Airtel’s Capex will be nearly INR 170 bn for next 2-3 years: UBS

Airtel revenue estimatesBharti Airtel’s India Capex (capital expenditure) will be INR 150 billion – INR 170 billion for next 2-3 years, said UBS Securities.

Inability of smaller telecoms to invest in Capex and spectrum has accelerated industry consolidation, which should allow Bharti Airtel to increase its dominance in the next 2-3 years.

Reliance Communications and Aircel are combining their wireless business. Tata Docomo is looking for a buyer or partner to survive in the market. Telenor has already found a buyer in Bharti Airtel. Vodafone is merging with Idea Cellular. Airtel is acquiring spectrum from Videocon and Aircel.

Airtel revenue growth to drop

Bharti Airtel’s India mobile revenue growth will slow from 7.9 percent in FY16 to 0.9 percent / 2.3 percent in FY17/18 before recovering strongly to 16.8 percent growth in FY19 partly boosted by Telenor.

The aggressive pricing strategy of Reliance Jio has prompted Bharti Airtel and other rival operators to selective slash mobile data prices and offer unlimited voice services to several million customers.

UBS Securities reduced estimates for Airtel’s mobile service revenue by 2-5 percent in FY17-FY18 to reflect increasing pricing pressure as Airtel tries to match/compete with Jio’s prices.

UBS Securities has also increased its estimates for Airtel’s service revenue by 2 percent in FY19. The increase in service revenue is primarily due to its recent announcement on Telenor acquisition.

UBS Securities also reduced estimates for Bharti Airtel’s India DTH and enterprise business. It has increased revenue estimates from Airtel’s tower business by 1-4 percent as operators continue to expand 4G coverage.

UBS Securities reduced Airtel Africa’s revenue estimates by 3-9 percent in FY17 -FY19 to reflect pressure on voice and data pricing.

It reduced Airtel’s consolidated EBITDA estimates by 3-7 percent in FY17-19 to reflect pressures in the Indian mobile segment and change in INR per USD estimates in Africa business. It reduced EBITDA estimates by 3-6 percent and 4-13 percent in Airtel India and Airtel Africa operations respectively for the same period.

It reduced PAT estimates by 11 percent-46 percent in FY17-19 mainly to reflect increase in minority interest as result of sale of 10 percent stake in Infratel besides revenue and earnings downgrades.

“India and Africa mobile service revenue of Airtel will decline 6 percent q-o-q leading to 5 percent q-o-q decline in consolidated revenue to INR 221.6 billion. EBITDA will decline 12 percent q-o-q translating to EBITDA margin decline of 280bps q-o-q to 33.7 percent,” said UBS Securities in a research report last week.

The launch of Jio’s all free offers and continuation of aggressive packages will impact revenue of Airel in the short term, with q-o-q revenue decline of 6-7 percent for Bharti’s India mobile business in Q4 FY17.