Bharti Airtel Ltd Partly Paidup Q3 FY2023 Concall Summary

Key Takeaways

• Broad-based growth with margin expansion: Consolidated revenue grew 3.7% QoQ to Rs 35,800 crores, while EBITDA margins expanded to 52%, driven by operating leverage and lower spectrum charges.
• Wireless and broadband drive customer additions: The quarter saw 0.44 crore wireless net adds and 432k broadband net adds, with postpaid net additions surging to 650k from ~280k.
• Entry-level tariff hike executed successfully: The entry plan price was raised from Rs 99 to Rs 155, rolling out across 17 circles after lower-than-expected churn in pilot markets.
• 5G rollout is a capacity play, not yet a use-case revolution: With 5G live in 70 cities, management sees its immediate value as offloading 25-35% of 4G traffic, while acknowledging that transformative low-latency use cases remain scarce globally.
• What to watch next quarter: The pace of 5G device adoption and its influence on the rural rollout plan, progress on the "war on waste" program to offset network cost creep, and any further tariff actions across the industry.

Financial Performance & Capital Allocation

• Revenue growth: Consolidated revenue grew 3.7% sequentially to Rs 35,800 crores, with growth described as broad-based across all segments.
• EBITDA margin expansion: Margins expanded from 51.3% to 52%, attributed to continued operating leverage, the "war on waste" program, and the flow-through of lower spectrum usage charges announced by the government.
• Net debt reduction: Net debt fell by Rs 3,000 crores despite a stepped-up 5G rollout and elevated Capex, because of very strong operating free cash flows. Management expects net debt to go down further in the coming year.
• Return on capital pressure: Consolidated return on capital employed stands at 11.9%, with India's return at less than 9%. Management views an ARPU of Rs 300 as critical for a respectable return, a level it hopes will happen in due course.
• Pending rights issue call: The remaining call on the partly paid shares is available for a few more quarters. Management sees no immediate visibility of a need given the free cash flow profile but finds it useful to keep the product alive, with a re-benchmarking possible over the coming few quarters when an effective need arises.

Vittal: "Our concern continues to be return on capital employed. Today at a consolidated level, we are at 11.9%. India return on capital employed is less than 9%, and therefore, we do believe that the ARPU needs to go up."

Wireless: Subscriber Momentum & Pricing

• Subscriber net additions: The quarter saw 0.44 crore revenue-earning customer net additions, with 4G net additions of 0.64 crore, driven by upgrades and the intensity of the rural rollout that began last quarter.
• ARPU growth: ARPU moved from Rs 190 to Rs 193, a Rs 3 increase, driven by 4G upgrades, postpaid growth, and sophisticated data monetization using contextual marketing.
• Postpaid surge: Postpaid net additions surged from ~280k to 650k. Management noted the postpaid-to-prepaid premium ratio has come back to 1.6–1.7 from 3.5–4, a zone where postpaid historically sees much more growth.
• Entry-level tariff action: The entry-level plan tariff was increased from Rs 99 to Rs 155. Pilots in Haryana and Orissa met action standards with lower-than-expected churn, prompting a rollout across 17 circles. The plan has not yet been rolled out in a few relatively weaker circles.
• Tariff increase constraint: Management reiterated that industry tariff increases are valid and must go up, but cannot be done unilaterally without losing market share, which would be far more difficult to draw back.
• Market share gains: The company gained market share across all segments, reaching lifetime highs in wireless, broadband, B2B, and DTH.

Vittal: "The broader point of these tariff increases across the industry is a valid point, and that must go up as we have always mentioned. It is just that we cannot do this unilaterally, and if we did it, and lost market share then to draw that market share back would be far more difficult."

5G Rollout: Strategy & Realism

• Rollout status and timeline: 5G is now live in 70 cities, with a plan to be in about 300 cities by March 2023 and to cover all of urban India by March 2024. The pace of rollout beyond urban India will be dictated by how 5G device penetration shapes up.
• Traffic offload as primary use case: On sites with 5G, 25%–35% of traffic is already being offloaded from 4G consumption. Management is looking to squeeze out 4G capacity investments and direct that Capex toward 5G.
• Device penetration: About 11% of smartphone devices are 5G-ready, with an expectation that this will climb to 20%+ by March 2024. Device penetration will be assessed over the next six to nine months to plan the broader rollout.
• Use-case realism: Management stated that globally, transformative 5G use cases, particularly low-latency applications, are still few and far between. At this point, the primary value is capacity offload, with B2B private networks as another area of exploration.
• User experience gap: Management noted that while 5G speed tests show 400–500 Mbps, there is no palpable difference in the experience for typical applications like browsing, video, or social media compared to 4G at 4–8 Mbps.
• Network footprint opacity: Management declined to quantify what percentage of the network is fired up with 5G or the target network footprint by March 2024, calling it "rather complex to answer" because 5G is not a ubiquitous layer and rollout depends on where smartphones and traffic are.

Vittal: "If I look at the overall innovation in the ecosystem, to drive 5G use cases, particularly when it comes to low-latency applications, globally these use cases are still few and far in-between."

Home & Digital Services

• Broadband growth: The company added 432k broadband net adds and is now present in 1,140 cities, up from 847 last year. The LCO model was cited as Capex-light with a healthy return on capital, enabling expansion in flatbed geographies. The company is on track to reach 3 crore home passes.
• DTH recovery: DTH net adds recovered to 214k, up from 66k last quarter, driven by dramatically simplified tariff plans (eight plans nationwide) and a convergence strategy via Airtel Black that bundles linear and OTT content with broadband. Management described this as early green shoots in an industry under serious pressure and stated more work remains.
• Payments Bank momentum: Customer deposits grew 50% YoY, and the revenue run-rate reached approximately Rs 1,300 crores. The bank is entering a virtuous cycle with churn benefits to the telco. Monthly transacting users declined QoQ due to a seasonal dip in remittances, but January had already surpassed the previous quarter's levels.
• Digital businesses: The annualized revenue run rate reached approximately Rs 1,050 crores. A key win was a large multi-year cloud tender with DIKSHA, the Ministry of Education's national platform for school education.

Vittal: "This you must know is in an industry that continues to be under serious pressure and clearly there is more to be done on DTH. We are not calling any victory yet, but these are just very early green shoots."

Enterprise & B2B

• Growth trajectory: B2B delivered sequential growth of 2.5%, with margins just south of 40%, described as the best in the industry. The business growth rate has stepped up from 7%–8% three years ago to 12%, and is now close to 14%–15%.
• Deep account strategy: A focused strategy on the top 500 accounts is yielding results, with approximately 50 of those accounts growing almost 300%. This was driven by a natural tailwind of spend consolidation behind fewer partners, bringing the full power of Airtel across global and domestic business, strong account planning with skilled sales forces, and delayering the organization so account managers report directly to the domestic enterprise head.
• Adjacencies opportunity: The market for adjacencies like CPaaS, data centers, and cloud is as large as the connectivity market. While CPaaS is seeing strong growth, data centers and cloud have not made as much headway because capabilities are not yet fully created, requiring stepped-up investment.
• Growth target declined: When asked for a sustainable enterprise growth number, management declined to provide one, stating a reluctance to create a target against which it would be measured.

Vittal: "The headroom for growth is really restricted only by our own imagination and ability to execute, which is really all around creation of those capabilities."

Cost Optimization & Network Strategy

• War on waste program: The program was re-launched, identifying 18,470 high-cost sites with excessive diesel consumption, over-engineering, and high rentals. Each site is being surveyed for unique cost-lowering solutions to be implemented over the next 6–9 months. The program also addresses rising sales costs via lower-cost channels.
• Capex elevation: The current Capex elevation is due to the simultaneous 5G rollout, rural rollout, and the conclusion of the Gujarat sub-gigahertz project. This represents an advancing of Capex that would have been incurred over a three-year period, with no significant change to the overall level versus a typical ~Rs 25,000 crores per year for the India business.
• Network cost headwinds: More infrastructure on sites creates cost headwinds, which are being addressed via the "war on waste" program. NSA technology was described as the most power-efficient solution. Overall Opex impact from rural and 5G rollout is expected to be "equal to or lower than this."
• Sub-gigahertz spectrum value: Post the 2021 auction, evidence shows improved customer satisfaction, greater stickiness in cities, and an ability to win more customers in rural areas where sub-gigahertz spectrum is present. Management noted the real experience difference is between having no low-band spectrum and having some, rather than between different quantities of it.
• One transport band: The company is using data science to forecast demand and plan fiberization across mobile, B2B, and broadband, aiming for more coverage and growth at a lower system cost for the same rupee invested.

Guidance & Commitments

Key Metrics