Bharti Airtel Ltd Partly Paidup Q1 FY2025 Concall Summary

Key Takeaways

• Tariff repair landed, flow-through pending: Industry-wide prepaid tariff hikes took effect in early July; early signs are encouraging, with full flow-through expected over the next two quarters.
• ARPU inched up to ₹211, driven by upgrades and data monetization, but management reiterated that the industry needs a minimum of ₹300 for sustainable returns.
• Enterprise business softened materially: Global OTT spends were deferred and domestic core connectivity saw rationalization, dragging on Airtel Business growth; management is betting on an order book recovery and a pivot to adjacencies.
• The balance sheet got stronger: Airtel prepaid another ₹24,250 Crores of high-cost spectrum dues over the last year, pushing India net debt-to-EBITDA down to 2.75x and earning a CRISIL rating upgrade to AA+ positive.
• What to watch next quarter: The pace of tariff hike flow-through into Q2 revenue, any stabilization in the enterprise order book, and the launch of standalone 5G for Fixed Wireless Access.

Tariff Repair & ARPU Trajectory

• The July hike: The industry took up prepaid tariffs in the first week of July. Early impact shows some SIM consolidation at the lower end, particularly around the 2G base, but it is modest and in line with action standards. No significant data downtrading has appeared yet, though some recharge delays are typical when tariffs rise.
• Flow-through mechanics: Management expects a partial flow-through in Q2, with the bulk landing in Q3 due to recharge cycles and pack validity. A very good read is expected by the end of Q2.
• The ₹300 ARPU floor: Management underscored that the industry needs a minimum of ₹300 ARPU for long-term sustainable investments and respectable return ratios. Return on capital at the India level is still hovering around 9%, which was called "abysmally low" for a fixed-cost, capital-heavy business.
• Airtel Black is an ARPA story, not ARPU: Bundled offerings drive broadband and DTH adoption and show up as average revenue per account, not as mobility ARPU, so they do not reduce the need for connectivity tariff increases.

Vittal: "I do want to underscore that the industry needs a minimum of Rs.300 ARPU for long term sustainable investments and respectable return ratios."

Enterprise Slowdown & Portfolio Re-engineering

• Where the softness is: The global side of Airtel Business saw OTT companies deferring spends. The domestic side, which had been strong last year, is now seeing rationalization on core connectivity, an industry that grows at only 4–5%. EBITDA margins were also hit by seasonality, which is expected to unwind in ensuing quarters.
• The adjacency pivot: Management is spending 50–60% of its time re-engineering the B2B portfolio toward adjacencies like CPaaS, cloud, and security. CPaaS is seeing good traction; cloud investments are building managed services capabilities and an own cloud offer, including a partnership with a large tech company for banking workloads. A big strategic security partnership is in place, with a product portfolio launch expected in coming quarters.
• Competitive intensity: Reverse auctions for government and PSU tenders show some competitive pressure, but it is not disproportionately different from the last three years and is considered business as usual.
• Recovery bet: Management believes the enterprise business will come back based on the order book, where green shoots need to translate into revenue over the next few quarters.

Vittal: "If you ask me personally where I spend maybe 50% to 60% of my time, it is really towards that part of the portfolio so that we can re-engineer the B2B side towards adjacencies."

Homes, FWA & 5G Strategy

• Broadband momentum: Airtel added 3,50,000 home customers in the quarter and launched Fixed Wireless Access (FWA) across India. Nearly 50% of broadband additions are now on Airtel Black, and July began extremely well on net additions. WiFi services are now in over 1,300 cities.
• Fiber-first, FWA as a bridge: Management's strategy is to grab the market with FWA and then move customers to fiber as soon as possible, because fiber delivers a superior experience and mid-band spectrum will congest over time. Airtel will roll out 0.15 crore fiber home passes every quarter.
• Standalone 5G for FWA: Airtel is ready and planning to go live with SA technology for FWA within the current quarter, while the mobility network continues on NSA. This approach avoids paying for expensive sub-gigahertz spectrum and deploys fewer radios, lowering both operating cost and carbon footprint.
• 5G monetization is modest: Globally, no major 5G monetization use cases exist beyond FWA. Many 5G customers were already on ₹299 plans, so the tariff increase represents a modest monetization opportunity that will be looked at over the next few quarters.

Vittal: "Hence, our belief is leveraging SA technology for FWA becomes important to deliver a superior experience to customers. We are ready and are planning to go live with SA technology for FWA within this quarter that we are in."

Balance Sheet & Capital Allocation

• Debt reduction in focus: Airtel fully prepaid advance spectrum dues pertaining to the 2012 and 2015 auctions. Over the last year, it has prepaid over ₹24,250 Crores of high-cost spectrum dues. India net debt-to-EBITDA improved to 2.75x from 3.19x a year ago. The first objective is to retire debt with a coupon higher than the market average.
• CRISIL upgrade: The debt rating was upgraded from AA+ to AA+ positive.
• Dividend outlook: A healthy mix of deleveraging and dividends will continue. As free cash flow stability and certainty build, the dividend can increase and leverage can go down. Management declined to give a specific net-debt target for meaningful dividends.
• Capex moderating: FY2024-25 capex will be lower than FY2023-24. Q1 India mobile capex of ₹4,800 crore was lower than last year's ₹7,800 crore, but management cautioned not to read too much into a single quarter.
• Data center investments: Demand continues to be strong. Investments are expected to be more or less around the same level over the next few years, referencing the earlier ~₹5,000 Crores over three years plan. At some stage, Airtel will look to dilute Nxtra once the timing is right.

Kohli: "It is always good to keep assets a little more flexibly unbundled. It always helps both delivery as also any times when cycles to the market are not running in favor."

Digital & Adjacent Businesses

• Payments Bank scaling: Monthly transacting users reached 7.14 crore. Annualized revenue run rate is over ₹2,400 Crores, growing 52% YoY, with deposits over ₹2,900 Crores growing over 50% YoY.
• Airtel Finance: Annualized loan disbursement is just under ₹3,000 Crores, with a loan book of ₹3,300 Crores.
• Cloud ambitions: Over the coming year, substantial investments will be made in the cloud segment. A blueprint is being drawn to set up an overall presence in cloud.
• Bolt-on M&A: Airtel will continue to look for bolt-on acquisitions in digital adjacencies including IoT, cloud, security, SD-WAN, and Airtel Finance to strengthen capabilities.
• War on Waste: The initiative delivered a per-site cost reduction in Q1 after declining through FY2023-24. Absolute diesel consumption fell despite a historic network rollout. Over 6,000 sites were solarised in the quarter alone, and an open access pilot was kicked off in Karnataka.

Bharti Hexacom Performance

• Steady quarter: Revenue of ₹1,911 Crores grew 2.3% sequentially, broad-based. Smartphone customer additions were strong at 703,000. ARPU increased to ₹205 from ₹204. Data usage per customer improved to 25.7 GB, the highest in four quarters.
• Spectrum and tariff: Hexacom purchased about 15 MHz of spectrum in sub-gigahertz and mid-band range for about ₹1,000 Crores. Along with the industry, it took up prepaid tariffs in the first week of July.
• Debt reduction: Hexacom repaid about ₹900 Crores of debt; a ₹2,000 Crores paper was due, with ₹900 Crores repaid and ₹1,100 Crores refinanced. Net debt-to-EBITDA improved to 2.07x.
• Capex outlook: Full-year capex is expected to be lower than last year. Management declined to say whether the Q1 run-rate of ₹370 Crores is representative for the full year.

Guidance & Commitments

Key Metrics