Fundamental Analysis of Bharti Airtel: Let’s rewind to 2016. Reliance Jio, a new entrant at the time, shook the foundations of the telecom industry in India. While many Indians rejoiced as they got access to 4G services for free, its competitors had a hard time in business.
Their subscriber count was on a free fall, and their revenue began to recede. In fact, two major players, Vodafone India, and Idea had to merge to combat competition. They’re trying to cope to date.
However, there is a company that played the game right. It did a lot of things that made sense and thrived. This company is Bharti Airtel, the second-largest telecom service provider in India. In this article, we’re going to do a fundamental analysis of Bharti Airtel. Let’s dive in, shall we?
Table of Contents
Industry Overview
The telecommunications market is one of the largest in the world. India’s telecom industry had a subscriber base of 1.17bn as of April 2022 (wireline + wireless subscribers)with an overall teledensity of 84.88%. However, the teledensity of the rural market is largely untapped.
The total number of internet subscribers increased to 829.3 mn by the end of December 2021 of which 37.25% of internet subscribers belong to rural areas.
Affordable tariffs, wider availability, the roll-out of Mobile Number Portability (MNP), expanding 3G and 4G coverage, and evolving consumption patterns of subscribers contributed to the industry’s exponential growth over the last few years.
Experts say that 5G technology will add to the tailwinds in the sector and Experts will contribute approximately $450 bn to the Indian Economy from 2023 to 2040. India is on its way to becoming the second-largest smartphone market globally by 2025, as per GSMA.
Further, the Department of Telecom is looking at 70% fiberisation of towers, average broadband speeds of 50 Mbps, and 50 lakh km of optic fiber rollouts at a pan-India level by December 2024.
Fundamental Analysis of Bharti Airtel – About the Company
Bharti Airtel Limited is an Indian company that has a global presence in the telecommunications business. Sunil Bharti Mittal is the founder and chairman of Bharti Enterprises and Bharti Airtel is the flagship company of Bharti Enterprises.
It is one of the most trusted providers of ICT services with a global network across the USA, Europe, Africa, the Middle East, Asia-Pacific, India, and SAARC regions. It ranks among the top 3 mobile service providers around the world (as per subscribers).
Airtel is pushing the boundaries in digital service delivery with a key focus on enhanced end-user experience, round-the-clock infrastructure availability, and superior service quality.
It provides products and services like wireless services, mobile commerce, fixed lines services, high-speed home broadband, DTH, and many more across 700 cities pan-India.
How did Airtel make sense?
Back in 2018 when telecoms were suffering strong competition from Jio, due to its inexpensive tariff structures, Airtel made a move that no one saw coming. It decided to impose a minimum recharge mandate.
Airtel forced people to recharge their phones if they wanted to avail service validity. Without this recharge of at least ₹ 35, customers could not access even incoming calls. Now you know who started it! Airtel lost 48 million subscribers, as a result.
A little later the subscriber base started stabilizing and the ARPU started inching higher. As a result, Jio started hiking its own tariffs. The company never looked back since the minimum recharge mandate. Its ARPU increased steadily from ₹ 101 in September 2018 to ₹ 183 in June 2022, the highest in the industry. Now, that’s a turnaround!
In August 2022, Airtel paid ₹ 8312.4 crores worth of AGR dues to the Department of Telecom towards the spectrum acquired for the recently concluded 5G auctions. With this, the company has paid four years of spectrum dues upfront. In addition, the company also cleared ₹ 24,333.7 crores of its deferred spectrum liabilities much ahead of scheduled maturities. This advanced payment will lead to huge savings in interest costs in the coming years.
Airtel’s subsidiary in Africa
Bharti Airtel was India’s largest telecom operator in 2010, by the number of subscribers. The cash-rich company wanted to expand further. It set its eyes on Africa, where telecom services were underpenetrated.
It entered into a $10.7 billion (about ₹48,000 crores) deal to acquire Kuwait-based Zain Telecom’s African operations in 15 nations. The company struggled for six to seven years as it was burdened with high debt and heavy losses. Bharti Airtel’s ambitious targets in Africa had to be reconsidered.
Things improved gradually and its debt shrunk from $ 10.7 billion to $ 550 million as of July 2022. Today, Airtel is the No. 1 telecom service provider in four African nations, and No. 2 in nine of the 14 countries where it still operates.
Airtel Africa has become a profit-generating multi-billion-dollar business, which is listed on the London Stock Exchange and is part of the Financial Times Stock Exchange 100 Index (FTSE 100).
Stake in Indus Towers
Bharti Airtel Limited currently owns a 47.77% stake in Indus Towers (Erstwhile Bharti Infratel) directly and through its wholly-owned subsidiary Nettle Infrastructure Investments Ltd. Interestingly, Bharti Airtel, Vodafone Idea Ltd, and Reliance Jio Infocomm Limited are leading customers of the company. Indus Towers has a nationwide presence covering over 22 telecom circles.
Google’s Investment in Airtel
Google already has a 95% market share in India’s mobile phone market through its Android operating system. Earlier this year, the giant announced that it will be investing $ 1 billion in Airtel.
The deal is approved by the competition commission of India. $ 700 million will go into picking a minority stake (1.28%) and another $300 million will be set aside for commercial deals that the companies may pursue together.
Fundamental Analysis of Bharti Airtel
Moat
- The company has expanded its average revenue per user (ARPUs).
- It has developed steady revenue streams and is backed by a robust balance sheet and a lean capital structure.
- Moreover, timely fundraising, high-cost debt prepayment, and strategic monetization of assets keep it well capitalized for its growth journey.
Financials
Revenue and Net Profit
Over a five-year period, the company’s revenue has shown an increasing trend. However, its profit has shown a decreasing trend. Airtel made huge losses in 2020 and in 2021.
In the year 2020, the company made huge losses on account of provisions for statutory dues and higher finance costs. Moreover, the loss includes an exceptional item of ₹ 7,004 crores in the March quarter of 2020.
This comprised of a charge on account of reassessment of regulatory cost based on a judgment related to a one-time spectrum charge (OTSC) related matter. The company’s loss narrowed in 2021, led by customer additions and an increase in ARPU.
Key Metrics
| Particulars | Values |
|---|---|
| Face Value (₹) | 5 |
| EPS (₹) | 9.85 |
| ROE (%) | 6.39 |
| Debt to Equity | 2 |
| Current Ratio | 0.46 |
| Market Cap (Cr) | 435,439 |
| Promoter’s Holdings (%) | 55.93 |
| Dividend Yield (%) | 0.39 |
| Stock P/E (TTM) | 78.09 |
| Net Profit Margin | 5.04 |
- Bharti Airtel is a large-cap company with a market capitalization of ₹ 4,35,439 crores. Its promoters hold a 55.93% stake in it.
- It has a debt-to-equity ratio of 2, which is high. The ideal range is 0 to 1, however, companies in the telecom industry are capital intensive and generally have high debt to equity ratios than other industries.
- It has a current ratio of 0.46, which is below the ideal value. In general, a company must have a current ratio of at least 2, so that it has twice the number of current assets as compared to its current liabilities. However, Airtel has paid some of its dues in advance.
- Ideally, a return on equity of 15% to 20% is considered to be good. However, Airtel has a low return on equity of 6.39%.
- The stock is trading at a significantly high PE ratio as compared to the industry average. Generally, a high PE ratio indicates that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, it could also mean that the stock price is expensive.
- Airtel has a low net profit margin of 5.04%. A net profit margin above 10% is considered to be average, while a margin of 20% is considered to be good.
In Closing
In this article, we took a look at the fundamental analysis of Bharti Airtel. We understood the industry that it functions in and took a look at the company’s business. Then we saw what Airtel did in order to combat competition. Later we understood a little bit about its business in Africa.
Then we got to know that it has a stake in Indus Towers and that Google will be investing in the company. Then we took a look at its moat and financials.
That’s all for this article, folks! We hope to see you around. Happy investing, until next time!
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Hey, there! Thank you for stopping by 🙂 Simran is a master graduate in commerce from Bangalore University, an NSE-certified Fundamental Analyst and a NISM-certified Research Analyst. She finds interest in investing and personal finance. Outside of work, you can find her painting, reading and going on long walks.
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