I have been following Airtel for a long time and it seems the company is at an inflection point. Two things that I heard from the few recent concalls that interested me are capex moderation and deleveraging. The company has been through a string of regulatory issues and a period of cutthroat competition.
Finally, it seems like the overhang of the AGR crisis is over and tariffs have started to increase. From an ARPU of Rs 128 in 2020 the ARPU has increased to 209 in the last quarter. And management indicated that there is more scope for improvement in ARPU as management believes it will go to 300. India has one of the lowest ARPUs.
Airtel has been gaining market share in its core business.
Telecom industry is characterized by very high regulatory capex. The company had to invest heavily in 5 G even before the benefits of 4 G roll out were realized. This has been the situation for long. The company had to raise a lot of debt for these purposes. But the situation has started to improve. Also, with a major part of 5g capex done we may see borrowings and interest costs coming down. The Company is also looking at paying down the high-cost debt. They prepaid spectrum liabilities of 24250 crores in the last year. Also, prepaid a spectrum liabilities debt of 8465 crores that carried an interest rate of 9.3 % in the current quarter. The interest expenses can be seen to be trending downwards in the last 2 quarters. Also, with interest rates coming down it will benefit further. Even though Airtel may look expensive on a P/E basis, it is trading at an EV/EBITDA of 14.8.
With the major part of this capex done. The company can now focus on their new age business, cloud, financial services etc. The company’s core business is going to produce a lot of cash which can be used to incubate new business opportunities. Last quarter the company made a cash profit of 16000 crores.
The company has a -ve working capital cycle.
Airtel Finance
On the payments bank, monthly transacting users stood at 71.4 million and the annualized revenue run rate is now over Rs.2,400
Crores growing 52% year-on-year. Deposits remain robust at over Rs.2,900 Crores again growing by over 50% year-on-year.
Airtel Finance is scaling up well with an annualized loan disbursement
of just under Rs.3,000 Crores and a loan book of Rs.3,300 Crores. They also launched FD marketplace. I think they understand the Indian markets quite well.
In M2M communication, airtel is currently having a dominant market share.
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