Bharti Airtel expected to be prime beneficiary of telecom boom despite the near term challenges

The Supreme Court on Thursday directed telecom companies to file affidavits on the timeline and the medium through which they would pay Adjusted Gross Revenue (AGR) dues to the government, as well as the security they can provide to guarantee the payment. The court asked the government for a time frame to ensure that the telcos pay the dues on time. The court will next hear the AGR case again on June 18.

The Supreme Court's latest order is not a complete blow to the telecom sector. The Supreme Court has not dictated the telcos to pay the dues right away, which shows its flexibility on the matter. Supreme court asking for a one shot payment would have been a big setback for the industry. However, the Supreme Court has made it clear that it will not accept the self-assessment amount as final figures. As per the company's self-assessment, the dues are are only at Rs 13,004 crore.

For Bharti Airtel, the total due is Rs 43,980 crore. The company has paid Rs 18,004 crore in installments so far and hence the balance to be paid by the company is Rs 25,976 crore. The company has raised about $3 billion recently. Hence, paying this amount should not be that difficult. Airtel is also expected to raise more capital in the near future.

Raising fresh capital should not be a concern for Bharti Airtel, considering the kind of interest from global players in Reliance Jio. The weakness in Vodafone-Idea have created a duopoly market; Airtel sould use this position to its advantage to generate interest of the global investors.

The industry structure is fundamentally changing with operators shifting their focus to improving profitability from subscriber market share. Importantly, Bharti Airtel’s Average Revenue Per User (ARPU) growth was 14% QoQ. Increasing smartphone user base and strong 4G subscriber addition demonstrates consumers’ changing preference for fast network. It has further opened the window for tariff hikes in future..

Key Risks:

Despite being in the duopoly market, company’s pricing power remains limited with Reliance Jio is likely to continue to call shots. The chances are that Bharti Airtel is mostly going to play catch up game or at best take retaliatory price actions. It is going to keep the revenue potential in check.

Company is also not going to find any respite on Capex plans as India is gearing up to roll out 5G. It is going to keep its cost substantially elevated. Revenue visibility is also impaired in its Africa market where earning yields are expected to remain lower due to the higher

currency depreciation.

Final Thoughts:

Bharti Airtel has showcased the superior quality of its subscriber base with benefits flowing through for the last tariff hike and sustained rise in 4G subscribers. Besides, it continues to gain postpaid subscriber market share. Airtel Africa continued to deliver strong growth and is now self-sustainable, with improving cash flows. Bharti’s balance sheet provides some comfort given the current equity fund raise and the reduction in net debt-to-EBITDA (3.2x vs. 4.3x in FY19).

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