Bharti Airtel Ltd Partly Paidup Q4 FY2023 Concall Summary

Key Takeaways

• ARPU inches up, but return on capital is still "way too low": Reported ARPU reached Rs.193 (Rs.195 normalized), yet ROCE sits at just 8.5%, reinforcing management's call for tariff repair.
• 5G rollout is reshaping the cost base: Traffic offload of up to 30% on 5G sites has allowed Airtel to stop all 4G capacity investments, while NSA architecture is delivering better coverage at lower capex.
• Home broadband is scaling fast, profitably: 4 lakh net-adds in Q4 alone, with an asset-light partnership model keeping capex low beyond the top 100 cities, even as ARPU dilutes slightly on mix.
• Airtel Finance is off to a rapid, capital-efficient start: Rs.1,200 Crores annualized lending run rate, built on existing data infrastructure with just 15 people and zero balance-sheet risk.
• What to watch next quarter: Whether channel commission cuts stick and ease the SG&A drag, any movement on industry-wide tariff repair, and the pace at which 5G opex begins to peel off as the rollout completes.

Tariff & Return Profile

• ROCE at 8.5% is "way too low": Management is explicit that current returns are unacceptable and that the industry's pricing architecture, a "one size fit all" approach, is broken.
• Tariff repair is a hope, not a forecast: Management hopes "some sense will prevail in the industry to move up tariffs sooner rather than later," pointing out that India's ARPU and rate per GB are lower than Pakistan, Sudan, and Sub-Saharan Africa.
• Entry-level tariff increase provided a modest flow-through: The move from Rs.99 to Rs.155 on the entry plan contributed to the ARPU uptick, but the impact was incremental rather than transformational.
• Postpaid pricing holds a premium, but the trend is flat: Postpaid ARPU has been broadly around the same level over the last six months to one year, with no disclosed delta versus prepaid trends.

Gopal Vittal: "Yet our concern on return on capital employed remains. At 8.5% this is way too low and we hope some sense will prevail in the industry to move up tariffs sooner rather than later."

5G Rollout & Network Strategy

• NSA architecture is a deliberate competitive choice: Management calls it a "bold decision" that is already delivering better coverage, lower capex, lower carbon footprint, and better experience versus SA, and it means Airtel is "not in a maniacal rush to compete on the number of sites."
• 4G capacity investments have stopped entirely: Sites where 5G has been launched are seeing up to 30% traffic offload, freeing Airtel to halt all 4G capacity capex and redirect funds.
• Urban coverage nears completion: 5G is already in about 3,500 cities and towns, adding 35–40 cities per day; urban coverage is expected to conclude this year, with some key rural pockets to follow.
• 5G opex is still capitalized, but that will change: Because the rollout is still underway, 5G opex is currently capitalized; management expects it to start peeling off in coming quarters as more sites meet the criteria to go live.
• Device adoption is the real bottleneck: Only about 10% of Airtel's base has a 5G device, and extending device replacement cycles will limit the pace of migration; this could provide some capex relief in rural areas in FY2025.
• Millimeter wave spectrum is on ice: No plan to use it now; trials are underway purely to check propagation characteristics for the long term.

Gopal Vittal: "It was a bold decision to go with NSA which is non standalone architecture of 5G. This is already giving us better coverage, lower capex, lower carbon footprint and better experience."

Home Broadband & Fixed Wireless

• Broadband net-adds hit 4 lakh in Q4, the strongest quarter of the year: Full-year additions reached 0.16 crore, with presence now in just under 1,200 cities, up from 847.
• Growth is concentrated in the top 200–300 cities: The bulk of new additions come from these urban catchments, while expansion beyond the top 100 cities uses an innovative partnership model with local cable operators that keeps capex requirements much lower.
• ARPU dilution is deliberate and profitable: Customers coming in beyond the top 100 cities take slightly lower-end plans, pulling ARPU down, but management is relaxed because the business is profitable, revenue is growing strongly, and margins are strong.
• FWA is a gap-filler, not a fiber replacement: Management sees FWA as a technology to go where fiber cannot reach, then follow up with fiber; the CPE cost of \$170–\$180 is much higher than the cost per connected home pass, and long-term network experience risks are already visible in markets like the US.
• Bundling FWA with DTH is possible but uneconomic: The box works on Wi-Fi, so bundling is technically feasible, but the constraint is economics, not reliability.

Gopal Vittal: "In the case of fixed wireless access you may get a very good experience when the networks are empty but in five to seven years like we are seeing in the case of T-Mobile in the US already beginning to see challenges on network experience through fixed wireless access so it is at best a technology that can be used to go where fiber is not able to go and then follow that up with fiber."

Cost & Margin Levers

• Network opex rose only 7.5% in FY23 despite serious cost headwinds: Energy costs and rollout pressure were offset by the relaunched "war on waste" program, which identified 66,500 sites for actions on energy, rental, and re-engineering.
• SG&A is the pain point, driven by competitive intensity: Management describes the acquisition-driven spend as "fruitless money being spent" with customers churning; some softening was seen in Q4 as Airtel began lowering channel commissions and tracking the impact over the last 45 days.
• High early-tenure churn drives the problem: Churn is concentrated in the first four months; after that, churn is very low, so the focus is on using data science to identify and reduce early churn rather than blanket acquisition spend.
• B2B margins expanded 1.3% in Q4 despite flat revenue: Revenue was flat sequentially because Airtel chose to walk away from low-margin deals; the underlying business remains strong, with full-year revenue growth just under 16%, the highest in a decade.

Soumen Ray: "I think the SG&A cost is primarily driven by the competitive intensity to acquire customers in the market. We have always held that this is fruitless money being spent and people keep on churning but to remain competitive in the market we need to have terms which are rightful."

Airtel Business & Enterprise

• Connectivity market share hit a lifetime high of 34%: Share gains of 220 bps were driven by rural expansion into 60,000 high-potential villages, with encouraging early results.
• Top-account strategy is delivering outsized growth: 50 of the top accounts grew by 300%, versus 25% growth in the overall top 500 segment, driven by focused account management and bringing the full suite of solutions.
• Cloud and IOT are growing at well over 50%: IOT market share is close to 53%, and both segments are scaling rapidly off a small base.
• Q4 enterprise capex was elevated due to lumpy deals: A combination of undersea cable investments and bandwidth purchases drove the spike; there was no meaningful impact from data centers.
• Data center revenue timing is predictable: For hyperscalers, data centers are built in advance with commitments already in place, and revenues begin as soon as the facility is handed over, typically 12 to 18 months; smaller data centers fill in about six months with domestic players but deliver better margins and returns.

Digital & Adjacent Businesses

• Airtel Finance scaled to Rs.1,200 Crores annualized lending run rate within months: The business has served more than 2.8 lakh customers, with 1.6 crore users pre-credit approved using proprietary ML/AI models, all built on existing data infrastructure with just 15 people.
• The lending model carries zero balance-sheet risk: Airtel earns a margin on disbursal without carrying the lender's book, and also provides collection services using its outreach on behalf of the bank.
• Payments bank is gaining traction: Monthly transacting users rose 14.5% sequentially to just under 5.5 crore, deposit growth was 58%, and annualized revenues reached Rs.1,516 Crores, up 18–19% over the prior quarter.
• Digital businesses are capital-efficient by design: All digital businesses sit on existing infrastructure, making them very capital-efficient, but management cautions they will never be in the same ballpark as the core telecom business.
• DTH is stabilizing after cricket-driven seasonality: The business lost 39,000 customers in Q4 due to cricket viewership churn, but April and May net additions were already strong, and the convergence strategy is outperforming the DTH industry.

Guidance & Commitments

Key Metrics