Airtel just reported its latest quarterly results and while the company could not muster a profit, there’s been a lot of optimism surrounding its future prospects. So in this week’s Finshots Markets, we thought we could look at Bharti Airtel and see why analysts think this might be a turning point for the company.


The Story

For starters, Bharti Airtel seems to be doing a lot of things that make sense. Back in October 2018, the company decided to impose a minimum recharge mandate. It was sort of a diktat forcing customers to recharge their phones if they wanted to avail service validity. Meaning even if you were just looking to access incoming calls on your network, you had to pay up at least ₹35. Critics lambasted this move since this was at a time when Jio was lapping up customers using dirt-cheap tariff structures. In fact, in the same quarter, Airtel lost 48 million subscribers in one go. It seemed like the company was giving up. But then the subscriber base started stabilizing.

And a key operational metric — ARPU (Average Revenue per user) started inching up in tandem. They were extracting more money from their subscribers even if some of them were dropping out. And as Airtel saw it, this was a prudent alternative. After all, these people wanted to stay with Airtel because they liked it with Airtel. And as Jio started hiking its own tariffs last year it only furthered their conviction. In fact, since the minimum recharge mandate, the company has never looked back and in the latest quarter, its ARPU stood at ₹162 — highest in the industry. Some turnaround that.

Outside of doing the right things. Airtel also seems to be saying the right things. For instance, consider all this talk about 5G. When the company’s CEO was probed about the matter, he simply stated that Airtel was likely to stay away from the auctions altogether if they were to transpire next year. At first glance, it might seem like Airtel is ceding ground. However, nobody quite knows what 5G will look like when it debuts in India. The eco-system is still trying to figure things out as we speak. But the government is all ready to extract billions of dollars from telecom companies by (allegedly) forcing them to overpay for something they don’t quite fully understand yet. On the flip side, if Airtel does invest massive amounts of money trying to build the infrastructure right now, they’ll have to borrow and spend. So all things considered, it might be prudent to just wait and watch for a while.

In the meantime, COVID was expected to play spoilsport. But the evidence doesn’t corroborate this claim either. At the time people believed there would be pressure on revenues because recharging at a physical store was near impossible. They also believed new customer additions would suffer. And granted, during the course of the lockdown, net new additions did tumble. But this quarter, revenues from the mobile business increased ~6% primarily aided by a net subscriber addition of ~13.9 million. Meaning all that pent up demand made a big dent these past few months. Also, any potential loss in revenue was offset by an increase in data consumption. As one report notes “A boom in remote work propelled a 58% year-on-year jump in data consumption at Bharti Airtel Ltd in the September quarter helping India’s second-largest telco post record consolidated revenues”

Finally, there is the smartphone gambit.

Let us explain. We still have a massive 2G subscriber base in the country. In fact, roughly 50% of Airtel’s users are still on 2G. And if you’re wondering why haven’t they switched to Jio; Well… That’s because Jio doesn’t offer 2G plans. Even if you planned to switch to 4G, you need a phone that can support it and considering most 4G phones selling right now are deemed expensive, Airtel has had a definitive edge in this market. But eventually, they will migrate. In fact, Airtel will tell you they’re betting on an increase in ARPU as this migration unfolds. The only problem — Jio is partnering with Google to launch affordable smartphones priced at ₹4000. And word on the street is that Mr. Mukesh Ambani has asked Indian suppliers to augment their production capacity so that Jio could push out 20 Cr smartphones in the next two years. Once again, this is not to say that Jio will automatically gain from the new migration. In fact, their low-cost 4G feature phone hasn’t disrupted the market the way most people thought it would. But considering both companies have so much riding on this 2G-4G migration, it’s always a good idea to keep a close watch.

Meanwhile, Airtel’s other businesses, including the African and the Sri Lankan subsidiaries continue to do well and their debt burden seems to be in control for now.

And while the AGR verdict will still have a massive impact on the company’s cash flows for many years to come, most analysts believe Airtel still has a lot to offer.

So, what do you think?

Has Airtel turned a corner or do you think they’ll be found wanting in the next few years?

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