Bharti Airtel - What doesn't kill you makes you stronger?

Telecom is probably one of the industries which any potential investor seeking to compound returns over long periods of time will want to stay away from - significant capex intensity, heavy under-trading of ARPU’s and the periodic interference by Governments.

From clocking net margins of 24% in 2008, Bharti’s net margins have fallen to a meagre 2% as of FY’17 ( and are likely to be heading further south this year) . However, what is even more painful is that IF you remove Other Income from profitability, the company has actually reported a loss at Net level in 2017 and is barely managing to stay in black this fiscal - all thanks to Mr Jio’s nonchalant grip on the Pricing metrics of the industry.

'If you can’t beat’em , join ‘em’ has been the catch phrase for the industry as marginal players have finally given up the ghost and joined hands with the bigwigs. Competition has fallen from 15 players in 2012 to just 3 currently

As Bruce Berkowitz says, focus on where the puck is going and not where it is at currently.

The current scenario -
The telecom industry is currently a battleground for just three players who are in charge of serving 125cr mobile connections in the country - with little by way of ensuing profitability - which raises the question? has this business become an eventual charity?

Charlie Munger, when asked about his wife’s ex-husband famously said ‘you’ve got to ensure your competition is weak.’

For Bharti, competition stems mainly from Jio who has been on a nonchalant capex drive to garner market share. The company is now targeting the existing 2g subscriber base of Idea Cellular and has again resorted to a tariff war in order to get incremental market share.

The below pyramid shows the magnitude of users that Jio can still lure away -

On the demand side, data has become the be all and end all source of entertainment and work for a majority of the Indian population. From being a luxury, data is now a necessity and most of this boils down to Jio’s agressive stance on pricing. It would be safe to say that data penetration is only expected to rise with time ( current data users in India stands at approx 45 crore vis a vis total mobile subscription base of 120cr)

The positives -

  1. Concentrated supply
    2)Ever increasing demand
    3)Turn around of Bharti Africa

The key risks -
When does all of this demand growth actually translate into numbers for incumbents. Bharti guides for an annual capex figure of 25,000cr and mentions that the high capex intensity is stated to continue( remember, this is after incurring a massive 60,000cr over the last three years). Idea and Vodafone are now gearing themselves up for a 60,000cr round of capex in the next three years. With industry profitability already nearing the zone of danger, one wonders as to how long are earnings going to remain suppressed.

I am attaching my notes from Bharti’s conference call and a few other links to help boarders get a better understanding of the industry in general and the current scenario.
Airtel and Telecom.docx (19.5 KB)

Conclusion - For any upside risks to RoE’s , both Net profit Margins and Asset turns have to increase . Net profit margins are a function of the ARPU recovery going ahead AND asset turns are a function of internet penetration( which in my mind will only go up with time) and ARPU’s . Timing the ARPU recovery is something potential investors need to watch for as that is the single biggest driving factor behind this case

Disc - token quantity; still building up on the thesis


An industry in which the raw material (spectrum) is being bid up & getting expensive and ever evolving (2G to 3G to 4G and now 5G in less than a decade) and in which the players have no pricing power to speak of (at the moment) is not good in my opinion.

Let Mr. Ambani come to his senses on the pricing front and then we can have a second look. Vodafone Idea merger doesn’t look like it’s going to survive with a combined debt load of 1.23 lac crore, a paltry capital raise of 25K crore & poor EBITDA compared to peers with a fast eroding subscriber base.

Somewhere I think Jio is taking away the 2G/3G subscribers of Airtel, Idea and Voda and will be able to upgrade them on its network with its superior content partnerships and better network performance.

Airtel is raising money at a 30% discount to the market price but it looks better positioned to compete, with its well performing Africa operations.


I think both the short term momentum, and long term value creation( via increasing operating leverage ) is turning in favour of Airtel. The QIP had a great appetite & most of the risks are priced in. Could lead to serious profit increase,if the ARPUs start moving up steadily. A duopoly (with Vodafone Idea in bad shape) in a proxy consumption sector, with the GOI keen to support the sector is an attractive investment thesis


Is bharti airtel a good buy at cmp inview of increased WFH , chances of arpus increasing from lowest in the world.consoildation in sector,only pure play telecom player?

views invited.

I think in normal times it seems like a good bet and in February provided a good opportunity when everything looked expensive

The Covid times are a bit different. Companies with leadership and great balance sheets have been beaten down. So should we bet on turnaround of an HDFC bank which is available at 2 times book or an Airtel (with regulatory uncertainty & lot of debt on balance sheet). And if you want to hide in healthcare should we look at a Metropolis Healthcare which is right now at 1250 (beaten down from highs of 1800-1900) and great ROCE, ROE vs. an Airtel .

So currently lot of great businesses are turnaround bets .How would Airtel compare to the relatively speaking is the question to ponder over.

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very evidently, I think we’re effectively now looking at a 2.5 player market . Given COVID-19 and its disruption to our lives, im sure that data will be even more central to the new life post this lockdown. A Nokia Mobile broadband survey of 2019 states that 67% of the user base in India have 4g enabled devices v/s current penetration of 47%

Now, if we look at ARPU’s heading north, they can do so in two ways - i) up-trading of users in the 4g bracket (current base of 59 crore v/s potential of 80-85 crore) and ii) exercising of pricing power. using these two factors in tandem can give us a sense of the magnitude of jump one can envisage

Coming to the AGR Matter, even if the payments are spread out over 20 years, Bharti will be in a position comfortable enough to pay the same off from internal accruals majorly without resorting to external debt.

Disc - Invested

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Airtel : Good Operating leverage due to Tariff hike in q3 makes q4 nos more profitable. Last 3 years with Jio competition Airtel has cut costs and is more nimble. With Facebook and Silverlake buying Jio valued at 5 lac crores make Airtel a value buy. There is definitely a valuation gap @ 535 with Airtel marketcap at 2.90 crores. Future looks bright as during the year more tariff hikes will increase its cash margins. Africa operations having similar margins now and lot more value and Infratel tower holding at all time low in valuation makes Airtel a vlaue buy. Interesting to see Retail float of individual shareholders below 1 % , unusual for a very large cap stock.


Vodaphone woe’s may be Airtels gain this year . If Vodaphone continues losses in q4 , Vodaphone will increase tariffs followed by Airtel & Jio. Maybe subscriber shifts from Vodaphone to others is a gain for Airtel.

Any idea who are the investors in this stake sale?

I think Vodafone trying to acquire Birla stake first. Birla also has a call option during merger to increase stake equal to Voda. Dont see Birla selling below 25 and actually stay invested. When they need funds after Supreme court matter is done with , Voda will put money or there are many USA investors to being in money. There is a big valuation gap between Voda and Jio . That should fill in with new shareholders at a premium. Voda Q4 results will show better cash flow due to tariff hikes. Q4 should also show better operations of infrastructure. Branding is moving towards Voda so Idea brand should disappear over time.


Re-posting these two useful charts from Twitter. These charts highlight the current standings of the three private telecom companies.

Latest subscriber base (in millions)

Reliance Jio - 387.5
Vodafone Idea - 304
Airtel with - 283.7


ARPU = Average Revenue Per User - indicates how much revenue a company can generate from an individual customer.


Churn = Number of subscribers that terminate or discontinue their service with their carrier. It acts as a proxy to understand how good a company is at retaining its customers.


Hi guys,
What could be the impact from the soring relations between India-China to BhartiAirtel?
I understand that the costs of equipment are the only ones that could be affected(correct me if I’m wrong).
If so, what could be the approx increase in costs?

Why Airtel loses subscribers to Jio? I thought Airtel overall service Is better than Jio ! Or am I missing something…would be thankful if someone throws some light on this.

…Vodafone Idea lost 6.3 million subscribers in March, while Bharti Airtel lost 1.2 million users in the month, according to data by Telecom Regulatory Authority of India (Trai). Reliance Jio added 4.68 million subscribers during the same time.

Even April also the story repeats !

A better way to look at Telecom is to see how many active subscribers are there on network. Understand that Jio is having lot of inactive subs and the ARPU of Airtel is higher than that of Jio.

People are desperately looking to cut their costs in this depression. So, Jio with cheaper plans will gain market share.

Probably Bharti’s strategy is better margins and higher ARPU and let go off very price conscious customers.

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