5G Expansion And Digital Ventures With Bajaj Finance Will Strengthen Future Market Position

Key Takeaways

• Bharti Airtel's focus on operational efficiencies and sustainability initiatives is expected to improve long-term margins and reduce costs.
  
• The company's expansion in 5G, broadband, and digital services aims to capture market share and drive future revenue growth.
  
• Bharti Airtel's strategic exits and investments may pressure revenues and cash flow, necessitating further tariff hikes and competitiveness amidst intense market competition.

Catalysts

Operates as a telecommunications company in India and internationally.

• Bharti Airtel's plan to transfer telecom towers to Indus Towers aims to create greater efficiency and free up management bandwidth. This could lead to improvements in operational efficiency, potentially boosting long-term value and EBITDA margins.
  
• The expansion of Bharti Airtel's 5G network, which added 5,214 network sites and over 13,950 route kilometers of fiber in the quarter, is expected to support future revenue growth by catering to the increasing demand for 5G services and higher data usage.
  
• The focus on reducing the carbon footprint through solarization and AI-driven network efficiencies could lower operational costs and improve net margins in the future.
  
• The company's strategy to capitalize on the growing broadband market with aggressive fiber home-pass rollouts and the expansion of fixed wireless access (FWA) is aimed at increasing its market share in home internet services, potentially driving revenue growth.
  
• Bharti Airtel's efforts in diversifying its digital portfolio, including ventures into IoT, cloud services, and financial technology, such as the partnership with Bajaj Finance, are expected to generate new revenue streams and enhance earnings growth.

Bharti Airtel Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bharti Airtel's revenue will grow by 14.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 15.1% today to 14.4% in 3 years time.
• Analysts expect earnings to reach ₹354.9 billion (and earnings per share of ₹76.44) by about March 2028, up from ₹246.1 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₹512.6 billion in earnings, and the most bearish expecting ₹291.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 40.2x on those 2028 earnings, down from 40.5x today. This future PE is lower than the current PE for the IN Wireless Telecom industry at 46.6x.
• Analysts expect the number of shares outstanding to decline by 4.25% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.53%, as per the Simply Wall St company report.

Bharti Airtel Future Earnings Per Share Growth

Risks

• The decision to exit low-margin components of the B2B segment, such as wholesale commodity voice and messaging, might temporarily affect top-line revenues even if there's minimal impact on EBITDA due to negligible margins in this business line. This decision could result in some short-term revenue impact.
  
• Bharti Airtel's efforts to reduce tariff repair could face challenges due to continued low average revenue per user (ARPU) compared to global standards, suggesting more tariff increases might be necessary to sustain financial stability and reasonable returns, potentially impacting revenue.
  
• The company's significant investments in fiber and 5G infrastructure could lead to capital expenditure pressure, especially if rapid rollout and expansion of fiber are required to maintain competitive service offerings. This might strain cash flows and balance sheet management.
  
• The expansion of the Fixed Wireless Access (FWA) using 5G could require additional CapEx related to infrastructure enhancements, potentially leading to increased operating costs and pressure on EBITDA margins if not matched by revenue growth.
  
• Market competition, particularly in the home broadband sector where rival companies like Jio are reportedly adding subscribers at a faster rate, could limit market share gains and impact the revenue trajectory in this segment.

Valuation

• The analysts have a consensus price target of ₹1871.857 for Bharti Airtel based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹2350.0, and the most bearish reporting a price target of just ₹1220.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹2467.3 billion, earnings will come to ₹354.9 billion, and it would be trading on a PE ratio of 40.2x, assuming you use a discount rate of 12.5%.
• Given the current share price of ₹1636.65, the analyst price target of ₹1871.86 is 12.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.