IUC phase-out to impact Bharti Airtel's Ebitda: BoAML
The Interconnect Usage Charge (IUC) becoming zero by January 1, 2020, will have have an impact on Bharti Airtel's earnings before interest, tax, depreciation and amortization (Ebitda), while the post the company's recent rights offer and the Africa IPO, its balance sheet has strengthened and increased its expected Ebitda for the fiscals 2020-22 by 2-3 per cent, according to Bank of America Merril Lynch (BoAML).
"We see Interconnect Usage Charge becoming zero by January 1 2020 to have an impact of Bharti's Ebitda. However, we believe it is well known and unlikely to have material adverse impact on stock price. The downside risks -- material market share loss to Jio and another round of tariff cuts and higher broadband/corporate revenue decline led by Jio entry," BoAML said.
In March, Bharti Airtel said that its Rs 25,000-crore rights issue was over-subscribed, with the Singapore government arm, GIC, picking up a 4.4 per cent stake. This paved the way for the telco to bolster its balance sheet and invest in expanding its 4G network to take on Reliance Jio and Vodafone Idea.
Funds from the issue and additional $1 billion, or Rs 7,000 crore, funding from perpetual bonds will be used by the country's third largest carrier for expanding its 4G networks to match that of Reliance Jio.
"Post the recent rights offering/Africa IPO, Bharti's balance sheet strengthened and increase FY20-22E Ebitda by 2-3 per cent expected. Bharti's balance sheet to be strengthened and consider it to be in a good position to improve its momentum in the core cellular business. Airtel is well positioned to capitalize on any weakness at Vodafone Idea (VIL) as it focuses on integrating its networks post-merger", BoAML said.
In June, Airtel Africa raised $750 million through an IPO and plans to use the net proceeds from the issue of new shares to reduce $4 billion net debt.
"We expect Bharti's market share to remain stable at 30-31 per cent from FY20 to FY24 and with most of the down-trading pressures behind us, we do not see material cuts to our numbers. We also do not expect Bharti to lose material share to Jio in the high margin enterprise business, given the sticky nature of business," the brokerage said.
"We consider the telco earnings to be defensive in light of the current slowdown. As telcos are currently in an intense price competition, the current FY22E Ebitda, multiple of 7x does not reflect the right fundamentals and is partly factoring in the eventual recovery, in our view. We consider VIL's 1Q (first quarter) revenue weakness to be a company-specific issue and do not expect Bharti to show any weakness in its 1Q numbers," it added.
The analyst firm said it does not see any tariff hike by Airtel in the near-term.
"We do not factor any tariff hike into our base-case for the next nine months as we do not expect Jio/Bharti to raise tariffs till VIL's network stabilizes. However any earlier than expected tariff hike could potentially surprise us/the market. We estimate 5 per cent ARPU (average revenue per user) increase would increase FY21/22E EPS (earning per share) by 29-37 per cent and fair value by 23 per cent," it said.
"We increase our FY20-22E Ebitda by 2-3 per cent and EPS by 21-55 per cent (off low base effect) as we factor market share gains partly at the expense of VIL. We expect VIL's network to take 8-9 months to stabilize, and see room for both Bharti and Jio to gain market share", it added. IANS