Bharti Airtel widens lead over Jio on Arpu, but lags in revenue market share

Interestingly, Airtel and Jio took tariff hikes in July, with the former raising tariffs by 10-21%, while the latter by 12-25%, somewhat higher. So, what explains Airtel’s higher Arpu growth? It could be attributed to several factors.

Airtel is estimated to have more postpaid subscribers than Jio (though Jio does not report postpaid subscribers separately, its share in the category is estimated lower). Airtel’s Arpu also benefits from the upgradation of its 2G users to 4G/5G (or even loss of 2G users as it reduces the denominator) with the addition of smartphone users at 4.2 million. Also, it should be noted that Jio’s tariff hike excluded some of its customers such as those with a JioBharat phone.

Even after the stronger growth in Arpu compared to the rival telco, this is not the peak profitability, according to the management. It believes that the full impact of the tariff hike is not yet reflected, and it should happen over the next couple of quarters.

Nonetheless, as of Q2FY25, Airtel still lags behind Jio in terms of revenue market share in the mobility business. Jio continues to be the leader even with lower Arpu as it has a higher number of mobile subscribers, 470 million, compared to Airtel’s 350 million.

Debt vs cash flow

The management highlighted in the earnings call that the sequential rise in standalone net debt to ₹1.77 trillion from ₹1.71 trillion is due to the liability towards the spectrum renewal. Still, net debt is not a big worry in view of the robust free cash flow generation, i.e., Ebitda minus capex. While free cash flow is likely to be about ₹40,000 crore in FY25, it should remain healthy in the future, too, as the management pointed out that the capex intensity peaked out in FY24. Ebitda stands for earnings before interest, taxes, depreciation, and amortization.

Consolidated sequential revenue growth of 7.7% was led mainly by Indian operations. Here, tariff hikes helped even as they led to the company losing about a per cent of its customer base. Ebitda rose by almost 11% quarter-on-quarter to ₹21,850 crore, leading to an Ebitda margin expansion of 150 basis points to 52.7%.

Airtel’s Africa woes are unabated as its net debt soared by almost 40% sequentially to ₹43,127 crore. In fact, its net debt is equivalent to the market capitalization of Airtel Africa Plc, listed on the London Stock Exchange.

While Bharti Airtel’s shares were muted after its Q2 results, the stock has already gained 14% after the tariff hike announced on 28 June. In fact, the shares are up as much as 60% so far in 2024 with an improving free cash flow outlook as the capex is set to moderate ahead. The Nifty50 is up 12% year to date.

Based on Nomura’s FY25 estimates, the stock trades at 12x EV/Ebitda.Another tariff hike as and when it happens would be an important trigger for the stock.

For more such analysis, read Mark to Market.