Motilal Oswal Financial Services

30 March 2020

Company Update | Sector: Telecom

Bharti Airtel

BSE SENSEX

28,441

S&P CNX

8,281

CMP: INR 429

TP: INR 620(+44% )

Buy

Still a lot of juice left!

Incremental ARPU growth opportunity not captured



Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

12M Avg Val (INR M)

Free float (%)

BHARTI IN

5,455

2351.6 / 32.5

569 / 305

8/43/67

5456

41.0



Financials & Valuations (INR b)

FY20E FY21E FY22E

Y/E March

Sales

871.9 1,018.2 1,111.8

EBITDA

365.8 457.5 508.4

Adj. PAT

3.6

21.2

27.2

EBIT Margin (%) 42.0

44.9

45.7

Adj. EPS (INR)

0.7

3.9

5.0

EPS Gr. (%)

-107.7 479.7

28.5

BV/Sh. (INR)

161.0 164.9 169.9

Ratios

Net D:E

1.2

1.0

0.8

RoE (%)

0.5

2.4

3.0

RoCE (%)

3.1

4.3

5.1

Payout (%)

0.0

Valuations

EV/EBITDA (x)

9.6

7.3

6.2

P/E (x)

641.1 110.6

86.1

P/BV (x)

2.7

2.6

2.5

Div. Yield (%)

0.0

FCF Yield (%)

-9.1

9.3

9.6

Shareholding pattern (%)

As On

Dec-19 Sep-19 Dec-18

Promoter

62.7

67.1

DII

14.1

13.2

13.9

FII

16.5

22.4

17.2

Others

6.7

1.7

1.8

FII Includes depository receipts

Stock Performance (1-year)

Currently, the Bharti Airtel (BHARTI) stock is down ~20% from its peak due to

the Coronavirus (COVID-19) outbreak and the consequent complete lockdown

in India.

Additionally, both BHARTI and Vodafone-Idea (VIL) are facing the ire of the

Supreme Court (SC), which recently dismissed their plea toward self-

assessment of AGR liabilities.

We see limited impact of COVID-19, currency and crude price swings on the

BHARTI stock and believe that it is the best hedged to face regulatory woes.

Through this report, we look at how BHARTI is placed in the current tough

environment and the key catalysts at hand for it to deliver.

COVID-19 to have limited impact on earnings

Given the complete lockdown in India due to COVID-19, net subscriber adds

(average 2-3 months) have stalled thus impacted by 1-2%. With physical

recharges being unavailable, there has been a shift to digital recharges (from

15% in the last 1-2 years to 35-40% currently). In the current environment,

more tech-savvy data subscribers with higher ARPUs and longer-term

recharges of 90 days may see lower impact. However, the rest of feature

phone subscribers doing monthly recharges (one-third the ARPU of data

subscribers), could see some marginal impact as to protect these low income

subscribers (80m), BHARTI has extended free incoming calls until 17

Apr’20

with additional INR10 talk-time. This could impact 1QFY21 revenue/EBITDA

by INR2.2b/INR1.8b i.e. equivalent to meager 1-2%. Against this, increased

data consumption should see upgrades in recharge values, thus, mitigating

the impact. In 4QFY20/1QFY21, we currently estimate 13%/19% revenue

growth on QoQ basis.

Currency and crude fluctuation impact much lower

The recent sharp INR depreciation should increase BHARTI’s USD capex/debt

and put some of its African business under stress due to its high crude

exports. However, we do not expect a meaningful impact. The USD

denominated India capex is ~30%, thus, 10% INR depreciation could have ~3%

increase. Similarly, ~28% of BHARTI’s debt is USD denominated while India

debt is 15%. The sharp reduction in crude prices could result in revenue

softness in the short term, particularly in Nigeria, Congo and Chad. However,

BHARTI’s FCF positive position and lower leverage should have limited impact.

Expect strong ARPU increase or market share gains

We believe that BHARTI remains in a win-win situation, irrespective of the

SC’s

outcome on VIL’s fortunes. The government has been pitching for a

healthy telecom market (3 private and 1 PSU player), which accentuates the

need for VIL to stay afloat. However, VIL’s survival will require a sharp ARPU

increase (potentially >30%) along with moratorium of payments to service its

regulatory and debt obligations, which could also benefit BHARTI. Further,

Research Analyst: Aliasgar Shakir(Aliasgar.Shakir@motilaloswal.com);

+91 22 6129 1565

Suhel Shaikh

(Suhel.Ahmad@MotilalOswal.com); +91 22 5036 2611;

Anshul Aggarwal

(Anshul.Aggarwal@motilaloswal.com); +91 22 5036 2511

3 September 2019

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Investors are advised to refer through important disclosures made at the last page of the Research Report.

Bharti Airtel

even in the worst-case scenario of no government support on AGR dues, BHARTI’s

financial position is strong enough to withstand the storm, and in fact, could lead to

significant market share gains for the company at the cost of VIL. In either case, our

workings indicate that BHARTI could deliver a marked rise in earnings; we see

potential increase of ~39% in our FY22 EBITDA estimate to INR621b

(refer exhibit 1

& 2).

ARPU – Potential to reach INR200?

The recent price hike will likely take BHARTI’s ARPU to INR160 (1QFY21) despite the

COVID-19 impact as an upgrade in recharges should offset any impact due to

physical store recharge. Further, a 10% ARPU increase should pan out annually due

to mix benefit as 30-40m subscribers (>10%) shift to higher-ARPU mobile broadband

plans every year. Subsequently, BHARTI’s FY22 exit ARPU should reach over INR180.

This is still below its FY15 ARPU of ~INR200 when data subscribers (offering 2x

ARPUs) were only 20% of total subscribers v/s 50% today. We see a strong likelihood

of an industry-wide price action over the next 2-3 quarters as VIL attempts to stay

afloat by generating sufficient cash flow to service its regulatory/financial burden.

This could be through (a) postpaid ARPU increase, (b) increasing data bundle plans,

and (c) minimum recharge plans. Also, the TRAI consultation paper on floor price,

telcos’ curbing data plans and increased share of value-added services like

entertainment and banking could further drive ARPUs.

Revenue growth through market share gains

With VIL facing the risk of survival, we expect BHARTI to garner 60% subscriber

share and 50% revenue share from VIL. BHARTI’s technology-agnostic device

ecosystem is well placed to gain market share from over two-thirds of feature phone

subscribers. Even if VIL weathers the current financial woes, its weak 7-8 circles

could continue seeing sharp subscriber churn, benefiting BHARTI significantly over

the coming 2-3 quarters. Further, VIL’s ongoing network integration along with

customer worries of business continuation, could pose a strong opportunity for

peers to chase market share.

Will BHARTI lose its sheen due to collateral damage?

The incremental market share from a weakening third player in the telecom market

will certainly benefit BHARTI. However, it could also face repercussions on three

fronts: (i) erosion of Bharti Infratel’s value in SOTP, which is INR43/share i.e. 7% of

our TP, (ii) network cost increase of 2-3% i.e. 2k/3k per site due to the cut in VIL’s

tenancies and (iii) incremental capex of ~INR50b for 25-30k fresh site additions to

accommodate the traffic load on the network. Against this, overall incremental

EBITDA of over INR100b should still be significantly higher to manage the

incremental impact.

FCF generation overlooked

Over the last decade, BHARTI has been saddled with high capex, spectrum

acquisition cost and depressed EBITDA, which has suppressed its FCF. However, we

expect the potential restoration of the past era (2G) when telcos had the

opportunity to monetize investments for a prolonged period. With a large part of

the heavy lifting toward 4G network in place, incremental capex should be in check,

while EBITDA should see a marked improvement. This should provide an

opportunity to deleverage the balance sheet. Subsequently, we expect FCF (post

interest) to increase to over INR300b in FY22 (if EBITDA grows to INR621b) from

INR25b in FY20 and negative in FY19.

30 March 2020

Bharti Airtel

RoCE becoming relevant

Over the last 10 years, BHARTI’s RoCE was barely in mid-single-digit due to the hyper

competitive landscape and continued capex toward technology advancements,

spectrum renewals and investments in Africa. Now with benign competition and

limited possibility of a new player’s entry, ARPUs could be determined to at least

cover the WACC. In our view, at EBITDA of INR621b, BHARTI could garner pre-tax

RoCE of ~19%.

Risk of capex intensity

We do not see any material investments in 5G to happen over the next 3-4 years as

(a) new use cases for 5G are few and far, and (b) incremental consumer benefit is

limited, as data speed could easily be dealt by 4G investments. Further, unlike in the

past when 4G investment was inevitable due to the entry of a new player, we don’t

see any pressure on technology or spectrum investments.

Valuation and view

Our estimates do not capture the potential upside for BHARTI from incremental

ARPU growth or market share gains, but factor in the AGR liability impact of

INR343b (according to BHARTI) as against Department of Telecommunications’

(DoT) figure of INR445b. In either case, there would be EBITDA growth opportunity.

EBITDA of INR621b (based on our ARPU workings) could generate FCF yield (post

interest) of 11%. Thus, 10x EV/EBITDA could derive a TP of INR910 after factoring in

the impact of Bharti Infratel. Further, this does not capture the potential

deleveraging benefits. We maintain our

Buy

rating with SOTP-based TP of INR620,

assigning 11x (to capture the incremental earnings upside) on India wireless EBITDA

and Africa at 6x.

30 March 2020

Bharti Airtel

ARPU increase or market share gains?

Price hike taken for VIL’s survival

We believe that ARPU increase is a function of VIL’s survival, in line with the

government’s stated desire of having a healthy telecom market (with 3-private/1-

PSU players). Assuming INR300b of annual cash requirement (includes capex, cash

interest cost, AGR repayment and deferred spectrum liability), VIL needs ARPU of

INR188 to survive. The government has provided a 2-year moratorium until FY22 on

deferred spectrum dues, and thus, the next payment should come up in FY23. Thus,

VIL will need additional ~39% ARPU increase over the next 6-9 months to fund its

annual cash requirement, assuming no material market share churn. This may

provide incremental EBITDA upside of 39%/50% for BHARTI/RJio.

Exhibit 2: At 39% ARPU hike (needed by VIL to survive),

BHARTI/RJio’s incremental EBITDA

Company

(Amount in INR b)

EBITDA

ARPU (INR)

Increase in ARPU due to VIL price hike (%)

New ARPU

Subscribers (m)

Incremental revenue

Incremental EBITDA

New EBITDA

Increase in EBITDA (%)

Bharti

FY22

447

179

39%

249

297

248

174

621

39%

RJio

FY22

521

163

39%

227

483

369

258

779

50%

Exhibit 1: Price hike required by VIL to survive

(Amount in INR b)

Capex

Cash Interest

Deferred spectrum liability

AGR payment

Total requirement

EBITDA (pre IND AS 116)

Incremental EBITDA required

Incremental revenue required

ARPU (INR)

Subscribers (m)

ARPU hike required (INR)

New ARPU (INR)

Increase in ARPU required (%)

FY22

165

300

153

147

210

135

332

188

39%

Source: MOFSL, Company

Exhibit 3: BHARTI’s ARPU could reach INR237 in FY22 (to

save VIL)

Monthly ARPU (INR)

237

Exhibit 4: Postpaid subscribers down since 1QFY20

Postpaid subs (m)

201 188 185 194 198 193

177

133 115 134

165

179

FY11

FY14

FY17

FY20E

Potential

FY22E

Revenue increase through market share gains

With VIL’s survival under threat, RJio and BHARTI could gain disproportionately, in

our view. Thus, irrespective of an adverse ruling, BHARTI has best hedged its

position even assuming that it pays the AGR liability. Our workings (in case of VIL

shutdown) indicate that BHARTI will gain 60% subscriber share, while the revenue

share will be split equally between BHARTI and RJio. We believe that BHARTI would

30 March 2020

Bharti Airtel

gain 80% of VIL’s low-ARPU feature phone subscribers as shifting to RJio would

require customers to buy Jiophone, which may not be feasible for them. We expect

postpaid and non-bundle high-ARPU customers to be split equally between both

BHARTI/RJio while broadband customers should be split in a 40:60 ratio, which

should provide them with incremental revenues of INR228b/INR245b, equivalent to

20%/26% jump from our current FY22 estimates.

Another scenario is that both BHARTI/RJio gain a subscriber share of 40%/60%,

which could provide additional EBITDA of INR150b/INR100b at 50% margin, implying

a jump of 29%/22% on FY22E EBITDA to INR671b/INR547b.

Exhibit 5: VIL customers transition to BHARTI/RJio – customer split at ~60%/40% while revenue split is equal

VIL subscribers

304m

Broadband (prepaid)

Subs:

118m

ARPU:

INR170

Post-paid

Subs:

23m

ARPU:

INR250

Feature phone

Subs:

100m

ARPU:

INR40

Non-bundle (high ARPU)

Subs:

62m

ARPU:

INR155

Bharti: 40%

Subs:

47m

Revenue:

INR92.7b

Bharti: 50%

Subs:

11.5m

Revenue:

INR34.7b

Bharti: 80%

Subs:

80m

Revenue:

INR38.4b

Bharti: 50%

Subs:

31m

Revenue:

INR62.0b

RJio: 60%

Subs:

71m

Revenue:

INR138.0b

RJio: 50%

Subs:

11.5m

Revenue:

INR34.7b

RJio: 20%

Subs:

20m

Revenue:

INR9.6b

RJio: 50%

Subs:

31m

Revenue:

INR62.0b

Source: MOFSL, Company

Exhibit 6: BHARTI/VIL customer split

Bharti/VIL

subscribers

283m/304m

Broadband (prepaid)

Bharti Subs:

124m

VIL Subs:

118m

Post-paid

Bharti Subs:

16m

VIL Subs:

13m

Feature phone

Bharti Subs:

70m

VIL subs:

100m

Non-bundle (high ARPU)

Bharti Subs:

53m

VIL subs:

62m

Source: MOFSL, Company

30 March 2020

Bharti Airtel

Exhibit 7: Duopoly market – a big EBITDA trigger (40:60 split)

Bharti/RJio gains 40%/60% of VIL subscribers

Particulars

Bharti

% of VIL customers acquired

40%

Customer acquired by incumbents

122

Increase in annual revenue (INRb)

200

Incremental EBITDA at 50% (INRb) - A

100

FY22E EBITDA - B

447

New EBITDA post acquisition of VIL subs (A+B)

547

Increase in EBITDA (%) - A/B

22%

Total VIL subscribers (m)

304

FY20E ARPU (post price hikes)

137

Annual ARPU (INR)

RJio

60%

182

300

150

521

671

29%

1,645

Source: Company, MOFSL

Exhibit 8: BHARTI/RJio’s EBITDA to reach INR547b/INR671b

EBITDA Pre-VIL acquisition

547

447

EBITDA Post-VIL Acquisition

671

521

Exhibit 9: BHARTI and RJio gain in EBITDA/share

Bharti Airtel

Reliance Jio

Source: MOFSL, Company

Bharti Airtel

Reliance Jio

Source: MOFSL, Company

Exhibit 10: Duopoly market – a big EBITDA trigger (50:50 split)

Bharti/RJIL gains 50%/50% of VIL subscribers

Particulars

Bharti

% of VIL customers acquired

50%

Customer acquired by incumbents

152

Increase in annual revenue (INRb)

250

Incremental EBITDA at 50% (INRb) - A

125

FY22E EBITDA – B

447

New EBITDA post acquisition of VIL subs (A+B)

572

Increase in EBITDA (%) - A/B

28%

Total VIL subscribers (m)

304

FY20E ARPU (post price hikes)

137

Annual ARPU (INR)

RJio

50%

152

250

125

521

646

24%

1,645

Source: Company, MOFSL

30 March 2020

Bharti Airtel

Exhibit 11: BHARTI/RJio’s EBITDA to reach INR572b/INR646b

EBITDA Pre-VIL acquisition

572

447

EBITDA Post-VIL Acquisition

646

521

Exhibit 12: BHARTI and RJio gain in EBITDA/share

Bharti Airtel

Reliance Jio

Source: MOFSL, Company

Bharti Airtel

Reliance Jio

Source: MOFSL, Company

Incremental cost for servicing VIL subscribers may not be significant

Currently, exponential data volume increase coming from unlimited plans has

burdened networks, and thus, speeds have turned subpar. VIL’s 118m broadband

customers and 3.8b GB of data traffic could increase BHARTI/RJio’s traffic volume by

30-40%. However, managements have indicated that they have options for

debottlenecking the network via spectrum re-farming, densification and backhaul

through massive multi-input multi-output (MIMO) and fiberization. Our workings

suggest that the extra traffic volume will have minimal impact on BHARTI’s network

cost, which will likely increase 2-5% with 0.6-1.2% impact on consolidated EBITDA.

Second, it would require BHARTI to add 25-30k incremental sites with additional

one-time capex of INR50b to increase its capacity, which is equivalent to ~1.3% of its

current enterprise value. Thus, an increase in traffic should have minimal impact on

the company. However, the existence of Bharti Infratel could be questioned as its

primary role of reducing network cost through sharing may be contested. This could

erode the value of Bharti Infratel, which currently contributes 7-8% of our TP.

Exhibit 13: Network cost increase minimal (if VIL dissolves)

(Amount in INR m)

Cost/tower

Towers

Annual incremental cost

Network cost

Increase in cost (%)

EBITDA in FY22E

Impact on consol EBITDA

Min impact

2,000

0.15

3,600

1,51,231

2.4%

5,91,000

0.6%

Max impact

3,000

0.19

6,840

1,51,231

4.5%

5,91,000

1.2%

Exhibit 14: Capex to grow capacity ~1% of EV (if VIL dissolves)

(Amount in INR m)

Incremental towers (000's)

Cost/tower

Total cost

Market cap (INR b)

Debt (INR b)

EV (INR b)

Impact (%)

50,000

28,72,388

8,47,664

37,20,052

1.3%

Source: MOFSL, Company

Exhibit 15: Impact of BHIN’s market cap in BHARTI’s TP

(Amount in INR b)

Bharti Infratel fair proportionate value

Bharti's shares outstanding (b)

Bharti Infratel fair value/share (INR)

Bharti TP including Infratel (INR)

Bharti TP excluding Infratel (INR)

Impact (%)

235

655

612

-6.6%

Source: MOFSL, Company

30 March 2020

Bharti Airtel

FCF and RoCE to turn sizeable

Since FY12, BHARTI’s RoCE has been on a downward curve and is struggling in mid-

single-digit due to (a) ballooning capital employed, which can be attributed to

investments in new technology, spectrum renewals and investments in Africa, and

(b) dwindling profitability given the pressure on ARPUs with RJio turning aggressive.

However, with ARPU increase becoming a reality, BHARTI’s management has started

focusing on RoCE. Recently, BHARTI’s Managing Director, Mr. Gopal Vittal said,

“Bharti’s

RoCE would be just head above water at an ARPU of INR200.”

Going

forward, the company should see benefit of (a) improving earnings due to an

increase in ARPU, and (b) the capex cycle passing its peak. Our workings indicate

that with a further ARPU increase of 39% to keep VIL alive, BHARTI’s EBITDA of

INR621b would fetch RoCE of 19% on a pre-tax basis. This could be a key valuation

trigger as the company would start garnering a reasonable RoCE. Further, at

INR621b EBITDA level and coupled with stable capex and falling interest cost, FCF

generation could be ~INR300b with a yield of 10-11% even at current valuation. This

again should be a strong positive for the company, which had negative FCF of

INR220b in FY19 and just reached FCF breakeven in FY20.

Exhibit 16: BHARTI – Healthy gains over 2002-08, 2008-19 remained a drag, 2020 has started to reap price hike benefits

MARKET DARLING

Market Cap (NR b)

RoCE (%)

RoE (%)

MARKET PARIAH

MARKET DARLING

2500

2000

1500

1000

500

2G rollout

RCOM Launch

45.0

Africa

Acquisition

30.0

15.0

New operators launch

telco operations in

rollout

2008-09

4G rollout: 2012-15

Spectrum renewals

Price Hike

0.0

-15.0

FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20

Source: MOFSL, Bloomberg

Exhibit 17: FCF yield has potential to reach 11% in FY22

FCF post Interest (INR b)

Yield (%)

-10%

-218

4% 6%

118 169

309/

11%

Exhibit 18: RoCE could reach 19% in FY22

44.2

19.0

9.5 5.9

3.1 3.8 5.8 6.1 5.3 4.6

-2.5

RoCE (%)

19%

3.1 4.3 5.1

2% 1% 0%

-4%

-9%

-77

-187

-3%

-62

-7

30 March 2020

Bharti Airtel

Valuation and view

Buy with TP of INR620

Our estimates do not capture potential gains from (a) ARPU hike required for VIL to

survive, and (b) market share gains resulting from the weakening third player (VIL).

However, we have fully captured the AGR liabilities’ impact of INR343b in our SOTP

model. We have merely factored in a mix-driven ARPU improvement of 2%

quarterly, but no further price hike, which is needed to maintain industry viability.

Subsequently, we have captured a higher multiple in our SOTP-based model,

wherein we have assigned 11x EV/EBITDA to BHARTI’s India wireless business and 6x

EV/EBITDA to its Africa business on FY22E. Our TP stands at INR620, Maintain

Buy.

Exhibit 19: Bharti Airtel — SOTP based on FY22

EBITDA

(INR b)

India SA business (excl. towers)

Tower business (15% discount to fair value)

Africa business

Less net debt

AGR Liability

Total Value

Shares o/s (b)

CMP

Upside (%)

329

138

Ownership

(%)

100%

53.5%

55.2%

Proportionate

EBITDA

(INR b)

329

EV/

EBITDA (x)

Fair Value

(INR b)

3,759

235

462

737

343

3719

Value/

Share (INR)

689

135

620

429

Source: Company, MOFSL

5.5

Potential valuation gains from ARPU hike or market share gain

BHARTI has a potential to garner EBITDA of INR621b in FY22 from the ARPU hike

opportunity arising from VIL’s survival needs (refer

exhibits 1 & 2).

This could lead to

FCF yield of ~11% in FY22 with pre-tax RoCE of 19%. In case of no government

support and shutdown of VIL, BHARTI should garner incremental EBITDA through

market share gains. Thus, in both scenarios, the company is likely to garner

additional EBITDA. At EV/EBITDA of 10x at consolidated level, BHARTI could garner a

target price of ~INR910 after factoring in the impact of Bharti Infratel.

Exhibit 20: Potential TP from increase in market share or ARPU hike opportunity

EV/EBITDA (x)

Mkt Cap

No of Shares

CMP

Upside

620,000

520,000

545

910

525

73%

Source: MOFSL, Company

30 March 2020

Bharti Airtel

BHARTI revises AGR liabilities much below earlier provisioning

According to DoT, BHARTI/VIL’s current outstanding AGR dues stand at

INR440b/INR580b while the companies have repaid INR180b/INR65b of total

outstanding dues. Even compared to BHARTI/VIL’s own provisioning of

INR343b/INR442b in 2QFY20, the repayment is much lower. BHARTI has stated that

(based on its self-assessment) it has paid INR130b, while additional INR50b is ad-hoc

payment to cover the difference against DoT’s calculation.

We have factored in AGR liabilities of INR343b based on the company’s earlier

estimate, which is INR163b lower than its own provisioning of INR343b i.e.

INR30/share in 2QFY20. If the liability reduces to the current estimate in the future,

the company’s share price could potentially increase by INR30/share.

Exhibit 21: Telcos’ AGR liabilities outstanding according to DoT (INR b)

Company

Idea Cellular Ltd

Vodafone Group of Companies

Vodafone Idea

Bharti Airtel Group of Companies

Telenor

TTSL

Reliance Jio

Bharat Sanchar Nigam Limited

Mahanagar Telecom Nigam Limited

Aircel Group of Companies

Etisalat DB Telecom Private Limited

Quadrant Televentures Limited

S Tel Pvt Ltd

Videocon Communications Ltd.

Sistema Shyam Teleservices Ltd.

Reliance Communication/Reliance

Telecom Limited

Loop Telecom Pvt. Ltd.

Total

License fee dues

198

283

217

100

165

926

SUC dues

180

247

139

537

Total dues

152

378

530

356

138

102

211

1,463

Source: GOI

Provisioning in 2QFY20

Repayment

442

343

180

30 March 2020

Bharti Airtel

Exhibit 22: Effect of foreign currency rates on PBT and Shareholder’s Equity

FY19

figures in INRm

US Dollar

Euro

Others

Change in

currency

exchange

rate

+5%

-5%

+5%

-5%

+5%

-5%

Effect on

PBT

(10,269)

10,269

(2,368)

2,368

(905)

905

Change in

Effect on % Impact % Impact currency

equity

on PBT on Equity exchange

rate

(9,109)

59%

-2%

+5%

9,109

-59%

-5%

(1,590)

14%

+5%

1,590

-14%

-5%

+5%

-5%

Effect on

PBT

(8,823)

8,823

1,712

(1,712)

(1)

FY18

Effect on % Impact % Impact

equity

on PBT on Equity

(8,796)

8,796

(1,844)

1,844

-27%

27%

-5%

-1%

**FY19 PBT loss of INR17.3b, negative effect indicates rise in losses

**FY18 PBT profit of INR32.7b

Source: MOFSL, Company

Exhibit 23: Foreign currency borrowings in FY19/FY18, additional FCCB (USD b) amended below; FY19 to reflect FY20

borrowings

All figures in INRb

Currency of

borrowing

INR

USD

Euro

CHF

JPY

XAF

XOF

Others

Total in FY19

USD**

FY19

FY18

Weighted

Total Floating rate Fixed rate

average rate of

average rate

borrowings borrowings borrowings

Interest

of Interest

9.23%

781.0

202.1

578.9

INR

9.33%

603.5

106.3

497.2

4.66%

347.6

122.4

225.2

USD

5.47%

337.3

58.6

278.7

3.03%

71.8

13.8

58.0

Euro

3.73%

140.0

3.00%

24.3

CHF

3.00%

23.8

0.60%

14.0

4.3

XAF

6.61%

4.7

7.40%

4.3

6.3

XOF

6.80%

7.0

1.4

5.6

6.69%

6.3

0.1

Others

8.48% to 19%

5.3

2.8

2.5

9.64% to 20.64%

7.9

7.8

0.0

1,257.1

360.2

897.0

Total in FY18

1,121.7

169.1

952.6

1.50%

72.0

0.0

Source: MOFSL, Company

**Additional USD1b FCCB issued in Jan'20, assuming floating rate

30 March 2020

Bharti Airtel

Key Exhibits

Exhibit 24: Potential to generate INR1.3b revenue in FY22 (INR b, %)

Consol revenue (INR b)

Consol EBITDA margin (%)

36.4

49.5%

33.1

30.2

32.3

33.9

35.3

37.0

42.0

32.0

44.9

45.7

715

769

857

920

963

955

826

808

872

1018

1112

1319

Source: MOFSL, Company

Exhibit 25: Large target market, yet untapped

VLR subs:

981m

Data Users:

665 m

Smartphone

users: 400m

Broadband

subs:624m

Premium

subs:

101m

Exhibit 26: Smartphone penetration has improved from 14%

to 50%

Feature Phones

Smartphones

263

400

442

496

400

FY13

Source: Company, MOFSL

FY17

FY19

Source: Company, MOFSL

Exhibit 27: BHARTI’s active SMS pre-RJio (%)

Exhibit 28: BHARTI’s active SMS increase in Dec’19 (%)

6.7

30.8

27.4

Bharti

Vodafone

Idea

31.0

32.0

Bharti

Vodafone Idea

RJio

Other players

20.8

21.0

Other players

30.3

Source: TRAI, MOFSL

30 March 2020

Bharti Airtel

Exhibit 29: BHARTI steadily holding on with ~30% RMS

Bharti

50.0

40.0

30.0

20.0

10.0

0.0

-10.0

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q

FY18

FY19

FY20

Source: Company, MOFSL

Vodafone Idea

RJio

Other players

Exhibit 30: BHARTI maintains 30-35% of incremental MBB

market share

150

Bharti

Vodafone-Idea

RJio

100

-50

Source: Company, MOFSL

Exhibit 31: BHARTI continues to add ~3m incremental MBB customers

Bharti

9.3

Vodafone Idea

RJio

9.1

1.9

10.0

7.8

0.4

1.8

9.5

2.5

0.0

8.1

-0.8

-0.5

6.9

-0.6

8.2

8.3

1.5

3.1

8.5

0.4

2.5

8.4

0.2

2.8

7.0

1.1

-1.3

3.6

5.0

5.6

4.1

7.1

0.5

0.1

-1.4

Source: MOFSL, TRAI

30 March 2020

Bharti Airtel

Financials and Valuations

Consolidated - Income Statement

Y/E March

Total Income from Operations

Change (%)

Total Expenditure

% of Sales

EBITDA

Margin (%)

Depreciation

EBIT

Int. and Finance Charges

Other Income

PBT bef. EO Exp.

EO Items

PBT after EO Exp.

Total Tax

Tax Rate (%)

Minority Interest

Reported PAT

Adjusted PAT

Change (%)

Margin (%)

Consolidated - Balance Sheet

Y/E March

Equity Share Capital

Total Reserves

Net Worth

Minority Interest

Total Loans

Deferred Tax Liabilities

Capital Employed

Net Fixed Assets

Total Investments

Curr. Assets, Loans & Adv.

Inventory

Account Receivables

Cash and Bank Balance

Loans and Advances

Curr. Liability & Prov.

Account Payables

Provisions

Net Current Assets

Appl. of Funds

E: MOFSL Estimates

FY14

8,57,461

11.5

5,80,865

67.7

2,76,596

32.3

1,56,496

1,20,100

48,381

6,385

78,104

538

78,642

48,449

61.6

2,467

27,726

27,519

43.0

3.2

FY15

9,20,394

7.3

6,08,118

66.1

3,12,276

33.9

1,55,311

1,56,965

48,463

6,588

1,15,090

-7,960

1,07,130

54,047

50.4

1,248

51,835

55,779

102.7

6.1

FY16

9,65,321

4.9

6,25,479

64.8

3,39,842

35.2

1,74,498

1,65,344

69,135

10,513

1,06,722

21,741

1,28,463

59,533

46.3

8,163

60,767

49,101

-12.0

5.1

FY17

9,54,683

-1.1

6,01,386

63.0

3,53,297

37.0

1,97,730

1,55,567

76,974

10,336

88,929

-11,697

77,232

34,819

45.1

4,416

37,997

44,421

-9.5

4.7

FY18

8,26,388

-13.4

5,25,597

63.6

3,00,791

36.4

1,92,431

1,08,360

80,715

12,956

40,601

-7,931

32,670

10,835

33.2

10,845

10,990

13,960

-68.6

1.7

FY19

FY20E

FY21E

8,07,802 8,71,853 10,18,199

-2.2

7.9

16.8

5,49,613 5,06,038 5,60,702

68.0

58.0

55.1

2,58,189 3,65,815 4,57,497

32.0

42.0

44.9

2,13,475 2,76,649 3,11,962

44,714

89,166 1,45,535

95,894 1,20,134 1,13,532

4,574

8,930

8,160

-46,606

-22,038

40,163

29,288 -3,32,304

-17,318 -3,54,342

40,163

-34,193

-99,880

11,647

197.4

28.2

29.0

12,780

-24,683

7,357

4,095 -2,29,780

21,159

-34,943

3,650

21,159

-350.3

-110.4

479.7

-4.3

0.4

2.1

(INR m)

FY22E

11,11,764

9.2

6,03,392

54.3

5,08,372

45.7

3,33,784

1,74,588

1,09,240

8,160

73,508

21,317

29.0

24,999

27,191

28.5

2.4

(INR m)

FY22E

27,273

8,99,519

9,26,792

1,42,931

16,14,667

-82,556

26,01,834

20,42,238

1,29,812

11,07,395

1,001

62,793

7,40,972

3,02,629

6,77,612

6,44,392

33,220

4,29,784

26,01,834

FY14

19,987

5,77,573

5,97,560

42,102

7,58,958

-45,777

13,52,843

14,06,145

1,55,308

2,07,692

1,422

62,441

49,808

94,021

4,16,302

4,04,533

11,769

-2,08,610

13,52,843

FY15

19,987

5,99,577

6,19,564

48,525

8,06,839

-44,392

14,30,536

15,01,440

1,70,357

2,26,519

1,339

67,252

11,719

1,46,209

4,67,781

4,59,472

8,309

-2,41,262

14,30,536

FY16

19,987

6,47,706

6,67,693

54,981

10,04,526

-34,226

16,92,974

17,79,948

1,19,671

3,10,876

1,692

55,039

37,087

2,17,058

5,17,520

5,07,838

9,682

-2,06,645

16,92,974

FY17

19,987

6,54,576

6,74,563

68,750

10,72,877

-16,766

17,99,424

18,90,736

1,81,552

2,34,170

488

47,402

12,817

1,73,462

5,07,034

4,97,348

9,686

-2,72,865

17,99,424

FY18

19,987

6,75,357

6,95,344

88,139

11,13,335

-22,118

18,74,700

15,89,357

1,80,406

3,26,564

693

58,830

47,886

2,19,155

6,01,786

5,77,285

24,501

-2,75,222

18,74,700

FY19

19,987

6,94,235

7,14,222

1,35,258

12,54,283

-82,556

20,21,207

16,83,662

1,76,044

3,81,895

884

43,006

62,121

2,75,884

6,41,389

6,21,206

20,183

-2,59,494

20,21,207

FY20E

27,273

8,51,169

8,78,442

1,10,575

16,53,293

-82,556

25,59,755

22,81,985

1,29,812

8,03,194

818

52,540

4,47,577

3,02,259

6,55,236

6,27,192

28,044

1,47,958

25,59,755

FY21E

27,273

8,72,328

8,99,601

1,17,932

16,34,900

-82,556

25,69,876

21,73,023

1,29,812

9,43,233

1,170

59,044

5,94,409

2,88,610

6,76,191

6,47,913

28,278

2,67,042

25,69,876

30 March 2020

Bharti Airtel

Financials and Valuations

Ratios

Y/E March

Basic (INR)

EPS

Cash EPS

BV/Share

DPS

Payout (%)

Valuation (x)

P/E

Cash P/E

P/BV

EV/Sales

EV/EBITDA

Dividend Yield (%)

Return Ratios (%)

RoE

RoCE

RoIC

Working Capital Ratios

Asset Turnover (x)

Debtor (Days)

Leverage Ratio (x)

Net Debt/Equity

Consolidated - Cash Flow Statement

Y/E March

OP/(Loss) before Tax

Depreciation

Interest & Finance Charges

Direct Taxes Paid

(Inc)/Dec in WC

CF from Operations

Others

CF from Operating incl EO

(Inc)/Dec in FA

Free Cash Flow

(Pur)/Sale of Investments

Others

CF from Investments

Issue of Shares

Inc/(Dec) in Debt

Interest Paid

Dividend Paid

Others

CF from Fin. Activity

Inc/Dec of Cash

Opening Balance

Closing Balance

E: MOFSL Estimates

FY14

6.9

46.0

149.5

1.8

30.2

76.6

11.4

3.5

3.3

10.2

0.3

5.0

3.8

4.2

0.6

0.9

FY15

14.0

52.8

155.0

2.2

19.9

37.8

10.0

3.4

3.2

9.3

0.4

9.2

5.8

6.5

0.6

1.0

FY16

12.3

55.9

168.8

1.4

10.8

42.9

9.4

3.1

3.2

9.0

0.3

7.6

6.1

6.4

0.6

1.3

FY17

11.1

60.6

168.8

1.0

12.7

47.4

8.7

3.1

3.3

8.7

0.2

6.6

5.3

5.4

0.5

1.3

FY18

3.5

51.6

173.9

1.0

43.8

122.8

8.3

2.5

3.4

8.9

0.2

2.0

4.6

4.5

0.4

1.3

FY19

-8.7

44.7

178.7

0.0

-49.1

9.6

2.4

3.6

10.9

0.0

-5.0

-2.5

-2.6

0.4

1.4

FY20E

0.7

51.4

161.0

0.0

641.1

8.3

2.7

4.1

9.6

0.0

0.5

3.1

3.5

0.3

1.2

FY21E

3.9

61.1

164.9

0.0

110.6

7.0

2.6

3.3

7.3

0.0

2.4

4.3

5.4

0.4

1.0

FY22E

5.0

66.2

169.9

0.0

86.1

6.5

2.5

2.9

6.2

0.0

3.0

5.1

6.9

0.4

0.8

(INR m)

FY22E

73,508

3,33,784

1,44,366

-21,317

-16,179

5,14,162

-2,03,000

3,11,162

24,806

-1,78,194

-20,233

-1,44,366

-1,64,599

1,71,369

5,69,603

7,40,972

FY14

FY15

FY16

FY17

FY18

FY19

FY20E

FY21E

78,643 1,07,130 1,28,463

77,233

32,670

-17,318 -3,54,342

40,163

1,56,496 1,55,311 1,74,498 1,97,730 1,92,431 2,13,475 2,76,649 3,11,962

58,788

73,252

85,461

95,466

93,255 1,10,134 1,33,095 1,47,364

-35,039

-46,111

-46,836

-31,587

-13,723

-11,706

99,880

-11,647

17,533

-1,639

-3,955

-27,429

5,906

-58,196

-21,996

27,748

2,76,421 2,87,943 3,37,631 3,11,413 3,10,539 2,36,389 1,33,286 5,15,590

-14,095

-11,925

-58,208

-19,104

-12,001

-38,509

2,62,326 2,76,018 2,79,423 2,92,309 2,98,538 1,97,880 1,33,286 5,15,590

-1,74,659 -2,09,786 -2,70,967 -3,84,045 -2,67,262 -3,05,270 -4,53,977 -2,03,000

87,667

66,232

8,456

-91,736

31,276 -1,07,390 -3,20,691 3,12,590

-36,886

-11,649

68,115

-817

-33,322

924

46,232

-27,955

14,088

60,595

69,308

40,326

44,143

24,806

-2,39,500 -2,07,347 -1,42,257 -3,15,554 -2,60,258 -2,60,203 -3,82,939 -1,78,194

67,956

984

1,245

98,932 3,94,000

14,252

-72,451 -1,17,833

9,353

40,073 1,05,883 3,99,010

-18,394

-37,620

-33,887

-32,890

-58,566

-44,041

-76,171 -1,33,095 -1,47,364

-6,735

-21,399

-15,304

-9,168

-32,652

-46,617

-12,182

31,210

46,925

52,866

56,085

12,611

25,671

-96,527 -1,18,118

-4,270

19,486

94,638 6,59,915 -1,65,758

48,497

-27,856

19,048

-27,515

57,766

32,315 4,10,262 1,71,638

1,311

39,575

-1,413

17,635

-9,880

28,468

37,315 4,22,771

49,808

11,719

37,087

12,817

47,886

62,121 4,47,577 5,94,409

30 March 2020

Bharti Airtel

NOTES

30 March 2020

Bharti Airtel

Explanation of Investment Rating

Investment Rating

Expected return (over 12-month)

BUY

>=15%

SELL

< - 10%

NEUTRAL

< - 10 % to 15%

UNDER REVIEW

Rating may undergo a change

NOT RATED

We have forward looking estimates for the stock but we refrain from assigning recommendation

*In case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall within

following 30 days take appropriate measures to make the recommendation consistent with the investment rating legend.

Disclosures

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buy or sell the securities or derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or other

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specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOFSL even

though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report

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Research Analyst views on Subject Company may vary based on Fundamental

research and Technical Research. Proprietary trading desk of MOFSL or its associates maintains arm’s length distance with Research Team as all the activities are segregated

from MOFSL research activity and therefore it can have an independent view with regards to Subject Company for which Research Team have expressed their views.

Regional Disclosures (outside India)

This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability

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to which this document relates is only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these

securities, products and services in any jurisdiction where their offer or sale is not qualified or exempt from registration. The Indian Analyst(s) who compile this report is/are not

located in Hong Kong & are not conducting Research Analysis in Hong Kong.

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Motilal Oswal Financial Services Limited (MOFSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under

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brokerage and investment services provided by MOFSL , including the products and services described herein are not available to or intended for U.S. persons. This report is

intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as

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Specific Disclosures

1 MOFSL, Research Analyst and/or his relatives does not have financial interest in the subject company, as they do not have equity holdings in the subject company.

2 MOFSL, Research Analyst and/or his relatives do not have actual/beneficial ownership of 1% or more securities in the subject company

3 MOFSL, Research Analyst and/or his relatives have not received compensation/other benefits from the subject company in the past 12 months

4 MOFSL, Research Analyst and/or his relatives do not have material conflict of interest in the subject company at the time of publication of research report

5 Research Analyst has not served as director/officer/employee in the subject company

6 MOFSL has not acted as a manager or co-manager of public offering of securities of the subject company in past 12 months

7 MOFSL has not received compensation for investment banking/ merchant banking/brokerage services from the subject company in the past 12 months

8 MOFSL has not received compensation for other than investment banking/merchant banking/brokerage services from the subject company in the past 12 months

9 MOFSL has not received any compensation or other benefits from third party in connection with the research report

10 MOFSL has not engaged in market making activity for the subject company

30 March 2020

Bharti Airtel

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The associates of MOFSL may have:

- financial interest in the subject company

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- other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the

specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOFSL even

though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report.

- acted as a manager or co-manager of public offering of securities of the subject company in past 12 months

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company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies)

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The associates of MOFSL has not received any compensation or other benefits from third party in connection with the research report

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The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or

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in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances.

The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment

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the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and

should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make

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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

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Registration Nos.: Motilal Oswal Financial Services Limited (MOFSL)*: INZ000158836(BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research Analyst:

INH000000412. AMFI: ARN - 146822; Investment Adviser: INA000007100; Insurance Corporate Agent: CA0579;PMS:INP000006712. Motilal Oswal Asset Management Company

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* MOSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National

Company Law Tribunal, Mumbai Bench.

30 March 2020