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10 May 2017

4QFY17 Results Update | Sector: Telecom

Bharti Airtel

BSE SENSEX S&P CNX CMP: INR373 TP: INR430 (+15%) Buy 30,248 9,407 Bloomberg BHARTI IN Equity Shares (m) 3,997.3 M.Cap.(INRb)/(USDb) 1,490.2 / 23.1

52-Week Range (INR) 401 / 284 1, 6, 12 Rel. Per (%) 6/11/-16 Avg Val, INRm 1335 Free float (%) 32.9

Financials & Valuations (INR b)

Y/E Mar FY17 FY18E FY19E

Net Sales 954.7 943.6 1,043.1 EBITDA 353.3 326.8 371.9 NP 44.4 25.1 45.8 EPS (INR) 11.1 6.3 11.5 EPS Gr. (%) -6.4 -43.4 82.4 BV/Sh. (INR) 168.8 173.8 184.1 RoE (%) 6.7 3.7 6.4 RoCE (%) 5.4 4.8 5.6 P/E (x) 33.5 59.3 32.5 P/BV (x) 2.2 2.1 2.0

Estimate change TP change Rating change

Well invested, poised for growth Better cost management in a tough operating environment Consol. EBITDA drops 7% QoQ, but 3% above estimate: Consol. revenue fell 6%

QoQ (-12.1% YoY) to INR219.3b, while consol. EBITDA declined 7.3% QoQ (-13.7 YoY) to INR78.6b (3% above estimate). RJio’s free usage plan led to a drop of 6%/10% QoQ in India wireless revenue/EBITDA to INR129.7b/INR47.9b. India EBITDA was 7% above estimate due to lower discretionary cost. Despite Africa revenue declining 6% QoQ to INR50.5b, EBITDA grew 6% (4.7% beat) led by cost efficiencies. PAT fell 30% QoQ (-69% YoY) to INR4.7b on lower EBITDA. For FY17, consol. EBITDA rose 4% YoY to INR353b, led by 4% growth in India wireless EBITDA.

Lower-than-expected decline in data revenue: Data revenue saw a lower-than-anticipated decline of 11% QoQ (7% beat), as volumes partly offset the 32% data price decline. Overall India wireless ARPU declined 8%/19% QoQ/YoY to INR158. Voice revenue fell 4.8% QoQ to INR92.5b (1% below estimate). Voice traffic grew 15% QoQ to 330b min, led by higher incoming traffic from RJio. This impacted India voice RPM, which declined by a steep 17% QoQ to INR0.243/min.

Huge capacity build-up, getting ready to capture growth avenues: With huge spectrum and network investment, Bharti’s focus is to create ample data capacity to match RJio’s offerings. Management highlighted its focus on improving the data market share (currently at ~35%), and aims to be the key beneficiary of market disruption. As competitive intensity bottoms out in 3-4 quarters, long-term ARPU accretion should bode well for Bharti.

Maintain Buy with a revised TP of INR430: We broadly maintain our EBITDA estimate, factoring in a 7% decline in FY18 and 14% growth recovery in FY19. We believe that as the market bottoms out in next 3-4 quarters, the stock can provide 8-10% FCF yield on 15% rise in EBITDA and annual capex reduction of 10%. Maintain Buy with a revised TP of INR430, based on our SOTP valuation, assigning 8x to India ex-tower, 3x to Africa business and 15% discount to our Bharti Infratel’s valuations.

Investors are advised to refer through important disclosures made at the last page of the Research Report. Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Aliasgar Shakir ([email protected]); +91 022 3982 5423 Jay Gandhi ([email protected]); +91 22 6129 1546

Bharti Airtel

10 May 2017 2

4QFY17 earnings call highlights India performance Data ARPU declined 17% YoY, with increased value offerings to subscribers. India wireless margin was at 36.9% in 4QFY17. DTH grew 10.4% due to some residual demonetization impact. Depreciation and amortization cost has increased due to step-up of spectrum

and network investments in India. Airtel DTH launched Airtel Internet TV - hybrid set-top box offering online and

linear television content. We have not seen a substantial increase in churn through MNP, but share of

wallet is impacted. Subscriber consumption is coming at a low price. Overall 15% voice volume growth and 30% data volume growth indicate that

some of volume from free usage has come back. Continue to evaluate energy cost and AMC cost reduction, which has reduced

network cost. 70-80% of subscription is through EKYC, which has reduced SG&A cost.

Payment banks loss is due to marketing and launch cost, sales and distribution and acquisition cost. The decoupling from mobile business to others segment is to explain the nascent stage business separately v/s the core mobile business.

Industry In India, the telecom industry disruption has hastened consolidation. New

operator’s predatory pricing is hurting the industry. In the short- to medium-term, predatory pricing is impacting all stakeholders in

the telecom market, including government with lower receipts. Predatory pricing by new subscribers is negatively impacting the industry. India

is at the cusp of data growth, and Bharti is well placed (led by its spectrum and network position) to take benefit of industry growth.

Smartphone penetration growing to 600-700m, which will drive data growth and increase ARPUs. However, in the short term, there should be ARPU compression.

There is an opportunity to accelerate market share even when tariffs are coming down. Management is confident that in the long term, the ARPU construct will go up.

85-90% of new smartphones are 4G (priced at INR4,000-5,000). 4G feature phones may come in a couple of months. Market share of new 4G devices for Bharti is ~35%. At the time of new operator’s launch, the share had reduced, but it is now recovering. Many programs are run to make this metric move positively through distribution channel and device OEM partners. Bharti continues to attract subscribers, whose wallet share is lost/reduced.

On VoLTE feature phones, it needs to be seen how market dynamics and competition behave.

The market share of the new operator is likely to be higher on 4G, but Bharti is focused on ensuring its own market share.

Telecom is heavily taxed sector (e.g. license fee, service tax). Will be proposing the government to reduce taxes, spectrum costs and also provide leeway in postponing deferred spectrum payments. Hopeful that a prudent decision will

Bharti Airtel

10 May 2017 3

be taken. This is due to the key factor that bedrock of economic growth will be led by healthy broadband network and investment.

Currently on VoLTE, the strategy is to wait and watch. If it is at INR2,000-2,500, it may not be attractive as smartphones are available at INR4,000-4,500. If it is provided on subsidy, then India is a country where locks are easily broken, so the subsidy may not help retain subscribers.

As bundling of data and voice services are offered, pricing will become irrelevant, and ARPU will be the key focus.

Most small telco’s operating as value players are witnessing a poor performance.

Business Outlook Optimizing cost and retaining premium subscribers is management’s key priority

in the current hyper-active market. Post the spectrum acquisition with Tikona and Telenor, Bharti will have

significant increase in spectrum holding, including 2300mhz spectrum across India.

Bharti holds 126 3g+4g carriers, including Tikona and Telenor spectrum. This is the largest data holding in the market.

Bharti’s quality of network strength should allow it to retain high-value subscribers.

Continue to focus on all segments through mobile, TV and broadband offerings. Once data consumption habit takes root, it will be easy to raise rates. In the long

term when there is price equilibrium, taking price increase will be relatively easy.

Management is focused to cut opex and improve capex productivity in several areas. Management believes this is once in a lifetime opportunity to grab market share. Will focus on cost efficiency to improve EBITDA.

Home broadband has seen significant growth, and DTH has done relatively well. V Fiber network roll out is growing steadily.

Enterprise business is sticky due to the hassles of switching vendor. Thus, there is low competitive risk. The focus is on reducing the cost of delivery.

Quality of infra and fiber on the ground will be the priority for any broadband business acquisition.

Does not have the capacity to match RJio’s volumes, but has the spectrum to scale it to much higher level. Over next four quarters, capex is largely focused toward fiber and 4G rollout, with minimal investments on 2G and 3G. Will be chasing capacity, but supply will not be far ahead of demand.

1-2 cities 2G-3G spectrum will be refarmed in the near term. In FY18-19, a bunch of cities may be refarmed, and the key trigger point is when pure voice subscribers are reducing significantly.

Reducing energy cost through multiple ways like solar, shift of sites from outdoor to indoor.

Mobile broadband subscriber growth is arising out of two massive programs. 1.) New 4G handset 2.) Attract back subscribers who shifted to free usage through targeted offerings.

Fiber sharing and active infra sharing in rural areas are key areas of cost optimization.

Bharti Airtel

10 May 2017 4

Africa performance In Africa, consolidation in weaker markets will continue: In Ghana, the merger

with Tigo will provide cost synergies. Airtel brand is among Top 10 brands in Africa as per Brand Africa. Shed unprofitable voice revenue in Africa which has led to lower revenue but

improvement in EBITDA. EBITDA margin expanded due to the war on waste. Turned PBT positive for the 1st time in FY17. The focus is on quality subscriber acquisition.

Africa tower sale was done to improve efficiency through tower sharing and reduce capex. In India, not looking to sell stake in Bharti Infratel.

In Africa, the company continues to improve quality of revenue and cost reengineering to improve margin. There is further opportunity for cost savings.

Capex, leverage, divestment Capex guidance in FY18 maintained in line with FY17 level at USD3b. Out of USD3b capex, USD2.5b will be incurred in India and USD500m in Africa. Management does not expect capex to move significantly from the current

guidance. Bharti’s spectrum position is very robust. It has massive amount of spectrum that can be used to provide many years of growth. Network capex require modular investment based on data growth.

If there is a pressure on leverage due to capex intensity, we may explore sale of Bharti Infratel stake.

Bharti Airtel

10 May 2017 5

Story in Charts Exhibit 1: India mobile KPIs

Source: Company, MOSL

Exhibit 2: Bharti India: YoY mobile traffic growth (%)


Exhibit 3: Bharti India: Mobile RPM trend (incl data)


Exhibit 4: Bharti India: Mobile data traffic and pricing


Exhibit 5: Bharti India: Data revenue & contribution to wireless rev


190

183

187

189

185

177

185

193

200

192

195

196

202

198

202

198

198

193

192

194

196

188

172

158 44

5

423

419

431

433

417

435

455

455

437

434

437

435

418

416

418

424

404

405

415

414

406

419

471

42.7

43.2

44.6

43.8

42.7

42.4

42.6

42.4

44.0

44.0

44.8

44.9

46.5

47.2

48.6

47.5

46.8

47.6

47.5

46.8

47.3

46.3

41.1

33.5

1QFY

12

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

3QFY

16

4QFY

16

1QFY

17

2QFY

17

3QFY

17

4QFY

17

Mobile ARPU (INR) Mobile MoU (mins) Mobile RPM (p)

8 7 9 10 8 8 6 5 5 5 5 5 7 7 9 11 8 11 14 24

1QFY

132Q

FY13

3QFY

134Q

FY13

1QFY

142Q

FY14

3QFY

144Q

FY14

1QFY

152Q

FY15

3QFY

154Q

FY15

1QFY

162Q

FY16

3QFY

164Q

FY16

1QFY

172Q

FY17

3QFY

174Q

FY17

-21 -18 -16 -17 -16

-1 -2

5 7

-1 -12

-20

8

0.92 0.76

0.64 0.53

0.44 0.44 0.43 0.44 0.47 0.47 0.42 0.33 0.36

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

E

FY18

E

FY19

E

YoY RPM (%) Mobile RPM (INR)

13

16

20

24

28

35

40

48

56

68

77

87

102

115

134

147

158 17

8 17

2 22

5

35 32 29 29 30 29 29 28 28 27 27 27 26 25 24 23 22 20 18 12

1QFY

132Q

FY13

3QFY

134Q

FY13

1QFY

142Q

FY14

3QFY

144Q

FY14

1QFY

152Q

FY15

3QFY

154Q

FY15

1QFY

162Q

FY16

3QFY

164Q

FY16

1QFY

172Q

FY17

3QFY

174Q

FY17

Data traffic (b MB) Data revenue per MB (p)

4431

51

53

5775

69

96

8455

10

189

1174

8 13

241

1559

0 18

063

2114

4 23

237

2605

1 28

982

3182

7 33

569

3526

9 35

823

3087

9 27

452 4 5 6 7 7 9 10 11 12 14 16 18 19

22 23 23 24 25 23 22

1QFY

132Q

FY13

3QFY

134Q

FY13

1QFY

142Q

FY14

3QFY

144Q

FY14

1QFY

152Q

FY15

3QFY

154Q

FY15

1QFY

162Q

FY16

3QFY

164Q

FY16

1QFY

172Q

FY17

3QFY

174Q

FY17

Data revenue (INR b) Data revenue (% of wireless)

Bharti Airtel

10 May 2017 6

Exhibit 6: Bharti India: Mobile churn rate per month (%)


Exhibit 7: Bharti vs Idea: QoQ India mobile traffic growth (%)


Exhibit 8: India mobile revenue and EBITDA margin


Exhibit 9: Africa revenue and EBITDA margin


Exhibit 10: Bharti: Mobile cell site base and quarterly additions


Exhibit 11: Consolidated net debt and net debt/EBITDA


Exhibit 12: Bharti Airtel: SOTP based on FY18

EBITDA (INR b) Ownership

Proportionate EBITDA (INR b) EV/EBITDA

Fair Value (INR b) Value/Share

India SA business (excl. towers) 275 100% 275 7.8 2,147 537 Tower business (15% discount to fair value)

61%

418 104

Africa business 62 90% 56 3.0 168 42 Less net debt

1,014 254

Total Value

3,747 430

Shares o/s (b) 4.0 CMP

373

Upside (%)

15


8.8

8.5

5.9

3.2

3.2

3.2

2.7 2.

4 2.7 3.1

2.7

2.5 3.

3 3.5

3.4

3.3 3.6

3.7 4.

1 3.

6

1QFY

132Q

FY13

3QFY

134Q

FY13

1QFY

142Q

FY14

3QFY

144Q

FY14

1QFY

152Q

FY15

3QFY

154Q

FY15

1QFY

162Q

FY16

3QFY

164Q

FY16

1QFY

172Q

FY17

3QFY

174Q

FY17

4 -2

3 5

2 -3

1 4 2

-2 1 4

4

-3 3

6 2

0 5

15

5

-4

5

9

3 -5

4 9

5

-2

5 8 6

-3

5 1 -1 -2

7 4

1QFY

132Q

FY13

3QFY

134Q

FY13

1QFY

142Q

FY14

3QFY

144Q

FY14

1QFY

152Q

FY15

3QFY

154Q

FY15

1QFY

162Q

FY16

3QFY

164Q

FY16

1QFY

172Q

FY17

3QFY

174Q

FY17

Bharti QoQ growth Idea QoQ growth

102

106

104

107

112

109

112

116

123

122

128

130

134

133

136

142

146

143

136

129

32 32 30 32 33 35 35 36 38 38 38 40 40 40 40 41 44 43 39 37

1QFY

132Q

FY13

3QFY

134Q

FY13

1QFY

142Q

FY14

3QFY

144Q

FY14

1QFY

152Q

FY15

3QFY

154Q

FY15

1QFY

162Q

FY16

3QFY

164Q

FY16

1QFY

172Q

FY17

3QFY

174Q

FY17

India mobile revenue EBITDA margin (%)

58

61

62

61

59

70

72

71

70

69

68

62

62

63

63

65

62

53

54

50

26 27 26 25 26 27 26 25 24 24 22 21 21 20 21 22 22 24 24 27

1QFY

132Q

FY13

3QFY

134Q

FY13

1QFY

142Q

FY14

3QFY

144Q

FY14

1QFY

152Q

FY15

3QFY

154Q

FY15

1QFY

162Q

FY16

3QFY

164Q

FY16

1QFY

172Q

FY17

3QFY

174Q

FY17

Africa mobile revenue EBITDA margin (%)

117

118

119

121

126

129

131

134

135

135

137

139

140

141

143

147

148

150

151

154

157

159

160

162

0.9

0.9 1.0 1.

9 5.

1 3.

4 2.

0 2.3

1.0

0.7 1.

7 1.

7 1.

1 1.4 1.6

3.6

1.1 1.

9 1.

7 2.

9 3.

0 1.

9 1.

3 1.8

1QFY

122Q

FY12

3QFY

124Q

FY12

1QFY

132Q

FY13

3QFY

134Q

FY13

1QFY

142Q

FY14

3QFY

144Q

FY14

1QFY

152Q

FY15

3QFY

154Q

FY15

1QFY

162Q

FY16

3QFY

164Q

FY16

1QFY

172Q

FY17

3QFY

174Q

FY17

Cellsites ('000) Sites added ('000)

644

678

650

683

668

643

638

584

609

576

605

577

622

668

668

720

757 84

1 89

3 88

9 87

4 1034

971

2.9 2.9

2.7 3.

2 2.

9 2.

9 2.

8 2.

4 2.

4 2.

1 2.

2 1.

9 2.1 2.2

2.1 2.

5 2.

5 2.6

2.5

2.4

2.4

3.1 3.2

2QFY

123Q

FY12

4QFY

121Q

FY13

2QFY

133Q

FY13

4QFY

131Q

FY14

2QFY

143Q

FY14

4QFY

141Q

FY15

2QFY

153Q

FY15

4QFY

151Q

FY16

2QFY

163Q

FY16

4QFY

161Q

FY17

2QFY

173Q

FY17

4QFY

17

Net Debt (INR b) Net Debt/EBITDA (x)

Bharti Airtel

10 May 2017 7

Exhibit 13: Bharti Airtel - Consolidated Segment wise Summary as per IFRS (INR m) 4QFY16 3QFY17 4QFY17 YoY% QoQ% 4QFY17E v/s Est (%) Revenue Mobile India 146,525 138,365 129,719 -11.5 -6.2 129,115 0.5 Telemedia 6,586 7,025 6,785 3.0 -3.4 6,917 -1.9 Enterprise 23,666 27,050 25,769 8.9 -4.7 26,239 -1.8 Passive Infrastructure 14,148 15,292 16,017 13.2 4.7 15,480 3.5 South Asia 4,388 2,454 977 -77.7 -60.2 1,963 -50.2 Others (incl South Asia) 8,626 9,393 9,594 11.2 2.1 9,598 0.0 Africa 64,511 53,551 50,476 -21.8 -5.7 51,815 -2.6 Eliminations -18,854 -19,774 -19,991 6.0 1.1 -18,756 6.6 Consolidated Revenue 249,596 233,357 219,346 -12.1 -6.0 222,371 -1.4 EBITDA Mobile India 58,616 52,986 47,873 -18.3 -9.6 44,804 6.9 Telemedia 2,798 3,414 3,323 18.8 -2.7 3,337 -0.4 Enterprise 8,043 8,287 9,424 17.2 13.7 7,740 21.8 Passive Infrastructure 7,088 7,291 7,943 12.1 8.9 7,381 7.6 South Asia 288 162 -108 -137.4 -166.6 -196 -45.1 Others (incl South Asia) 2,272 3,039 782 -65.6 -74.3 3,102 -74.8 Africa 14,296 12,680 13,387 -6.4 5.6 12,370 8.2 Eliminations -2,279 -3,043 -4,024 76.5 32.2 -2,345 71.6 Consolidated EBITDA 91,122 84,815 78,600 -13.7 -7.3 76,193 3.2 EBITDA margin (%) Mobile India 40.0 38.3 36.9 -310bps -139bps 34.7 220bps Telemedia 42.5 48.6 49.0 649bps 38bps 48.3 72bps Enterprise 34.0 30.6 36.6 258bps 593bps 29.5 707bps Passive Infrastructure 50.1 47.7 49.6 -51bps 191bps 47.7 191bps Mobile South Asia 6.6 6.6 -11.0 -1757bps -1760bps -10.0 -103bps Africa 22.2 23.7 26.5 436bps 284bps 23.9 265bps Consolidated EBITDA margin 36.5 36.3 35.8 -67bps -51bps 34.3 157bps Depreciation and amortization 48,163 48,350 49,418 2.6 2.2 50,204 -1.6 Operating income 42,959 36,465 29,182 -32.1 -20.0 25,989 12.3 Other income and share of JV/Associate 3,129 3,487 2494 -20.3 -28.5 3,504 -28.8 Net finance cost 17,010 19,356 19,162 12.7 -1.0 16,480 16.3 Proforma Profit Before Taxes 29,078 20,596 12,514 -57.0 -39.2 13,013 -3.8 Exceptional Items 2,999 2,040 6,055 0 Proforma Tax 10,789 11,841 1,753 -83.8 -85.2 5,335 -67.1 Effective Tax Rate (%) 37.1 57.5 14.0 -2309.5 -4348.3 41.0 -2699bps Proforma Profit After Tax 15,290 6,715 4,706 -69.2 -29.9 7,678 -38.7 Proforma Minority Interest 2,095 1,678 972 -53.6 -42.1 906 7.3 Proforma Net Profit 13,195 5,037 3,734 -71.7 -25.9 6,772 -44.9


Bharti Airtel

10 May 2017 8

Exhibit 14: India Mobile: Operating Metrics India - Wireless KPIs 4QFY16 3QFY17 4QFY17 YoY% QoQ% 4QFY17 v/s Est (%) Wireless traffic (b min) 308.0 330.3 381 23.7 15.3 349 9.2 Voice subscribers (m) 251.2 265.9 274 8.9 2.9 272 0.7 Data subscribers (m) 58.2 54.9 57.4 -1.5 4.5 57 0.4 Voice revenue (INR b) 102.4 97.2 92.5 -9.7 -4.8 93.4 -0.9 Data revenue (INR b) 33.6 30.9 27.5 -18.2 -11.1 25.6 7.3 RPM (p) 46.8 41.1 33.5 -28.4 -18.5 36 -7.7 ARPU (INR) 194 172 158 -18.9 -8.4 157 0.5 MOU (min) 415 419 471 13.4 12.4 432 8.9 Data Traffic (b MB) 147 172 225 53.4 31.0 174 29.7 RPMb (p) 22.9 18.0 12.2 -46.7 -32.1 14.7 -17.2 Monthly churn (%) 3.3 4.1 3.6 36bps -50bps 3 88bps Voice RPM (p) 33.3 29.4 24.3 -27.0 -17.5 26.8 -9.3 Non-voice revenue contribution 28.9 28.4 27.5 -145bps -92bps 26.2 131bps Data revenue contribution 23.3 22.8 21.5 -178bps -123bps 20.2 130bps


Exhibit 15: Bharti Africa: Quarterly Performance (INRm) 4QFY16 3QFY17 4QFY17 YoY% QoQ% 4QFY17 v/s Est (%) Revenue (INR m) 64,511 53,551 50,476 -21.8 -5.7 51,815 -2.6 EBITDA (INR m) 14,296 12,680 13,387 -6.4 5.6 12,370 8.2 EBITDA margin (%) 22.2 23.7 26.5 436bps 284bps 23.9 265bps EOP Subs (mn) 80.6 80.4 80 -0.6 -0.4 82 -2.3 MOUs 143.2 151.7 141 -1.6 -7.2 146 -3.3 RPM exVAS (US cents) 1.9 1.8 1.8 -5.0 1.8 1.8 2.3 RPM incl VAS (US cents) 2.7 2.5 2.6 -3.6 2.9 2.5 3.1 Voice revenue (USD m) 664.1 640.1 612.1 -7.8 -4.4 626.2 -2.3 Data revenue (USD m) 285.1 278.4 275.9 -3.2 -0.9 275.0 0.3 ARPUs (USD) 3.9 3.9 4 -5.4 -5.1 4 -0.5 Total Minutes (m) 34940 35913 33977 -2.8 -5.4 35469 -4.2 Non Voice revenue contribution 30.0 30.3 31.1 3.4 2.5 30.5 1.8


Bharti Airtel

10 May 2017 9

Exhibit 16: Key assumptions and value drivers Mobile segment FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E Mobile - India Subs (m) 162 181 188 206 226 251 274 288 297

YoY (%) 27 12 4 9 10 11 9 5 3 Total voice traffic (b min) 792 889 965 1030 1081 1171 1340 1662 1722

YoY% 30 12 9 7 5 8 14 24 4 Total data traffic (b MB) 10 72 151 287 498 733 1267 2189

YoY% 621 109 91 73 47 73 73 Average Rev Per User (Rs/month) 201.1 187.8 185.1 193.9 198.1 192.9 177.0 164.2 176.9

YoY% -17.2 -7 -1 5 2 -3 -8 -7 8 Minutes of Use/Sub/Month 455 431 436 436 417 409 426 493 491

YoY% -1 -5 1 0 -4 -2 4 16 -1 Mobile RPM (Rs) 0.442 0.436 0.425 0.445 0.475 0.471 0.416 0.333 0.361

YoY% -16.5 -1 -2 5 7 -1 -12 -20 8 Voice revenue per min (p) 38.3 37.3 35.3 36.8 37.4 34.1 29.6 23.3 22.0

YoY% -19 -3 -5 4 2 -9 -13 -21 -5 Data revenue per MB (p) 41.0 31.0 29.0 27.2 24.2 17.7 10.9 9.8

YoY% -24 -6 -6 -11 -27 -38 -9 Voice revenue (INR b) 303 331 341 379 404 400 397 387 379

YoY % 5 9 3 11 7 -1 -1 -3 -2 Data revenue (INR b)

4 22 44 78 120 129 138 215

YoY %

445 95 79 54 7 6 57 Data revenue as % of total revenue 1 5 10 15 22 23 25 35 Mobile - Africa Subs (m) 44 53 64 69 76 81 80 87 94

YoY (%) 22 20 20 9 10 6 -1 8 8 Netadds per month (m) 0.7 0.7 0.9 0.5 0.6 0.4 0.0 0.5 0.6 ARPU (USD/month) 7.3 7.1 6.3 5.6 5.0 4.0 3.8 3.8 3.8

YoY (%) -3 -11 -11 -10 -21 -5 0 -1 EBITDA margin (%) 21.9 26.5 26.2 26.1 22.7 21.1 24.0 26.4 26.9


Exhibit 17: Business Mix

Revenue (INR b) FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E

Mobile 363 403 431 467 520 561 566 562 630 Telemedia 36 37 36 39 44 25 28 29 31 Enterprise 41 45 53 63 67 97 109 111 125 Passive Infrastructure 86 95 50 51 54 56 61 67 72 Others (incl South Asia) 10 16 32 41 43 49 49 45 50 Africa 131 198 240 272 269 251 220 216 232 Total revenue 668 794 842 934 998 1039 1032 1030 1139 Eliminations and others -73 -80 -73 -77 -77 -76 -78 -86 -96 Consolidated revenue 595 715 769 857 920 963 955 944 1043 YoY% 20 8 11 7 5 -1 -1 9 EBITDA (INR b) Mobile 127 137 130 158 194 219 227 202 235 Telemedia 16 16 15 15 18 11 13 14 15 Enterprise 10 8 9 14 14 30 34 34 39 Passive Infrastructure 0 0 0 0 0 26 29 32 35 Others (incl South Asia) (10) (9) (12) 2 5 8 10 4 5 Africa 29 53 63 71 61 53 53 57 62 Total EBITDA 172 204 205 259 292 347 365 344 391 Eliminations and others -2 -4 -5 -6 -5 -7 -12 -17 -19 Consolidated EBITDA 170 201 200 254 287 340 353 327 372 YoY% 20.5 17.8 -0.2 26.8 13.0 18.6 4.0 -7.5 5.3 Capex (INR b) Consolidated capex 277 150 130 175 210 271 271 201 201 YoY% 123 -46 -13 34 20 29 0 -26 -26 Capex/Sales (%) 46.5 21.0 16.9 20.4 22.8 28.1 28.4 21.3 19.3


Bharti Airtel

10 May 2017 10

Financials and Valuations

Consolidated - Income Statement (INR Million) Y/E March FY13 FY14 FY15 FY16 FY17 FY18E FY19E Total Income from Operations 769,045 857,461 920,394 965,321 954,683 943,563 1,043,147 Change (%) 7.6 11.5 7.3 4.9 -1.1 -1.2 10.6 Total Expenditure 536,891 580,865 608,118 625,259 601,386 616,721 671,243

% of Sales 69.8 67.7 66.1 64.8 63.0 65.4 64.3 EBITDA 232,154 276,596 312,276 340,062 353,297 326,842 371,905 Margin (%) 30.2 32.3 33.9 35.2 37.0 34.6 35.7 Depreciation 148,147 156,496 155,311 174,498 197,730 208,252 229,380 EBIT 84,007 120,100 156,965 165,564 155,567 118,590 142,525 Int. and Finance Charges 40,084 48,381 48,463 68,865 76,974 84,789 73,166 Other Income 423 6,385 6,588 9,501 10,336 9,342 9,342 PBT bef. EO Exp. 44,346 78,104 115,090 106,200 88,929 43,143 78,700 EO Items 0 538 -7,960 14,505 -11,697 0 0 PBT after EO Exp. 44,346 78,642 107,130 120,705 77,232 43,143 78,700 Total Tax 25,183 48,449 54,047 59,368 34,819 15,100 27,545 Tax Rate (%) 56.8 61.6 50.4 49.2 45.1 35.0 35.0 Minority Interest -88 2,467 1,248 6,495 4,416 2,920 5,326 Reported PAT 19,251 27,726 51,835 54,842 37,997 25,123 45,829 Adjusted PAT 19,251 27,519 55,779 47,471 44,421 25,123 45,829 Change (%) -54.8 43.0 102.7 -14.9 -6.4 -43.4 82.4 Margin (%) 2.5 3.2 6.1 4.9 4.7 2.7 4.4 Consolidated - Balance Sheet (INR Million) Y/E March FY13 FY14 FY15 FY16 FY17 FY18E FY19E Equity Share Capital 18,988 19,987 19,987 19,987 19,987 19,987 19,987 Total Reserves 484,229 577,573 599,577 636,314 654,576 673,156 712,441 Net Worth 503,217 597,560 619,564 656,301 674,562 693,142 732,428 Minority Interest 40,886 42,102 48,525 51,984 68,750 71,670 76,996 Total Loans 667,363 758,958 806,839 950,430 1,074,281 1,054,989 1,033,768 Deferred Tax Liabilities -45,935 -45,777 -44,392 -32,382 -18,791 -18,791 -18,791 Capital Employed 1,165,531 1,352,843 1,430,536 1,626,333 1,798,802 1,801,010 1,824,401 Net Fixed Assets 1,286,663 1,406,145 1,501,440 1,817,263 1,528,712 1,883,700 1,855,537 Total Investments 77,098 155,308 170,357 114,498 146,746 129,824 129,824 Curr. Assets, Loans&Adv. 170,001 207,692 226,519 270,173 263,758 413,644 431,043 Inventory 1,109 1,422 1,339 1,692 488 1,666 716 Account Receivables 67,824 62,441 67,252 73,106 49,838 79,417 63,480 Cash and Bank Balance 16,078 49,808 11,719 37,087 12,817 163,932 148,865 Loans and Advances 84,990 94,021 146,209 158,289 200,614 168,628 217,982 Curr. Liability & Prov. 368,231 416,302 467,781 575,601 502,439 626,158 592,003 Account Payables 356,719 404,533 459,472 565,925 477,889 616,881 563,883 Provisions 11,512 11,769 8,309 9,676 24,550 9,277 28,120 Net Current Assets -198,230 -208,610 -241,262 -305,427 -238,681 -212,515 -160,960 Appl. of Funds 1,165,531 1,352,843 1,430,536 1,626,333 1,798,802 1,801,010 1,824,401 E: MOSL Estimates

Bharti Airtel

10 May 2017 11

Financials and Valuations

Ratios Y/E March FY13 FY14 FY15 FY16 FY17 FY18E FY19E Basic (INR)

EPS 4.8 6.9 14.0 11.9 11.1 6.3 11.5 Cash EPS 41.9 46.0 52.8 55.5 60.6 58.4 68.8 BV/Share 125.9 149.5 155.0 164.2 168.8 173.4 183.2 DPS 0.9 1.8 2.2 1.4 1.0 1.0 1.0 Payout (%) 22.9 30.2 19.9 11.9 12.7 19.2 10.5 Valuation (x)

P/E 26.7 31.4 33.5 59.3 32.5 Cash P/E 7.1 6.7 6.2 6.4 5.4 P/BV 2.4 2.3 2.2 2.1 2.0 EV/Sales 2.5 2.5 2.7 2.5 2.3 EV/EBITDA 7.3 7.1 7.2 7.3 6.4 Dividend Yield (%) 0.3 0.5 0.6 0.4 0.3 0.3 0.3 Return Ratios (%)

RoE 3.8 5.0 9.2 7.4 6.7 3.7 6.4 RoCE 3.1 3.8 5.8 5.9 5.4 4.8 5.6 RoIC 3.3 4.2 6.5 6.2 5.5 4.9 6.1 Working Capital Ratios

Asset Turnover (x) 0.7 0.6 0.6 0.6 0.5 0.5 0.6 Debtor (Days) 32 27 27 28 19 31 22 Leverage Ratio (x)

Net Debt/Equity 1.1 0.9 1.0 1.2 1.4 1.1 1.0

Consolidated - Cash Flow Statement Y/E March FY13 FY14 FY15 FY16 FY17 FY18E FY19E OP/(Loss) before Tax 47,853 78,643 107,130 120,705 77,232 43,143 78,700 Depreciation 148,148 156,496 155,311 174,498 197,730 208,252 229,380 Interest & Finance Charges 45,187 58,788 73,252 85,042 95,466 93,969 91,264 Direct Taxes Paid -31,294 -35,039 -46,111 -46,836 -34,819 -15,100 -27,545 (Inc)/Dec in WC 19,634 17,533 -1,639 -4,172 -143,025 124,949 -66,621 CF from Operations 229,528 276,421 287,943 329,237 192,584 455,213 305,179 Others -1,829 -14,095 -11,925 -46,032 3,707 0 0 CF from Operating incl EO 227,699 262,326 276,018 283,205 196,291 455,213 305,179 (Inc)/Dec in FA -130,063 -174,659 -209,786 -270,967 -271,203 -201,217 -201,217 Free Cash Flow 97,636 87,667 66,232 12,238 -74,912 253,996 103,962 (Pur)/Sale of Investments -56,568 -36,886 -11,649 68,060 -32,249 16,923 0 Others -130 -38,188 954 56,871 -3,666 0 0 CF from Investments -186,761 -249,733 -220,481 -146,036 -307,118 -184,294 -201,217 Issue of Shares -579 67,956 0 984 -5,066 0 0 Inc/(Dec) in Debt -24,026 14,252 -72,451 -117,833 123,850 -19,292 -21,221 Interest Paid -34,339 -37,620 -33,887 -32,890 -95,466 -93,969 -91,264 Dividend Paid -5,538 -6,735 -21,399 -15,304 -6,543 -6,543 -6,543 Others 17,203 -12,182 31,210 45,582 69,782 0 0 CF from Fin. Activity -47,279 25,671 -96,527 -119,461 86,557 -119,804 -119,029 Inc/Dec of Cash -6,341 38,264 -40,990 17,708 -24,270 151,115 -15,067 Opening Balance 7,652 1,311 39,575 -73 37,087 12,817 163,932 Closing Balance 16,078 49,808 11,719 37,087 12,817 163,932 148,865

E: MOSL Estimates

Bharti Airtel

10 May 2017 12

Corporate profile Exhibit 1: Sensex rebased

Source: MOSL/Bloomberg

Exhibit 2: Shareholding pattern (%)

Mar-17 Dec-16 Mar-16

Promoter 67.1 67.1 66.8

DII 11.2 11.3 10.0

FII 15.3 15.1 16.8

Others 6.5 6.4 6.5

Note: FII Includes depository receipts Source: Capitaline

Exhibit 3: Top holders Holder Name % Holding

Life Insurance Corporation of India through various accounts 5.3

Three Pillars Pte. Ltd. 5.0 ICICI Prudential Life Insurance Company Limited 2.1

Dodge and Cox International Stock Fund 1.2

ICICI Prudential - Mutual Fund Units 1.1

Source: Capitaline Exhibit 4: Top management

Name Designation

Sunil B Mittal Chairman

Gopal Vittal Managing Director & CEO

Rajendra Chopra Company Secretary

Source: Capitaline

Exhibit 5: Directors Name Name

Chua Sock Koong Rakesh Bharti Mittal

Sheikh Faisal Thani Al-Thani Tan Yong Choo Bernardus Johannes Maria Verwaayen Craig Edward Ehrlich

Dinesh Kumar Mittal Manish Kejriwal

Shishir Priyadarshi V K Viswanathan

*Independent

Exhibit 6: Auditors Name Type

ANB & Co Internal

Chandrasekaran Associates Secretarial Audit

KPMG Internal

R J Goel & Co Cost Auditor

S R Batliboi & Associates LLP Statutory Source: Capitaline

Exhibit 7: MOSL forecast v/s consensus EPS (INR)

MOSL forecast

Consensus forecast

Variation (%)

FY17 11.1 11.0 1.4

FY18 6.3 9.9 -36.1

FY19 11.5 12.0 -4.1

Source: Bloomberg

Company description Bharti Airtel is an integrated telecom operator with presence in wireless, fixed-line and broadband, long distance, enterprise, and passive infrastructure services across India, Sri Lanka, Bangladesh and Africa. Bharti is the largest Indian wireless operator with revenue market share of ~31% and population coverage of 86%. Bharti is the fourth largest wireless company globally by subscribers.

Bharti Airtel

10 May 2017 13

N O T E S

Bharti Airtel

10 May 2017 14

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Disclosure of Interest Statement BHARTI AIRTEL Analyst ownership of the stock No Served as an officer, director or employee - No

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