19 MAY 2020 Quarterly Update

NOW ON APP

BUY
Research at your
BHARTI AIRTEL finger tips

TELECOMMUNICATIONS Target Price: Rs 700

Strong beat; leverage benefit ahead

Q4FY20 was above our and street expectations led by India wireless CMP : Rs 599
performance. Consolidated revenue was up 8.1% QoQ at Rs 237.2 bn Potential Upside : 17%
(our/ consensus est: Rs 227.7 bn/ Rs 231.8 bn). EBITDA margin
improved 93 bps QoQ to 43.5% (our/cons est: 43.1%/43.3%) led by
MARKET DATA
tariff hike. Adj. PAT (loss) was Rs 4.7 bn vs. Rs 10.7 bn loss in Q3.
No. of Shares : 5,456 mn
Free Float : 37%
Operating leverage benefit to play out: Bharti to benefit from operating Market Cap : Rs 3,269 bn
leverage as (i) ARPU improves due to tariff hike and mix change and 52-week High / Low : Rs 603 / Rs 322
(ii) 60-70% of revenue increase is flow-through to EBITDA. We continue Avg. Daily vol. (6mth) : 18.5 mn shares
to like its competitive positioning. Increase FY21/22E EBITDA by Bloomberg Code : BHARTI IB Equity
3.2%/6.4% and EV/EBITDA multiple for India mobile from 8.5x to Promoters Holding : 63%
9.5x, as we expect ARPU improvement with turnaround in the sector. FII / DII : 16% / 14%

Maintain BUY with SoTP-based TP of Rs 700 (Rs 585 earlier).

Improving fundamentals with better operating performance and ARPU improvement

Financial performance to improve further: Q4 revenue grew healthy 8% QoQ with India mobile revenue growing
16% QoQ. India mobile revenue growth was driven by strong 12.5 mn 4G customer addition (despite COVID-19
disruption) and impact of tariff hikes in December 2019. Strong data traffic growth continues (16.3% QoQ; 74.1%
YoY). We remain positive on Bharti given its (a) strong competitive positioning, (b) turnaround in the sector in India, and
(c) continued strong performance in Africa.

Operating leverage to play out with ARPU improvement: ARPU to improve on (i) full impact of tariff hikes by H1FY21,
(ii) more users shifting to 4G and (iii) post-paid gaining traction. We expect it to maintain industry-leading ARPU with
leading per user data consumption (14.6 GB/month). Moreover, TRAI has also floated consultation paper to potentially
fix floor prices for wireless, which if implemented may further boost ARPU. We expect Bharti to benefit from operating
leverage as ARPU improves and over 60% of the revenue is pass-through to EBITDA, leading to higher EBITDA margin.
We expect consol revenue/EBITDA CAGR of 18%/28% over FY20-22 and margin of 49% by FY22 (vs. 42% FY20).

Financial summary (Consolidated) Key drivers

Y/E March FY19 FY20 FY21E FY22E FY20 FY21E FY22E
Sales (Rs bn) 811 875 1,062 1,229 Revenue (Rs bn) 875 1,062 1,229

Adj PAT (Rs bn) (35) (39) 10 59 Growth 7.9% 21.3% 15.7%

Con. EPS* (Rs) - - 5.3 13.9 EBITDA (Rs bn) 373 496 609

EPS (Rs) (6.9) (7.6) 1.8 10.7 EBITDA margin 42.6% 46.7% 49.5%

Change YOY (%) (368.6) 9.5 (123.4) 504.7

P/E (x) (86.7) (79.2) 337.6 55.8 Price performance
RoE (%) (5.0) (5.3) 1.2 7.1 200
Sensex Bharti Airtel
RoCE (%) 2.4 4.1 6.9 9.4 150
EV/E (x) 17.5 13.1 9.6 7.5
100
DPS (Rs) 2.5 2.0 1.8 1.8
50
Source: *Consensus broker estimates, Company, Axis Capital
Apr-19 Jul-19 Oct-19 Jan-20 Apr-20

Shashi Bhusan Executive Director – IT & Telecom Santosh Sinha AVP – IT, Telecom & Internet Akshay Ramnani Sr. Manager – IT, Internet & Telecom
shashi.bhusan@axiscap.in 91 22 4325 1104 santosh.sinha@axiscap.in 91 22 4325 1121 akshay.ramnani@axiscap.in 9122 43251119

Axis Capital is available on Bloomberg (AXCP<GO>), Reuters.com, Firstcall.com and Factset.com 01

FOR IMPORTANT DISCLOSURES AND DISCLAIMERS, REFER TO THE END OF THIS MATERIAL
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 19 MAY 2020 Quarterly Update
BHARTI AIRTEL
TELECOMMUNICATIONS

Scope for ARPU to improve further: India mobile revenue was up 16% QoQ
led by increase in 4G customer base coupled with improved tariffs. ARPU in Q4
improved by 14.2% QoQ to Rs 154 despite hit by COVID-19 led lockdown. The
management emphasized that though some repair has happened in the sector,
ARPU is still at low levels. It expects ARPU to improve further to Rs 200 in short term
and Rs 300 in over longer time for sustainability of the sector.

Increase in ARPU in short term is expected from (i) full impact of the tariff hike taken
in December 2019 as customers come for recharge; (ii) more customers shifting to
4G at high ARPU; (iii) postpaid gaining traction with the difference between
pre-paid and postpaid reducing after tariff hike; (iv) focus on winning quality
customers (resilient 4G customers) with churn likely in low-ARPU customers. Further,
discussions with TRAI on floor pricing continue.

Exhibit 1: ~60% of incremental revenue has flown to EBITDA

Q1FY20 Q4FY20 Change Change (%)
Mobile Revenue Rs mn 108,667 129,529 20,861 19.2%
EBITDA Rs mn 38,742 50,796 12,054 31.1%
EBITDA margin (%) 35.7% 39.2% 57.8% 356 bps
ARPU Rs 129.3 154.1 24.8 19.2%
Subscriber mn 276.8 283.7 6.9 2.5%
Average subscriber mn 276.5 283.9 7.4 2.7%
Incremental revenue flow to EBITDA 58%

Source: Company *Ignoring restructuring in Q3FY20

Capex to moderate; FCF to improve: Capex for India mobile was at Rs 70 bn in

Q4 vs. Rs 25.4 bn in Q3. Higher capex was led by that in transport with strong
addition in mobile broadband base stations which increased by 30,024 QoQ in
Q4 to 503,883 stations. On consolidated level, capex jumped to Rs 113.4 bn
(vs. Rs 51.3 bn in Q3) leading to negative operating free cash flow of Rs 10.1 bn
in Q4FY20 (vs. +Rs 41.7 bn in Q3FY20).

The group had capex of Rs 253.6 bn for FY21 with operating free cash flow of
Rs 117.4 bn. It plans to continue spending on expanding network by (i) putting
more sites to expand coverage in rural areas; (ii) investing in transport
infrastructure; (iii) re-farming of 3G spectrum for 4G (for more capacities at
marginal level of capex); and (iv) adding capacities in some cities to reduce
congestion. However, the management expects capex to moderate in FY21 vs.
FY20. Some impact is also expected from COVID-19 led lockdown, as it has not
been able to deploy some equipment. With increasing EDITDA and decline in
capex, we expect operating free cash flow to improve for the group.

Axis Capital is available on Bloomberg (AXCP<Go>), Reuters.com, Firstcall.com and Factset.com 2

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 19 MAY 2020 Quarterly Update
BHARTI AIRTEL
TELECOMMUNICATIONS

Exhibit 2: Mobile broadband base stations addition has gained pace, leading to higher capex
50
('000)

40 46

30
30
20 26
24
18
10
12

0
Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20

Source: Company

Q4FY20 key highlights: Improving operational/ financial metrics

♦ Beat on revenue/margin: Bharti consolidated revenue in Q4 was up 8.1%
QoQ to Rs 237.2 bn, above estimates (AxisCap/ Cons.: Rs 227.7 bn/
Rs 231.8 bn).
♦ EBITDA, up 10.4% QoQ at Rs.103.3 bn, was above expectation (AxisCap/
Cons.: Rs 98.3 bn / Rs 100.5 bn). EBITDA margin improved 93 bps QoQ to
43.5% (AxisCap/Cons: 43.1%/43.3%) led by operating leverage benefit from
tariff hike. Finance cost was Rs 41.3 bn vs. Rs 32.8 bn in Q3.
♦ Exceptional impact of Rs 70 bn (primarily related to one-time spectrum charge)
during Q4 vs. Rs 10.5 bn during Q3.
♦ Reported PAT was (loss) was -Rs 52.4 bn in Q4 vs. -Rs 10.353 bn in Q3.
Adj. net loss before exceptional was Rs 4.7 bn vs. loss of Rs10.7 bn in Q3.
♦ Net Debt-EBITDA improves: Consolidated net debt including lease obligations
was at Rs 1,189 bn. Net Debt-EBITDA ratio on reported basis (annualized) at
end of FY20 is at 2.88x vs. 4.15x at end of FY19.

Exhibit 3: Exceptional items for Q4

es

Exceptional items Rs mn
Charge on reassessment of regulatory cost based on recent judgment on OSTC related matter 56,420
Interest on the provision of license fee and spectrum usage charges 8,706
Charge on account of rates and taxes on detailed management review of High Court judgments 1,681
Deferment of customer acquisition cost following reassessment of customer life for Airtel Africa 1,659
Release of provision on full and final settlement of customary indemnities to a clutch of investors of Airtel Africa 808
Miscellaneous 766
Total 70,040

Source: Company

Axis Capital is available on Bloomberg (AXCP<Go>), Reuters.com, Firstcall.com and Factset.com 3

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 19 MAY 2020 Quarterly Update
BHARTI AIRTEL
TELECOMMUNICATIONS

India mobile – strong performance led by ARPU improvement

♦ India mobile revenue was up 16% QoQ (+5.1% QoQ in Q3) at Rs 129.5 bn
(vs. AxisCap est. of Rs 118.4 bn). Revenue growth was led by increase in 4G
customer base coupled with improved tariffs.
♦ EBITDA was Rs 50.8 bn (+26.6% QoQ) while adj. EBITDA margin was up
329 bps QoQ at 39.2% (AxisCap 36.7%) vs. 35.9% in Q3 on like to
like basis.
♦ Capex increased QoQ: During Q4, capex was at Rs 70 bn for India mobile vs.
Rs 25.4 bn in Q3.
 On consolidated level, it generated negative operating free cash flow of
Rs 10.1 bn in Q4FY20 (vs. Rs 41.7 bn in Q3FY20) due to high capex of
Rs 113.4 bn (Rs 51.3 bn in Q3).

♦ Total mobile broadband base stations increased by ~30k QoQ to 503,883.

KPI – ARPU and subscribers improved

♦ ARPU was above our estimate at Rs 154 (+14.2% QoQ, Rs 135 in Q3) vs. our
estimate of Rs 142. RJio’s ARPU was up 1.7% QoQ at Rs 130.6.
♦ Reported mobile subscriber base was 283.7 mn (vs. 283 mn in Q3), an
addition of 0.63 mn customers vs. 3.6 mn added in Q3. Data subscriber base
was at 148.6 mn (vs. 138.4 mn in Q3 +7.3% QoQ; +29.0% YoY) with
moderation in addition rate (10.2 mn vs. 14.2 mn in Q3). RJio had added
17.5 mn net subscribers in Q4.
♦ India mobile – voice and data usage improves further: Voice traffic improved
by 8.3% QoQ (+12.4% YoY) to 821.9 bn minutes. Data traffic grew 16.3%
QoQ (74.2% YoY) to ~6,452 bn MB. Voice/data traffic was up
7.2% QoQ/ 6.3% QoQ for RJio.
♦ Data per user above RJio: Data usage per customer was 14.6 GB (7.5% QoQ)
vs. 13.6 GB per month for Q3 (11.3 GB/ month for RJio in Q4).
♦ 4G addition rate remains strong: 4G data subscriber base was at 136.3 mn
(vs. 123.8 mn in Q3; +10.1% QoQ; +57% YoY) as the company continues to
shut down 3G network. There was moderation in 4G addition rate (+12.5 mn
vs. +20.7 mn /+7.9 mn in Q3/Q2).

Other India businesses – EBITDA margin expansion in Enterprise/Passive Infra

♦ Enterprise business’ revenue up by 1.8% QoQ (+12.4% YoY) while EBITDA
margin expanded by 334 bps QoQ to 39.9%
♦ Homes revenue up 3.2% QoQ (+3.4% YoY) to Rs 5.7 bn due to ARPU
improving by 2% QoQ to Rs 803 with subscriber improving by 2.7% QoQ at
2.41 mn. Margin compression of 693 bps QoQ to 52.6%.
♦ DTH revenue down 23.8% QoQ (-42.6%YoY) at Rs 6.0 bn with ARPU decline
of 24.3% QoQ and subscriber growing by 1.9% QoQ (net addition of 30.5k
in Q4 vs. 10k in Q3). Margin erosion of 823 bps QoQ to 60.5%.
♦ Passive Infra revenue up 1.0% QoQ (+0.7% YoY) at Rs 16.8 bn with margin
expansion of 97 bps QoQ to 53.7%.

Axis Capital is available on Bloomberg (AXCP<Go>), Reuters.com, Firstcall.com and Factset.com 4

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 19 MAY 2020 Quarterly Update
BHARTI AIRTEL
TELECOMMUNICATIONS

Key takeaways from earnings call

♦ ARPU varies for different types of customer: (i) ARPU for feature phone
customers (who don’t have much data requirement) is ~Rs 50; (ii) entry point for
4G ARPU is Rs 219; and (iii) entry point for postpaid ARPU is Rs 399.
Its exit ARPU at end of Q4 was in ballpark of reported ARPU for Q4.

♦ Bharti has over 160 mn Monthly Active Users (MAU) across our Digital assets –
Airtel Thanks, Wynk and X Stream. It also has over 60% of entire business
going through Digital channels.

♦ Homes business continues to remain resilient and shows significant long term
promise due to work from home post the COVID crisis. It is working with local
cable operators for last mile connectivity.

♦ Management remains hopeful on reduction in levies: Management remains

hopeful that the government will implement TRAI’s recommendations and intent
of the New Telecom Policy and bring down high regulatory levies and taxes in
the telecom sector.

♦ COVID-19 impact: Bharti’s BCP was activated before the lockdown. Postpaid
and 4G continued to grow; moreover, COVID-19 led to massive surge in home
broadband demand. There were some headwinds in lower-ARPU customers, but
getting better now.

♦ AGR dues – Rs 180 bn paid: Company has paid a self-assessment sum of

Rs 130 bn and an ad-hoc sum of Rs 50 bn towards AGR dues. Supreme Court’s
judgment ruled that self-assessment is not permissible. Next hearing which was
scheduled in April did not happen. Matter is still sub judice and the apex court
will hear DoT proposal for a staggered payment of dues. It has not provided for
any incremental provision for the dues in this quarter.

♦ Strategy for Airtel Africa: To drive profitable growth, leverage levels are healthy
at (2.1x). It plans to maintain the ratio at 2x-2.5x. There are currency
headwinds in some markets.

Axis Capital is available on Bloomberg (AXCP<Go>), Reuters.com, Firstcall.com and Factset.com 5

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 19 MAY 2020 Quarterly Update
BHARTI AIRTEL
TELECOMMUNICATIONS

Exhibit 4: Q4FY20 results table

(Rs m) Q4FY19 Q3FY20 Q4FY20 QoQ YoY Axis Variance
Consolidated
Total revenues 206,022 219,471 237,227 8.1% 15.1% 227,718 4.2%
Adjusted EBITDA 68,064 93,501 103,263 10.4% 51.7% 98,250 5.1%
Margin (%) 33.0% 42.6% 43.5% 93bp 1049bp 43.1% 38bp
Adjusted net profit (10,680) (10,719) (4,708) NM NM NM
Reported net profit 1,072 (10,353) (52,370) NM NM NM
India operations
Total revenues 152,408 157,974 174,383 10.4% 14.4% 164,638 5.9%
Adjusted EBITDA 46,466 65,015 74,475 14.6% 60.3% 68,122 9.3%
Margin (%) 30.5% 41.2% 42.7% 155bp 1222bp 41.4% 133bp
India wireless
Revenues 106,322 111,653 129,529 16.0% 21.8% 118,440 9.4%
EBITDA 25,657 40,109 50,796 26.6% 98.0% 43,503 16.8%
Margin (%) 24.1% 35.9% 39.2% 329bp 1508bp 36.7% 249bp
Subscribers (m) 282.6 283.0 283.7 0.2% 0.4% 285.0 -0.5%
ARPU (Rs) 123 135 154 14.3% 25.3% 142 8.7%
Voice minutes (bn) 731,187 758,897 821,900 8.3% 12.4% 765,700 7.3%
Data traffic (m MBs) 3,705,034 5,547,223 6,452,825 16.3% 74.2% 6,007,643 7.4%
Passive Infra (Infratel)
Revenues 16,705 16,662 16,826 1.0% 0.7% 16,611 1.3%
EBITDA 8,167 8,782 9,032 2.8% 10.6% 8,755 3.2%
Margin (%) 48.9% 52.7% 53.7% 97bp 479bp 52.7% 97bp
Homes Services
Revenues 5,536 5,546 5,725 3.2% 3.4% 5,566 2.9%
EBITDA 2,450 3,302 3,012 -8.8% 22.9% 3,301 -8.7%
Margin (%) 44.3% 59.5% 52.6% -693bp 835bp 59.3% -669bp
Subscribers (m) 2.27 2.35 2.41 2.7% 6.4% 2 2.0%
ARPU (Rs) 815 787 803 2.0% -1.4% 786 2.1%
Enterprise Business
Revenues 30,040 33,176 33,762 1.8% 12.4% 32,971 2.4%
EBITDA 9,587 12,125 13,466 11.1% 40.5% 11,870 13.5%
Margin (%) 31.9% 36.5% 39.9% 334bp 797bp 36.0% 389bp
DTH
Revenues 10,506 7,922 6,035 -23.8% -42.6% 7,948 -24.1%
EBITDA 3,926 5,441 3,648 -32.9% -7.1% 5,468 -33.3%
Margin (%) 37.4% 68.7% 60.5% -823bp 2308bp 68.8% -835bp
DTH subs (m) 15.39 16.31 16.61 1.9% 7.9% 16.81 -1.2%
DTH ARPU (Rs) 233 162 123 -24.5% -47.4% 160 -23.3%
Source: Company

Airtel Africa – revenue beat; margin soft; subscriber addition continues

♦ Nigeria major contributor to YoY revenue growth: Africa revenue was
USD 899 mn, up 17.9% YoY on constant currency basis (+15.1% YoY/+1.8%
QoQ on reported basis), 0.9% above or estimate of USD 891 mn.
 9th consecutive quarter of double-digit constant currency growth.
 Revenue growth driven by growth in Nigeria (27.1% YoY) and East Africa
(18.1% YoY), while Rest of Africa was up 4.1 YoY.
 Mobile Money (+29.5% YoY) and data (+38.9%YoY) were major
contributors to revenue growth.

Axis Capital is available on Bloomberg (AXCP<Go>), Reuters.com, Firstcall.com and Factset.com 6

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 19 MAY 2020 Quarterly Update
BHARTI AIRTEL
TELECOMMUNICATIONS

♦ EBITDA at USD 397 mn was up 18.4% YoY on constant currency basis

(+15.5% YoY; -0.5% QoQ on reported basis), 1.8% below our estimate.
 On QoQ basis, 100 bps decline in margin was impacted by rest of Africa
(-510 bps QoQ). Nigeria margin was up 80 bps QoQ.
 EBITDA margin up 17 bps YoY on constant currency basis (+16 bps YoY
on reported basis) at 44.2%.
 Improvement YoY was led by Nigeria, up 206 bps YoY on constant
currency basis.
 East Africa/Rest of Africa margin was down 111 / 475 bps YoY.

♦ Operational performance – subscriber addition strong, ARPU up YoY: At end of

Q4FY20, the company had an aggregate customer base of 110.6 mn, up
11.9% YoY (+3.2% QoQ).
 It added 3.5 mn customers in Q4 vs. 3.2 mn in Q3.
 ARPU was up 3.8% YoY (+6.4% YoY on constant currency basis).
 Data customers increased by 18% YoY to 35.4 mn. Data customers now
represent 32% of the total customer base (32.7% at end of Q3FY20).
 Total customer base using Airtel Money platform increased by 28.7% YoY
to 18.3 mn (vs. 16.6 mn at end of Q3).

♦ Free cash flow was USD 62 mn vs. -USD 55 mn in Q4FY19 largely as a result
of increased EBITDA and decline in capex.

♦ Net debt including lease at USD 3,247 mn at end of Q4FY20 vs.

USD 3,233 mn at end of Q3FY20 and USD 4,005 mn in Q4FY19.
 Net debt to EBITDA was 2.1x compared to 3.0x as of Mar 2019.

♦ Final dividend of USD 3 cents: It has recommended a final dividend of

USD 3 cents per share. This means the total dividend will be USD 6 cents per
share or USD 226 mn, amounting to 50% of free cash flow.

Key management comments

♦ Mobile money and data continues to grow: Performance in April was resilient
despite customer behavior impacted by lower disposable income and
COVID-19 led restrictions. Marginal drop in voice usage is expected due to
COVID-19 led by decrease in lower-end customers; However, jump in data
consumption for mid-/ high-end customers is expected
♦ Capex plan: It intends to continue investing in network and spend planned
USD 650 mn to USD 700 mn of capex in FY21.
♦ Sufficient liquidity: It has USD 2.3 bn in long-term debt with the first repayment
of EUR 750 mn due in May 2021. The next major debt repayment of
USD 505 mn is due in March 2023. It has agreed to extend the maturity of
USD 254 mn of debt facilities loans due to mature in December 2020
and January 2021 by an average of 18 months to two years, further improving
the liquidity.
♦ Salary review deferred for management and employees till more clarity on
COVID-19 impact.
♦ Exposure to foreign exchange: Largest currency exposure is in Nigeria, which
represents 40% of revenue and 49% of underlying EBITDA. 1% of Nigerian
Naira devaluation will have a negative USD 13 mn impact on revenue,
USD 8 mn on underlying EBITDA and USD 6 mn on finance costs.

Axis Capital is available on Bloomberg (AXCP<Go>), Reuters.com, Firstcall.com and Factset.com 7

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 19 MAY 2020 Quarterly Update
BHARTI AIRTEL
TELECOMMUNICATIONS

♦ Q4'20 data usage per customer at 2.1 GB (1.3 GB in Q4FY19); voice usage
per customer at 211 minutes.
♦ Nigeria: Accelerated 4G expansion led to increase in data usage and data
revenue growth.
♦ East Africa: Mobile money revenue grew 43.7% YoY driven by Zambia,
Uganda, Tanzania and Malawi.

Exhibit 5: Airtel Africa – result table

Cons. Actual
USD mn Q4FY20 Q4FY19 YoY Q3FY20 QoQ Axis
curr -YoY vs. Axis
Revenue 899 781 15.1% 17.9% 883 1.8% 891 0.9%
Expenses 502 437 14.9% 484 3.7% 487 3.2%
Underlying EBITDA 397 344 15.5% 18.4% 399 -0.5% 404 -1.8%
Underlying EBITDA margin 44.2% 44.0% +16bps +17bps 45.2% -100bps 45.4% -120bps
Net finance costs 147 71 107.0% 76 93.4%
Profit After Tax 77 88 -12.5% 103 -25.2%
Non-Controlling Interest -12 -6 100.0% -13
Profit attributable to parent company 65 82 -20.7% 90
Basic EPS - pre-exceptional items 1.5 2.4 -37.5% 1.7
Basic EPS 1.7 2.7 -37.0% 1.7
Capex 246 305 -19.3% 150 64.0%
Free Cash Flow 62 -55 -212.7%
Operational Performance
ARPU (USD) 2.7 2.6 3.8% 6.4% 2.8 1.5% 2.8 -3.4%
Total customer base (mn) 110.6 98.9 11.9% 107.1 3.2% 109.6 0.9%
Customer addition (mn) 3.5 3.3 6.2% 3.2 6.8%
Data customer base (mn) 35.4 30.0 18.0% 32.9 7.6%
Source: Company

Valuation and recommendation – operating metrics shine further; BUY

We expect Bharti Airtel to continue gaining market share, as (i) its operating matrix
continues to improve and (ii) Vodafone Idea’s capex spend remains constrained by
high debt. It will also benefit from operating leverage, as ARPU improves from tariff
hike, increasing data consumption, more subscribers moving to 4G and post-paid
adoption. Robust performance in Africa is likely to continue on strong competitive
positioning. Fund raise and monetization of assets to (a) deleverage balance sheet,
(b) provide funds for investment in network/sustain competition and (c) provide
funds for AGR-related penalty (if required). We expect free cash flow to improve
with increasing EBITDA and reducing capex.

We raise our FY21/22E EBITDA by 3.2%/6.4% as we adjust for strong beat in

EBITDA. We also increase our EV/EBITDA multiple for India mobile from 8.5x to
9.5x, as we expect continued ARPU improvement with turnaround in the sector and
market share gain for Bharti Airtel led by superior operating metrics. Maintain BUY
rating with SOTP-based TP of Rs 700 (Rs 585 earlier), implying 17% upside from
CMP of Rs 599. The stock trades at 9.6x/ 7.5x FY21E/ FY22E EV/EBITDA.

Axis Capital is available on Bloomberg (AXCP<Go>), Reuters.com, Firstcall.com and Factset.com 8

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 19 MAY 2020 Quarterly Update
BHARTI AIRTEL
TELECOMMUNICATIONS

Exhibit 6: Changes in estimates

Particulars FY21E FY22E
Revenue (Rs mn)
- New 1,061,981 1,229,154
- Old 1,038,654 1,184,926
Change (%) 2.2 3.7
EBITDA (Rs mn)
- New 496,308 608,847
- Old 480,719 572,405
Change (%) 3.2 6.4
Net profit (Rs mn)
- New 9,680 58,538
- Old 2,534 42,575
Change (%) N/M 37.5
Source: Axis Capital

Exhibit 7: SoTP
(Rs bn) EBITDA Multiple EV Per share
FY22 (x) (Rs bn) (Rs/hare)
Africa 145 7.5 1,090 200
Telemedia 12 8.0 95 17
Enterprise 63 9.0 564 103
Infratel (incl. Indus) - 53.5% stake 167 31
DTH - 80% 17 8.5 117 21
Total EV (excl India mobile) 2,033 373
India Mobile EV 352 9.5 3,343 613
Total EV 5,377 986
Net debt incl lease obligation 833 153
AGR penalty 343 63
Consol Equity 4,200 770
Minority interest in Africa (44.8%) 383 70
Adj. Equity 3,817 700
Source: Axis Capital

Exhibit 8: EV/EBITDA – 1year forward

18 fwd EV-E (x) Mean +1 SD -1 SD

(x)
16
14
12
10
8
6
4
2
Mar-07

Mar-08

Mar-09

Mar-10

Mar-11

Mar-12

Mar-14

Mar-17

Mar-19

Mar-20
Mar-06

Mar-13

Mar-15

Mar-16

Mar-18

Source: Bloomberg

Axis Capital is available on Bloomberg (AXCP<Go>), Reuters.com, Firstcall.com and Factset.com 9

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 19 MAY 2020 Quarterly Update
BHARTI AIRTEL
TELECOMMUNICATIONS
Financial summary (Consolidated)
Profit & loss (Rs bn) Cash flow (Rs bn)
Y/E March FY19 FY20 FY21E FY22E Y/E March FY19 FY20 FY21E FY22E
Net sales 811 875 1,062 1,229 Profit before tax (45) (24) 43 109
Other operating income - - - - Depreciation & Amortisation 213 277 315 358
Total operating income 811 875 1,062 1,229 Chg in working capital 34 (11) 32 40
Cost of goods sold (396) (388) (429) (464) Cash flow from operations 198 179 470 428
Gross profit 415 487 633 765 Capital expenditure (260) (191) (181) (171)
Gross margin (%) 51.2 55.6 59.6 62.2 Cash flow from investing (285) (305) (211) (201)
Total operating expenses (152) (116) (137) (156) Equity raised/ (repaid) 114 335 - -
EBITDA 263 371 496 609 Debt raised/ (repaid) 106 34 - -
EBITDA margin (%) 32.4 42.4 46.7 49.5 Dividend paid (47) (18) (12) (11)
Depreciation (213) (277) (315) (358) Cash flow from financing 95 193 (143) (141)
EBIT 50 94 181 251 Net chg in cash 7 68 117 85
Net interest (96) (124) (141) (145)
Other income 1 5 2 2 Key ratios
Profit before tax (45) (24) 43 109 Y/E March FY19 FY20 FY21E FY22E
Total taxation 25 8 (11) (27) OPERATIONAL
Tax rate (%) 55.9 31.1 25.2 25.2 FDEPS (Rs) (6.9) (7.6) 1.8 10.7
Profit after tax (20) (17) 32 82 CEPS (Rs) 42.3 (8.6) 59.6 76.3
Minorities (16) (23) (22) (23) DPS (Rs) 2.5 2.0 1.8 1.8
Profit/ Loss associate co(s) - - - - Dividend payout ratio (%) 313.5 (3.2) 98.6 16.3
Adjusted net profit (35) (39) 10 59 GROWTH
Adj. PAT margin (%) (4.4) (4.5) 0.9 4.8 Net sales (%) (1.9) 8.0 21.3 15.7
Net non-recurring items 40 (282) - - EBITDA (%) (13.6) 41.1 33.8 22.7
Reported net profit 4 (322) 10 59 Adj net profit (%) (368.6) 11.2 (124.5) 504.7
FDEPS (%) (368.6) 9.5 (123.4) 504.7
Balance sheet (Rs bn) PERFORMANCE
Y/E March FY19 FY20 FY21E FY22E RoE (%) (5.0) (5.3) 1.2 7.1
Paid-up capital 20 26 26 26 RoCE (%) 2.4 4.1 6.9 9.4
Reserves & surplus 694 746 767 837 EFFICIENCY
Net worth 714 771 793 863 Asset turnover (x) 0.4 0.4 0.5 0.6
Borrowing 1,254 1,482 1,482 1,482 Sales/ total assets (x) 0.3 0.3 0.3 0.3
Other non-current liabilities 99 117 117 117 Working capital/ sales (x) (0.3) (0.5) (0.5) (0.5)
Total liabilities 2,203 2,621 2,664 2,757 Receivable days 19 19 19 19
Gross fixed assets 904 1,177 1,105 996 Inventory days 1 - - -
Less: Depreciation - - - - Payable days 293 303 299 304
Net fixed assets 904 1,177 1,105 996 FINANCIAL STABILITY
Add: Capital WIP - - - - Total debt/ equity (x) 1.5 1.6 1.4 1.3
Total fixed assets 904 1,177 1,105 996 Net debt/ equity (x) 1.5 1.4 1.2 0.9
Total Investment 1,430 1,374 1,333 1,285 Current ratio (x) 0.6 0.6 0.7 0.9
Inventory 1 - - - Interest cover (x) 0.5 0.8 1.3 1.7
Debtors 43 46 54 63 VALUATION
Cash & bank 62 136 261 491 PE (x) (86.7) (79.2) 337.6 55.8
Loans & advances - - - - EV/ EBITDA (x) 17.5 13.1 9.6 7.5
Current liabilities 549 987 1,007 1,038 EV/ Net sales (x) 5.7 5.6 4.5 3.7
Net current assets (240) (434) (316) (105) PB (x) 4.3 4.0 4.1 3.8
Other non-current assets 110 505 543 581 Dividend yield (%) 0.4 0.3 0.3 0.3
Total assets 2,203 2,621 2,664 2,757 Free cash flow yield (%) (1.9) (0.3) 8.9 7.8
Source: Company, Axis Capital Source: Company, Axis Capital

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 19 MAY 2020 Quarterly Update
BHARTI AIRTEL
TELECOMMUNICATIONS

Axis Capital Limited is registered with the Securities & Exchange Board of India (SEBI) as “Research Analyst” with SEBI-registration
number INH000002434 and which registration is valid till it is suspended or cancelled by the SEBI.

DISCLAIMERS / DISCLOSURES
The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).

1. Axis Capital Limited (ACL), the Research Entity (RE) as defined in the Regulations, is also engaged in the business of Investment banking, Stock broking and
Distribution of Mutual Fund products.

2. ACL is also registered with the Securities & Exchange Board of India (SEBI) for its investment banking and stockbroking business activities and with the
Association of Mutual Funds of India (AMFI) for distribution of financial products.

3. ACL has no material adverse disciplinary history as on the date of publication of this report

4. ACL and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, the recipients of
this report should be aware that ACL may have a conflict of interest that may affect the objectivity of this report. Investors should not consider this report as the
only factor in making their investment decision.

5. The RE and /or the research analyst or any of his / her family members or relatives may have financial interest or any other material conflict of interest in the
subject company of this research report.

6. The research analyst has not served as director / officer, etc. in the subject company in the last 12-month period ending on the last day of the month
immediately preceding the date of publication of this research report.

7. The RE and / or the research analyst or any of his / her family members or relatives may have actual / beneficial ownership exceeding 1% or more, of the
securities of the subject company as at the end of the month immediately preceding the date of publication of this research report.

8. In the last 12-month period ending on the last day of the month immediately preceding the date of publication of this research report ACL or any of its
associates may have:

i. Received compensation for investment banking, merchant banking or stock broking services or for any other services from the subject company of this
research report and / or;

ii. Managed or co-managed public offering of the securities from the subject company of this research report and / or;

iii. Received compensation for products or services other than investment banking, merchant banking or stockbroking services from the subject company of
this research report.

9. The other disclosures / terms and conditions on which this research report is being published are as under:

i. This document is prepared for the sole use of the clients or prospective clients of ACL who are / proposed to be registered in India. It may be also be
accessed through financial websites by those persons who are usually enabled to access such websites. It is not for sale or distribution to the general
public.

ii. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.

iii. Nothing in this document should be construed as investment or financial advice, or advice to buy / sell or solicitation to buy / sell the securities of
companies referred to therein.

iv. The intent of this document is not to be recommendatory in nature

v. The investment discussed or views expressed may not be suitable for all investors. Each recipient of this document should make such investigations as it
deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits
and risks involved), and should consult its own advisors to determine the suitability, merits and risks of such an investment.

vi. ACL has not independently verified all the information given in this document. Accordingly, no representation or warranty, express or implied, is made as
to the accuracy, completeness or fairness of the information and opinions contained in this document

vii. ACL does not engage in market making activity.

viii. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as
may be required from time to time without any prior approval

ix. Subject to the disclosures made herein above, ACL, its affiliates, their directors and the employees may from time to time, effect or have effected an own
account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment
banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions
as a separate, distinct entity, independent of each other. The recipient shall take this into account before interpreting the document.

x. This report has been prepared on the basis of information, which is already available in publicly accessible media or developed through analysis of
ACL. The views expressed are those of analyst and the Company may or may not subscribe to all the views expressed therein
xi.
Axis Capital is available on Bloomberg (AXCP<Go>), Reuters.com, Firstcall.com and Factset.com 11

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 19 MAY 2020 Quarterly Update
BHARTI AIRTEL
TELECOMMUNICATIONS

xi. This document is being supplied to the recipient solely for information and may not be reproduced, redistributed or passed on, directly or indirectly, to any
other person or published, copied, in whole or in part, for any purpose and the same shall be void where prohibited.

xii. Neither the whole nor part of this document or copy thereof may be taken or transmitted into the United States of America “U.S. Persons” (except to major
US institutional investors (“MII”)), Canada, Japan and the People’s Republic of China (China) or distributed or redistributed, directly or indirectly, in the
United States of America (except to MII), Canada, Japan and China or to any resident thereof.

xiii. Where the report is distributed within the United States ("U.S.") it is being distributed pursuant to a chaperoning agreement with Axis Capital USA, LLC
pursuant to Rule 15a-6. The distribution of this document in other jurisdictions may be restricted by law, and persons into whose possession this document
may come shall inform themselves about, and observe, any such restrictions.

xiv. Neither the Firm, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or
consequential including but not limited to loss of capital, revenue or profits that may arise from or in connection with the use of the information.

xv. Copyright of this document vests exclusively with Axis Capital Limited.

Research Disclosure - NOTICE TO US INVESTORS:

This report was prepared, approved, published and distributed by Axis Capital Limited, a company located outside of the United States (a “non-US Company”). This
report is distributed in the U.S. by Axis Capital USA LLC, a U.S. registered broker dealer, which assumes responsibility for the research report’s content, and is meant
only for major U.S. institutional investors (as defined in Rule 15a-6 under the U.S. Securities Exchange Act of 1934 (the “Exchange Act”)) pursuant to the exemption in
Rule 15a-6 and any transaction effected by a U.S. customer in the securities described in this report must be effected through Axis Capital USA LLC rather than with or
through the non-US Company.

Neither the report nor any analyst who prepared or approved the report is subject to U.S. legal requirements or the Financial Industry Regulatory Authority, Inc.
(“FINRA”) or other regulatory requirements pertaining to research reports or research analysts. The non-US Company is not registered as a broker-dealer under the
Exchange Act or is a member of the Financial Industry Regulatory Authority, Inc. or any other U.S. self-regulatory organization. The non-US Company is the employer
of the research analyst(s) responsible for this research report. The research analysts preparing this report are resident outside the United States and are not associated
persons of any US regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a US broker-dealer, and are not required to satisfy the
regulatory licensing requirements of FINRA or required to otherwise comply with US rules or regulations regarding, among other things, communications with a subject
company, public appearances and trading securities held by a research analyst account.

The non-US Company will refrain from initiating follow-up contacts with any recipient of this research report that does not qualify as a Major Institutional Investor, or
seek to otherwise induce or attempt to induce the purchase or sale of any security addressed in this research report by such recipient.

ANALYST DISCLOSURES
1. The analyst(s) declares that neither he/ his relatives have a Beneficial or Actual ownership of > 1% of equity of subject company/ companies;
2. The analyst(s) declares that he has no material conflict of interest with the subject company/ companies of this report;
3. The research analyst (or analysts) certifies that the views expressed in the research report accurately reflect such research analyst's personal views
about the subject securities and issuers; and
4. The research analyst (or analysts) certifies that no part of his or her compensation was, is, or will be directly or indirectly related to the specific
recommendations or views contained in the research report.

Axis Capital is available on Bloomberg (AXCP<Go>), Reuters.com, Firstcall.com and Factset.com 12

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 19 MAY 2020 Quarterly Update
BHARTI AIRTEL
TELECOMMUNICATIONS

Axis Capital Limited

Axis House, C2, Wadia International Centre, P.B Marg, Worli, Mumbai 400 025, India.
Tel:- Board +91-22 4325 2525; Dealing +91-22 2438 8861-69;
Fax:- Research +91-22 4325 1100; Dealing +91-22 4325 3500

DEFINITION OF RATINGS
Ratings Expected absolute returns over 12 months
BUY More than 15%
ADD Between 5% to 15%
REDUCE Between 5% to -10 %
SELL More than -10%

Bharti Airtel (BRTI.BO, BHARTI IN) Price and Recommendation History

Source: Axis Capital

Axis Capital is available on Bloomberg (AXCP<Go>), Reuters.com, Firstcall.com and Factset.com 13

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