8.1x
7.0 7.0x
5.9x
5.0 4.8x

3.0

1.0
Aug-14
Aug-13

Aug-15

Aug-16

Aug-17

Aug-18
Feb-14

Feb-15

Feb-16

Feb-17

Feb-18

EV/1 yr fwd EBITDA Mean

+1 SD -1 SD
+2 SD -2 SD
Source: Bloomberg, Maybank Kim Eng

August 28, 2018 7

Bharti Airtel

Fig 17: DCF analysis, ex-tower business

INRb FY16 FY17 FY18 FY19E FY20E FY21E FY22E FY23E FY24E FY25E
Net revenue 910.0 895.1 773.1 773.3 838.1 888.0 974.0 1,063.7 1,178.7 1,306.0
Net EBITDA 313.8 325.3 270.7 262.5 297.3 346.0 381.5 421.5 478.3 539.8
EBITDAM (%) 34.5% 36.3% 35.0% 33.9% 35.5% 39.0% 39.2% 39.6% 40.6% 41.3%
Less: Depreciation 123.5 130.7 120.9 136.1 146.9 158.4 173.3 188.0 207.0 214.5
EBIT 190.3 194.7 149.9 126.4 150.4 187.6 208.3 233.5 271.4 325.3
Less: Tax on EBIT @35% -103.6 -93.4 -71.9 -60.7 -72.2 -90.0 -100.0 -112.1 -130.3 -156.1
Add: Depreciation 123.5 130.7 120.9 136.1 146.9 158.4 173.3 188.0 207.0 214.5
Working capital changes -4.0 -35.1 5.9 18.3 18.0 17.7 19.5 21.4 23.6 25.9
OCF 206.3 196.8 204.7 220.2 243.1 273.7 301.0 330.8 371.7 409.6
Capex -571.8 -199.3 -214.4 -263.4 -223.4 -213.4 -203.1 -199.7 -196.7 -190.9
FCFF [is this FCF?] -365.5 -2.5 -9.7 -43.2 19.7 60.3 97.9 131.1 174.9 218.7
DCF on FY18E -9.7 -43.2 18.7 51.6 75.7 91.4 110.0 124.1

Risk free return 7.5% INRb

Beta 0.9 Total DCF 428
Risk Premium 6.0% Terminal value 1,626
Total 2,054
Weight Equity 40% Net debt FY20E -991
Cost of equity 11.9% Equity value 1,063
no of shares (m) 4
Weight Debt 60% Equity value (INR) 266
Cost of debt 9.5%

WACC 10.5%
Terminal growth 3%
Source: Company, Maybank Kim Eng

Fig 18: Tower business value

Particulars INRb
BHIN Market Capitalisation (INRb) 536.5
BHARTI’s stake 53.5%
Equity value 287
Promoter's discount 25%
Per share (INR) 54
Source: Bloomberg, Maybank Kim Eng

Fig 19: SOTP-based TP

Particulars INR Remarks
Value of core business 266 From DCF table
Value of Tower assets 54 From tower business stake
TP 320
Source: Maybank Kim Eng

August 28, 2018 8

Bharti Airtel

Value Proposition Price Drivers

5
 BHARTI is India's largest private wireless telecom operator. Historical share price trend
 Telecom sector getting disrupted due to entry of Reliance 550 140
3 4
JIO, affecting BHARTI's performance. The IDEA-Vodafone
500 130
merger will further intensify competition 2

 Companies moving to bundled offers driving down voice 450 1

120

and data yields. ARPUs declining despite high usage. We 400 110
believe pressure on ARPUs will remain impacting earnings. 350 100
 Aggressive spectrum acquisition and capex towards
300 90
modernisation of backend will put pressure on balance
sheet. 250 80
Aug-13 Aug-14 Aug-15 Aug-16 Aug-17 Aug-18
 Higher interest and amortization expenses have led to a Bharti Airtel - (LHS, INR)
decline in ROE. Bharti Airtel / MSCI AC Asia ex JP - (RHS, %)

BHARTI currently at #1 in subscriber market share Source: Company, Maybank Kim Eng, Factset
100% 2%
17% 12% 10%
25% 22% 22%
80% 10%
10%
19%
1. Acquires spectrum worth INR185b in the Feb 2014
9% 9%
9%
14%
16% spectrum auction.
9% 10% 12%
60% 19% 2. Acquires spectrum worth INR291b in the Mar 2015
17% 18%
16% 17% 16% spectrum auction.
40% 19%
18% 18% 18% 18% 19% 3. TRAI issues regulation on call drop.
20%
4. Reliance Jio launches services in Sep 2016.
23% 24% 24% 25% 26% 30% 5. IUC cut to 6 paise from 14 paise effective 1 Oct 2017.
0%
Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18

BHARTI Vodafone IDEA Reliance Jio BSNL+MTNL Others

Source: TRAI

Financial Metrics Swing Factors

 Impacted by adoption of bundled plans, we forecast Upside
EBITDA CAGR of 3.9% over FY18-20E vs. 5.4% in FY13-18.
 We forecast ARPU of INR106-108 over FY19-21E vs INR132  Faster-than-expected bottoming out and increase in
in FY18. ARPU.
 Weak EBITDA and higher interest and depreciation  Gaining both subscriber and revenue market share.
expenses to result in loss at net level for FY19E and return  Monetisation of assets like listing of Africa business.
to profitability in FY20-21E.
 Net debt-to-EBITDA to deteriorate to 3.6x for FY19E from
3.2x for FY18. Downside
Net debt to EBITDA high  Loss of subscriber/revenue market share.
3.6 3.6  Slower 4G subscriber addition
3.2 3.2  Acquisition of spectrum at higher prices leading to higher
3.0 2.8
2.6 leverage
2.4

1.8

1.2

0.6

0.0
FY17 FY18 FY19E FY20E FY21E

Net debt to EBITDA (x)

Source: Company, Maybank Kim Eng

neerav@maybank-ke.co.in

August 28, 2018 9

Bharti Airtel

FYE 31 Mar FY17A FY18A FY19E FY20E FY21E

Key Metrics
P/E (reported) (x) 35.6 155.1 nm nm 61.2
Core P/E (x) 27.3 90.1 nm nm 61.2
P/BV (x) 2.0 2.5 2.3 2.3 2.3
P/NTA (x) 4.0 4.6 4.5 4.7 4.6
Net dividend yield (%) 0.3 1.3 0.9 0.9 0.9
FCF yield (%) nm 1.5 2.2 6.9 10.1
EV/EBITDA (x) 6.9 8.8 9.1 8.1 6.9
EV/EBIT (x) 15.7 24.0 32.4 25.8 18.8

INCOME STATEMENT (INR m)

Revenue 955,889.0 839,367.0 839,213.5 903,802.8 957,417.1
Gross profit 310,427.0 243,641.0 214,814.2 242,723.7 285,082.5
EBITDA 354,504.0 303,279.0 292,484.7 327,576.0 378,629.4
Depreciation (142,585.0) (132,963.0) (147,977.4) (158,752.1) (170,942.1)
Amortisation (55,145.0) (59,468.0) (62,468.0) (65,468.0) (68,468.0)
EBIT 156,774.0 110,848.0 82,039.3 103,355.9 139,219.3
Net interest income /(exp) (78,293.0) (80,856.0) (84,613.5) (87,953.5) (85,978.5)
Associates & JV 0.0 0.0 0.0 0.0 0.0
Exceptionals (11,697.0) (7,931.0) (3,621.0) 0.0 0.0
Other pretax income 0.0 0.0 0.0 0.0 0.0
Pretax profit 66,784.0 22,061.0 (6,195.2) 15,402.5 53,240.9
Income tax (34,819.0) (10,835.0) 926.7 (5,544.9) (19,166.7)
Minorities 6,033.0 (236.0) (8,500.0) (8,925.0) (9,371.3)
Discontinued operations 0.0 0.0 0.0 0.0 0.0
Reported net profit 37,998.0 10,990.0 (13,768.5) 932.6 24,702.9
Core net profit 49,695.0 18,921.0 (10,147.5) 932.6 24,702.9
Preferred Dividends 0.0 0.0 0.0 0.0 0.0

BALANCE SHEET (INR m)

Cash & Short Term Investments 85,205.0 135,684.0 67,348.4 67,569.5 66,917.3
Accounts receivable 49,838.0 58,830.0 58,819.2 63,346.2 67,104.0
Inventory 488.0 693.0 692.9 746.2 790.5
Property, Plant & Equip (net) 1,552,654.0 1,641,446.0 1,706,000.6 1,716,780.5 1,702,370.5
Intangible assets 338,082.0 328,070.0 328,070.0 328,070.0 328,070.0
Investment in Associates & JVs 0.0 0.0 0.0 0.0 0.0
Other assets 291,806.0 330,487.0 323,483.3 322,951.3 321,713.5
Total assets 2,318,073.0 2,495,210.0 2,484,414.4 2,499,463.7 2,486,965.7
ST interest bearing debt 129,442.0 129,569.0 129,569.0 129,569.0 129,569.0
Accounts payable 268,537.0 277,675.0 283,186.6 292,060.2 299,701.0
LT interest bearing debt 944,839.0 983,766.0 983,766.0 983,766.0 933,766.0
Other liabilities 231,942.0 320,717.0 326,523.0 339,687.0 352,319.0
Total Liabilities 1,574,760.0 1,711,727.0 1,723,045.0 1,745,081.7 1,715,354.6
Shareholders Equity 674,563.0 695,344.0 664,730.5 648,818.0 656,675.9
Minority Interest 68,750.0 88,139.0 96,639.0 105,564.0 114,935.3
Total shareholder equity 743,313.0 783,483.0 761,369.5 754,382.0 771,611.1
Perpetual securities 0.0 0.0 0.0 0.0 0.0
Total liabilities and equity 2,318,073.0 2,495,210.0 2,484,414.4 2,499,463.7 2,486,965.7

CASH FLOW (INR m)

Pretax profit 66,784.0 22,061.0 (6,195.2) 15,402.5 53,240.9
Depreciation & amortisation 197,730.0 192,431.0 210,445.4 224,220.1 239,410.1
Adj net interest (income)/exp 76,974.0 80,715.0 84,613.5 87,953.5 85,978.5
Change in working capital (35,064.0) 5,906.0 18,332.5 17,988.5 17,708.7
Cash taxes paid (31,587.0) (13,723.0) 926.7 (5,544.9) (19,166.7)
Other operating cash flow 7,972.0 11,148.0 0.0 0.0 0.0
Cash flow from operations 282,809.0 298,538.0 308,122.9 340,019.6 377,171.4
Capex (388,507.0) (272,917.0) (275,000.0) (235,000.0) (225,000.0)
Free cash flow (105,698.0) 25,621.0 33,122.9 105,019.6 152,171.4
Dividends paid (9,168.0) (32,652.0) (16,845.0) (16,845.0) (16,845.0)
Equity raised / (purchased) 0.0 0.0 0.0 0.0 0.0
Change in Debt 11,731.0 39,099.0 0.0 0.0 (50,000.0)
Other invest/financing cash flow 121,950.0 18,130.0 (84,613.5) (87,953.5) (85,978.5)
Effect of exch rate changes (756.0) 281.0 0.0 0.0 0.0
Net cash flow 18,059.0 50,479.0 (68,335.6) 221.1 (652.1)

August 28, 2018 10

Bharti Airtel

FYE 31 Mar FY17A FY18A FY19E FY20E FY21E

Key Ratios
Growth ratios (%)
Revenue growth (1.1) (12.2) (0.0) 7.7 5.9
EBITDA growth 4.0 (14.4) (3.6) 12.0 15.6
EBIT growth (5.7) (29.3) (26.0) 26.0 34.7
Pretax growth (39.6) (67.0) nm nm 245.7
Reported net profit growth (37.5) (71.1) nm nm 2,548.9
Core net profit growth 7.4 (61.9) nm nm 2,548.9

Profitability ratios (%)

EBITDA margin 37.1 36.1 34.9 36.2 39.5
EBIT margin 16.4 13.2 9.8 11.4 14.5
Pretax profit margin 7.0 2.6 nm 1.7 5.6
Payout ratio 10.5 194.2 nm nm 56.6

DuPont analysis
Net profit margin (%) 4.0 1.3 nm 0.1 2.6
Revenue/Assets (x) 0.4 0.3 0.3 0.4 0.4
Assets/Equity (x) 3.4 3.6 3.7 3.9 3.8
ROAE (%) 5.7 1.6 (2.0) 0.1 3.8
ROAA (%) 2.2 0.8 (0.4) 0.0 1.0

Liquidity & Efficiency

Cash conversion cycle (190.2) (220.0) (218.0) (212.1) (220.9)
Days receivable outstanding 19.7 23.3 25.2 24.3 24.5
Days inventory outstanding 0.9 0.5 0.6 0.6 0.6
Days payables outstanding 210.8 243.8 243.9 237.0 246.0
Dividend cover (x) 9.5 0.5 (1.0) 0.1 1.8
Current ratio (x) 0.3 0.5 0.4 0.3 0.3

Leverage & Expense Analysis

Asset/Liability (x) 1.5 1.5 1.4 1.4 1.4
Net gearing (%) (incl perps) 133.1 124.8 137.4 138.6 129.1
Net gearing (%) (excl. perps) 133.1 124.8 137.4 138.6 129.1
Net interest cover (x) 2.0 1.4 1.0 1.2 1.6
Debt/EBITDA (x) 3.0 3.7 3.8 3.4 2.8
Capex/revenue (%) 40.6 32.5 32.8 26.0 23.5
Net debt/ (net cash) 989,076.0 977,651.0 1,045,986.6 1,045,765.5 996,417.7
Source: Company; Maybank

August 28, 2018 11

Bharti Airtel

Research Offices
REGIONAL MALAYSIA HONG KONG / CHINA THAILAND
Sadiq CURRIMBHOY WONG Chew Hann, CA Head of Research Mitchell KIM Head of Research Maria LAPIZ Head of Institutional Research
Regional Head, Research & Economics (603) 2297 8686 wchewh@maybank-ib.com (852) 2268 0634 mitchellkim@kimeng.com.hk Dir (66) 2257 0250 | (66) 2658 6300 ext 1399
(65) 6231 5836 • Strategy • Internet & Telcos Maria.L@maybank-ke.co.th
sadiq@maybank-ke.com.sg • Strategy • Consumer • Materials • Services
Desmond CH’NG, ACA Christopher WONG Amornrat CHEEVAVICHAWALKUL
WONG Chew Hann, CA (603) 2297 8680 (852) 2268 0652 (66) 2658 6300 ext 1393
Regional Head of Institutional Research desmond.chng@maybank-ib.com christopherwong@kimeng.com.hk Amornrat.C@maybank-ke.co.th
(603) 2297 8686 • Banking & Finance • HK & China Properties • Oil & Gas
wchewh@maybank-ib.com Tanawat RUENBANTERNG
LIAW Thong Jung Jacqueline KO, CFA
(603) 2297 8688 tjliaw@maybank-ib.com (852) 2268 0633 jacquelineko@kimeng.com.hk (66) 2658 6300 ext 1394
ONG Seng Yeow
• Oil & Gas Services- Regional • Consumer Staples & Durables Tanawat.R@maybank-ke.co.th
Regional Head of Retail Research • Banks & Diversified Financials
(65) 6231 5839 ONG Chee Ting, CA Ricky NG, CFA Ornmongkol TANTITANATORN
ongsengyeow@maybank-ke.com.sg (603) 2297 8678 ct.ong@maybank-ib.com (852) 2268 0689 rickyng@kimeng.com.hk (66) 2658 6300 ext 1395
• Plantations - Regional • Regional Renewables
ornmongkol.t@maybank-ke.co.th
TAN Sin Mui • HK & China Properties • Power & Utilities • Infrastructure
Director of Research Mohshin AZIZ
(65) 6231 5849 Stefan CHANG, CFA Surachai PRAMUALCHAROENKIT
(603) 2297 8692 mohshin.aziz@maybank-ib.com
(852) 2268 0675 stefanchang@kimeng.com.hk Head of Retail Research
sinmui@kimeng.com.hk • Aviation - Regional • Petrochem
• Technology – Regional (66) 2658 5000 ext 1470
Surachai.p@maybank-ke.co.th
ECONOMICS YIN Shao Yang, CPA Tony REN, CFA • Auto • Conmat • Contractor • Steel
(603) 2297 8916 samuel.y@maybank-ib.com (852) 2268 0640 tonyren@kimeng.com.hk
Suhaimi ILIAS • Gaming – Regional • Media Ekachai TARAPORNTIP Deputy Head
• Healthcare & Pharmaceutical
Chief Economist 66) 2658 5000 ext 1530
Malaysia | Philippines | China TAN Chi Wei, CFA Wendy LI Ekachai.t@maybank-ke.co.th
(603) 2297 8682 (603) 2297 8690 chiwei.t@maybank-ib.com (852) 2268 0647 wendyli@kimeng.com.hk Sutthichai KUMWORACHAI Deputy Head
suhaimi_ilias@maybank-ib.com • Power • Telcos • Consumer & Auto (66) 2658 5000 ext 1400
sutthichai.k@maybank-ke.co.th
CHUA Hak Bin WONG Wei Sum, CFA INDIA • Energy • Petrochem
Regional Thematic Macroeconomist (603) 2297 8679 weisum@maybank-ib.com
Suttatip PEERASUB
(65) 6231 5830 • Property Jigar SHAH Head of Research (66) 2658 5000 ext 1430
chuahb@maybank-ke.com.sg (91) 22 6623 2632 jigar@maybank-ke.co.in suttatip.p@maybank-ke.co.th
LEE Yen Ling • Media • Commerce
• Strategy • Oil & Gas • Automobile • Cement
LEE Ju Ye (603) 2297 8691 lee.yl@maybank-ib.com
Singapore • Building Materials • Glove • Ports • Shipping Termporn TANTIVIVAT
Vishal MODI (66) 2658 5000 ext 1520
(65) 6231 5844
leejuye@maybank-ke.com.sg Ivan YAP (91) 22 6623 2607 vishal@maybank-ke.co.in termporn.t@maybank-ke.co.th
(603) 2297 8612 ivan.yap@maybank-ib.com • Banking & Financials • Property
Dr Zamros DZULKAFLI • Automotive • Semiconductor • Technology Jaroonpan WATTANAWONG
(603) 2082 6818 Neerav DALAL (66) 2658 5000 ext 1404
zamros.d@maybank-ib.com Kevin WONG (91) 22 6623 2606 neerav@maybank-ke.co.in jaroonpan.w@maybank-ke.co.th
(603) 2082 6824 kevin.wong@maybank-ib.com • Software Technology • Telcos • Transportation • Small cap
Ramesh LANKANATHAN • REITs • Consumer Discretionary
Sorrabhol VIRAMETEEKUL
(603) 2297 8685 Vishal PERIWAL
ramesh@maybank-ib.com LIEW Wei Han Head of Digital Research
(91) 22 6623 2605 vishalperiwa@maybank- (66) 2658 5000 ext 1550
(603) 2297 8676 weihan.l@maybank-ib.com ke.co.in sorrabhol.V@maybank-ke.co.th
FX • Consumer Staples • Infrastructure • Food, Transportation
Saktiandi SUPAAT Adrian WONG Wijit ARAYAPISIT
Head, FX Research INDONESIA (66) 2658 5000 ext 1450
(603) 2297 8675 adrian.wkj@maybank-ib.com
(65) 6320 1379 • Constructions • Healthcare Isnaputra ISKANDAR Head of Research wijit.a@maybank-ke.co.th
saktiandi@maybank.com.sg (62) 21 8066 8680 • Strategist
Jade TAM isnaputra.iskandar@maybank-ke.co.id
Christopher WONG VIETNAM
(603) 2297 8687 jade.tam@maybank-ib.com • Strategy • Metals & Mining • Cement
(65) 6320 1347
wongkl@maybank.com.sg • Media • Building Materials Rahmi MARINA LE Hong Lien, ACCA
(62) 21 8066 8689 Head of Institutional Research
Leslie TANG Mohd Hafiz Hassan rahmi.marina@maybank-ke.co.id (84 28) 44 555 888 x 8181
(603) 2082 6819 mohdhafiz.ha@maybank-ib.com
(65) 6320 1378 • Banking & Finance lien.le@maybank-kimeng.com.vn
leslietang@maybank.com.sg • Small & Mid Caps • Strategy • Consumer • Diversified
Aurellia SETIABUDI
TEE Sze Chiah Head of Retail Research (62) 21 8066 8691
Fiona LIM THAI Quang Trung, CFA,
(603) 2082 6858 szechiah.t@maybank-ib.com aurellia.setiabudi@maybank-ke.co.id
(65) 6320 1374 Deputy Head, Institutional Research
• Property
fionalim@maybank.com.sg (84 28) 44 555 888 x 8180
Nik Ihsan Raja Abdullah, MSTA, CFTe
Janni ASMAN trung.thai@maybank-kimeng.com.vn
(603) 2297 8694
STRATEGY nikmohdihsan.ra@maybank-ib.com
(62) 21 8066 8687 • Real Estate • Construction • Materials
janni.asman@maybank-ke.co.id
Sadiq CURRIMBHOY • Cigarette • Healthcare • Retail LE Nguyen Nhat Chuyen
Global Strategist SINGAPORE (84 28) 44 555 888 x 8082
(65) 6231 5836 Neel SINHA Head of Research PHILIPPINES chuyen.le@maybank-kimeng.com.vn
sadiq@maybank-ke.com.sg (65) 6231 5838 neelsinha@maybank-ke.com.sg • Oil & Gas
Minda OLONAN Head of Research
• Strategy • Industrials
Willie CHAN (63) 2 849 8840 NGUYEN Thi Ngan Tuyen,
• SMID Caps – Regional
Hong Kong / Regional minda_olonan@maybank-atrke.com Head of Retail Research
(852) 2268 0631 CHUA Su Tye • Strategy (84 28) 44 555 888 x 8081
williechan@kimeng.com.hk (65) 6231 5842 chuasutye@maybank-ke.com.sg Katherine TAN tuyen.nguyen@maybank-kimeng.com.vn
• REITs (63) 2 849 8843 • Food & Beverage • Oil&Gas • Banking
FIXED INCOME kat_tan@maybank-atrke.com
Derrick HENG, CFA TRUONG Quang Binh,
• Banks • Conglomerates • Ports
Winson Phoon, ACA (65) 6231 5843 derrickheng@maybank-ke.com.sg Deputy Head, Retail Research
(65) 6231 5831 • Property • REITs (Office) Luis HILADO (84 28) 44 555 888 x 8087
winsonphoon@maybank-ke.com.sg (65) 6231 5848 luishilado@maybank-ke.com.sg binh.truong@maybank-kimeng.com.vn
Luis HILADO • Telcos • Rubber Plantation • Tyres & Tubes • Oil & Gas
Se Tho Mun Yi (65) 6231 5848 luishilado@maybank-ke.com.sg
(603) 2074 7606 • Telcos Romel LIBO-ON TRINH Thi Ngoc Diep
munyi.st@maybank-ib.com (63) 2 849 8844 (84 28) 44 555 888 x 8208
LAI Gene Lih romel_libo-on@maybank-atrke.com diep.trinh@maybank-kimeng.com.vn
(65) 6231 5832 laigenelih@maybank-ke.com.sg • Property • Technology • Utilities • Construction
• Technology
Kayzer Llanda NGUYEN Thi Sony Tra Mi
(63) 2 849 8838 (84 28) 44 555 888 x 8084
Kayzer_Llanda@maybank-atrke.com mi.nguyen@maybank-kimeng.com.vn
• Utilities • Port Operation • Pharmaceutical
• Food & Beverage

NGUYEN Thanh Lam

(84 28) 44 555 888 x 8086
thanhlam.nguyen@maybank-kimeng.com.vn
• Technical Analysis

August 28, 2018 12

Bharti Airtel

APPENDIX I: TERMS FOR PROVISION OF REPORT, DISCLAIMERS AND DISCLOSURES

DISCLAIMERS
This research report is prepared for general circulation and for information purposes only and under no circumstances should it be considered or intended as an offer to sell or a solicitation
of an offer to buy the securities referred to herein. Investors should note that values of such securities, if any, may fluctuate and that each security’s price or value may rise or fall. Opinions
or recommendations contained herein are in form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different
methodologies and are purely based on price and volume-related information extracted from the relevant jurisdiction’s stock exchange in the equity analysis. Accordingly, investors’ returns
may be less than the original sum invested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment advice and does
not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this report. Investors should therefore seek
financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report.
The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by Maybank Investment Bank Berhad, its
subsidiary and affiliates (collectively, “MKE”) and consequently no representation is made as to the accuracy or completeness of this report by MKE and it should not be relied upon as such.
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Opinions or recommendations contained herein are in the form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations
apply different methodologies and are purely based on price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis.
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The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and
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August 28, 2018 13

Bharti Airtel

UK
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DISCLOSURES

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Disclosure of Interest
Malaysia: MKE and its Representatives may from time to time have positions or be materially interested in the securities referred to herein and may further act as market maker or may
have assumed an underwriting commitment or deal with such securities and may also perform or seek to perform investment banking services, advisory and other services for or relating to
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entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the investment concerned
or a related investment and may receive compensation for the services provided from the companies covered in this report.

OTHERS
Analyst Certification of Independence
The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research analyst’s
compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.
Reminder
Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and
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structured product should conduct its own analysis of the product and consult with its own professional advisers as to the risks involved in making such a purchase.
No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior consent of MKE.

August 28, 2018 14

Bharti Airtel

Historical recommendations and target price: Bharti Airtel (BHARTI IN)

28 Feb 23 May
Hold : INR365.0 Sell : INR320.0
550.0

500.0

450.0

400.0

350.0

300.0
Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 Aug-18

Bharti Airtel

Definition of Ratings
Maybank Kim Eng Research uses the following rating system
BUY Return is expected to be above 10% in the next 12 months (excluding dividends)
HOLD Return is expected to be between - 10% to +10% in the next 12 months (excluding dividends)
SELL Return is expected to be below -10% in the next 12 months (excluding dividends)

Applicability of Ratings
The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only
applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment
ratings as we do not actively follow developments in these companies.

August 28, 2018 15

Bharti Airtel

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August 28, 2018 16