Bharti Airtel Limited (532454) Earnings Call Transcript & Summary

Good afternoon and thank you for joining us on this investor call. As you're aware, the Board of Directors of Bharti Airtel approved a fund raise of up to INR 21,000 crores in its Board meeting earlier. In order to discuss this further, I have with me on this call our Chairman, Mr. Sunil Bharti Mittal; our MD and CEO, India, South Asia, Mr. Gopal Vittal; Group Director, Strategy and Business Development, Harjeet Kohli; and CFO, India, South Asia, Badal Bagri. Before I hand over the call to our Chairman for his opening remarks, I wanted to highlight that we will be opening up this call for a question-and-answer session. [Operator Instructions] With this, I hand over the call to our Chairman, Mr. Sunil Bharti Mittal, for his opening remarks. Over to you, sir.

Thank you, Komal. A very warm welcome to all the attendees on this call, investors and other watchers from the public markets, media. I'm joining our investor call like this after long years. And I think today's call was more appropriate for me to begin with. And I am assisted by Gopal, Harjeet and Badal and, of course, Komal, who handles our Investor Relations. And we'll be here for the next 1 hour to talk about some of the issues that face the industry, in particular what's happening at Airtel. But let me begin by talking about our industry and the announcement that we made yesterday. India is truly moving into the digital world on a very accelerated basis. The phase that we have entered now can nothing be -- it cannot be described anything short of being exponential. More and more people are joining the bandwagon of being on the digital services. Millions and millions of phones are going into the hands of Indians. These are powerful computing devices, capable of doing a lot more than we ever saw before. Digital India is just not a dream anymore, it's a reality. Government services are moving through digital medium. Businesses are moving through digital medium. Monies are moving through digital medium. Health care services, education, any and every touchpoint of our economy, all public services are now relying more and more on the digital medium, to a point that the need for our digital infrastructure is growing exponentially in the country. The rate of adoption, in fact, is something that has surprised all of us. Even at the lower end of the pyramid, people in the rural areas, people on the fringes of society are all joining the mainstream of being on the digital media. The last 18 months of pandemic, in fact, has accelerated this particular aspect, and I would like to take a lot of credit as our industry, jointly by all the players who are here, that we truly stepped up our efforts and work to ensure that India remained connected, people who moved into their homes, the traffic that moved with them to their homes was well managed. And I think we can all, and you can agree with me, complement the huge effort put in by the teams of all the telecom companies to ensure that India remained connected during this very difficult and trying times, not just for us as individuals, but even for companies at large. I think India has done very well by rolling out extensive 4G network across the country. Today, India is in step with the globe in terms of ensuring that the citizens enjoy a very high-quality broadband services based in 4G. In fact, the 4G rollout has been exponential in this country in the last 3 or 4 years. Almost every corner of the country is now ably covered by the 4G. Efforts made by all companies in this regard are lauded. I would say, in particular, Airtel has been able to see this trend coming right from 2012 when we became India's first company to launch 4G services in Kolkata and thereafter stepped up on our rollout of the services to ensure that we remained relevant, valid and a leading player in providing mobile broadband services. This 15th of August, our Honorable Prime Minister made a very strong appeal to the industry at large. He asked us to take more risks. He asked us to put more capital. He indeed exhorted the industry and industry players to show their animal spirits and go and grow the country's infrastructure, to ensure that Indians can benefit from the futuristic networks that we can all roll out. Prime Minister's pillar of Digital India has been an article of faith with us at Airtel. We believe that the call could not have been more timely by the Prime Minister. And today, when we have taken the step to make a significant announcement of capital investment, which I'll explain in a little while, it responds to his call, to the industry at large, to put in more manufacturing facilities, to put in more money into health care services, to go and do more biosciences, to do more research and activities. More importantly, ensure that all this is enabled through a very strong medium of Digital India, a vision that he holds very dearly. With all this in mind, it was time for us at Airtel to respond. Yesterday in the Board meeting, on a unanimous basis, including our esteemed partner, SingTel, we all came to the conclusion that the company needs to raise more capital. Yes, indeed, this has been in a flurry of round of capital increases in the company. But you all know that companies who have not been able to raise capital in time have suffered and, importantly, have not been able to partake the benefits of a growing economy that we are all seeing. The capital that we have decided to raise is known to you, it's INR 21,000 crores, which will be by way of a rights issue. The details are already with you from our release of yesterday. Why are we raising this amount of money? Some questions have been asked, some queries have been posed. The reason for this is very simple. You have expressed from time to time the leverage in our company to be something that bothers you. It bothers us as well. We have been loaded by extraordinary debt, which we could have not imagined just 2 years back, even 1 year back perhaps. The load of AGR, the load of spectrum payments have indeed created an extraordinary load of debt on the company. While we remain very comfortable, and Gopal has talked about it in the past, I think we are comfortable for business-as-usual. We will be fine in rolling out more 4G networks. We'll perhaps even be fine with rolling out part of our 5G networks in substitution to the 4G network. But we believe there's an opportunity to really accelerate our growth path now. And for that, we wanted to lower our debt leverage, improve our debt leverage and therefore have access to capital as and when we need for the growth capital that we require. What are the growth triggers that we see imminently in front of us? 5G is upon us now. I have been saying it for the last 3 or 4 years that H2 '22 will be the time when 5G will start to become a reality in our country, slowly in the key cities and then going into '23, '24, into the rest of the country across the length and breadth of our current network. And it seems to me that we are really coming close to that prediction now. The auction of spectrum is likely to happen sometime early next year. And by H2 next year, which is H2 '22, '23, we will start to see 5G services coming in East cities of India. The other aspect for any new technology or services is the device ecosystem. And I'm very glad to inform all of you that that particular area is looking very good. 15% of devices are 5G-enabled. And by the time we get into H2 next year, a very large amount of smartphones will truly be 5G-enabled. Another heartening feature is that the price points of 5G devices are coming down. And I know once you get used to 5G speeds and 5G throughput capacities, customers will start to lap those services more and more. It's also India's cherished desire to see 5G coming in fast. We do, of course, hope that the pricing on spectrum will be equally made attractive by the government to ensure India benefits from our robust 5G ecosystem. In addition to 5G, I think we need to roll out more fiber, more than what we have done in the past. We need to prepare our networks for backhauling 5G type of capacities. While we have done a lot of fiber rollout, a lot more needs to be done. And as we do that, we will also do millions of new home passes for FTTH broadband services into homes and, of course, offices. This has picked up a lot of momentum in the last 12 months. We are seeing more and more people joining Airtel's broadband network. If you have seen our last quarter announcement as well, the number of fixed broadband connections are now truly rising exponentially. We cannot let that opportunity be missed out by Airtel, which has been in a leading position, other than BSNL, to serve India's connected needs into homes and offices. That will require capital as well. In the last 1 year, we are seeing accelerated demand by hyperscalers on Airtel to set up data centers. This is one place where Airtel has the right to win. We not only know how to build data centers, we have the domain knowledge to operate them more efficiently than anybody else in the country. We have submarine cable assets. We were the pioneers in submarine cables. India's first submarine cable going from Chennai to Singapore was done by Airtel. And since then, we have now got participation and ownership in multiple of the submarine cables, which is the heartbeat for any data center. And of course, we have a ton of fiber on ground to ensure resiliency of our data centers. We believe we have a significantly higher chance of winning the space and attracting hyperscalers as compared to pure-play real estate players. So that will require investments as well. So the clear position in front of us was business-as-usual for which we believe we are well funded. I think you also believe that. Or now go and accelerate on our growth path. What are we seeing in the marketplace? More and more customers are choosing Airtel. Airtel is becoming a place of choice. The brand is resilient. We are in a lifetime high of mobile revenue market share. We are getting more and more broadband customers on to us. In the enterprise space, which I've not spoken because it takes much lesser capital, the large corporates, the midsized companies, MSMEs are all knocking at our doors to connect them, to provide them solutions, and we are also accelerating that path as well. To my mind, there would have never been a better time for us to press on the gas, push more capital into the system and ensure that we take disproportionate gains out of the market as India grows and adopts more and more digital services. It would be a grave error of duty on our part if this was a time when we stayed with business-as-usual. I can share with you, I have never felt more confident and I've never felt more comfortable in saying, I can see Airtel taking a very special place in India's corporate pantheon of companies. I believe we can press on the gas now and move forward to take more market share in mobile services, significantly higher share in our FTTH business, step up on enterprise and global businesses and, importantly, also back it up with strong data center business. I'm glad that some of the pain we took earlier is paying dividends today and will hold us for the future. We have the largest spectrum pool in the country. We've bought a lot of spectrum in the past auctions. We renewed a lot of spectrum. Importantly, we also brought in a lot of spectrum from Tata's, from Telenor, from Videocon, from Aircel, which is all today helping us in serving our customers, very importantly, has become the bedrock for us to serve the customers for many, many more years to come without spending more money on spectrum. There may be marginal renewals coming up in '23, '24, but they are very small and modest. So other than the 5G spectrum, which we will hopefully secure at a reasonable price in the coming year, we are pretty much done on spectrum, which, as you know, is not only a lifeline for us, but also a very heavy capital commitment that goes into it. As we respond to the government's call to invest more money, accelerate the digital vision of India, we equally expect the government also to respond by having lighter touch regulations, by making life simple for telecom companies. INR 35 of every INR 100 that the telecom revenues generate as revenues go into government levies. The levies are far too high. If India has to be truly a place where the citizens enjoy digital services, the government gets a ton of revenue because of digital vision, it's important that the levies and the load on our industry needs to be brought down. Lastly, yes, this industry needs to have the right economic model. For far too long, we have played in this game by growing the industry at a very minimal pricing level. People are consuming 16 GB of data average per user per month. It's time that the tariffs do take a tick-up to make this industry viable and, more importantly, having the decent and appropriate returns on capital to grow into more technology arenas, to roll out more networks and become a much more viable model of sustainability in the future. In closing, let me say we have been and we always will be very responsible. We continuously watch our expenses. We continuously watch our CapEx. We put reasonable CapEx that we can see ahead on the runway. We will not invest 10 years out, but we will never be short that in the next 1 or 2 years' growth that comes through is not captured by Airtel. I can assure all of you that this money will be well spent, spent in the areas that I've described to you, and we are committed to partake the gains that this country offers to a handful of players in the marketplace. In my opinion, this is once-in-a-lifetime opportunity and the time for that, to invest more to accelerate, is here and now. Thank you.

Thank you, sir. The first question is from Kunal Vora of BNP Paribas. He wants to know that in the recent earnings call, the management had indicated that leverage level is comfortable. Is there any change in our thought process? And why are we looking at equity rather than monetizing some of the assets we hold?

Well, the first part is, I think, very well answered by me. Business as usual does not require anything. I think we have sensed an opportunity for which we need to accelerate. Could we manage to raise more debt? I have to be honest, we can. There is a lot of goodwill in the marketplace. Our lines from the banks are very low. We can draw more money from the banks. We are getting great responses from the bond markets as well. But as you have pointed to us repeatedly, as also have rating agencies, there is a right balance to be achieved between more debt and some equity. In my own opinion, therefore, this new equity is not a change in game plan. This is not a change of heart. This is the need of the hour. This is need for the company to accelerate beyond business-as-usual. As to the second part, I think we remain committed to monetization, but monetization at appropriate time on appropriate terms. We have a very large shareholding of a tower company, Indus, at nearly 42%. That's an asset which is not core to the heart of Airtel. But equally, it's a very important asset, which we don't take lightly. Here, we have a ton of fiber. There are moves that we have seen across globally and here in India where fiber have been monetized, but in the right and appropriate way. I can show you that these assets are on our radar to be monetized at an appropriate time. We are not giving you a different signal today by saying we will not monetize them. But we will not monetize them at any cost. We will do it at the right time at the right valuation in the right structure.

Thank you, sir. The next question is around the promoter stake. The promoter stake in Airtel has declined over the last few years. While the rights issue will obviously not result in any reduction, but how are you thinking about the long-term stake of promoters into Airtel?

Well, you have to really see it from a promoter group as one rather than seeing as separate promoter groups. At 56% promoter holding in this company, I would say, this is a fairly large shareholding for a size of the company that we are in. Bharti Telecom, which is the premier promoter group company, in itself holds about 36%, which in itself is a very large block. Then there are blocks held directly by Bharti entities and SingTel entities outside that. So I would say we are at a comfortable level at 56%. If your specific question is about Bharti Enterprise's stake, I think we see Bharti Telecom as a key subsidiary of the group, which holds 36%, plus another 6%, 6-plus percent held by other group companies. So at 42%, we remain a very comfortable shareholding level. And honestly, we don't see any reason for market to be alarmed about it. But you also should know that no promoter goes down in shareholding by choice. This industry has seen hell for the last 4 or 5 years. 8, 9 operators have disappeared. A very strong combined operator today is struggling. In the face of that, I think you will give us credit that we did dilution or raising of more capital in good time rather than chasing capital when none would have been available. We were timely. We did the right things. We did not bother about the stock price at different levels. We raised capital and the outcome has been very clear. We are today standing very tall because of the large amounts of money that we have raised. If that has resulted in some drop of our shareholding, we are fine with that.

Thank you, sir. The next set of questions are from Sanjesh Jain of ICICI Securities. The first question is that Bharti had recently added 5% equity stake in Indus Towers. So therefore, does the company plan to further increase stake in tower company with the rights issue? The second question is on OneWeb. What are your thoughts on the satellite business? And would Bharti Airtel also be investing in OneWeb in the future?

Well, both points -- I mean, Indus, I did cover in my earlier remarks. But as far as Indus is concerned, it's a very strategic asset. A life of a telecom company is in the hands of a tower company. You cannot have a situation where you have a weak tower company and then you're struggling to run your networks appropriately. We have seen in the past, there were weak operators, GTL and 1 or 2 others, where the operators riding on these networks suffered immensely. Airtel cannot afford that. And we ran Infratel as 100% controlled company, and it was listed, as you know. Then we had a lower stake in the same. In Indus, we had a 42% stake. After the merger, our stake was at a level where we were less comfortable in having greater influence on it, 5% stake was bought last year. And all I can tell you is the money that we have planned to raise from the rights issue, there is no allocation towards buying Indus' stake. But would we desire to have greater influence in Indus at some point in time in the future? The answer is a definite yes. But it will be done at the appropriate time. It will be done only with a purpose, strategic purpose. And importantly, as I said, this is a monetizable asset. And I can tell you, if you have to monetize it tomorrow, you will be significantly better served by handing over influence to somebody else rather than giving them a weak shareholding in their hands. So let's watch this space. There is no hurry on this. But last year's 5% has given us an extra Board seat, which has increased the influence in Indus. We look at it in a much stronger way. And we feel much more comfortable that Airtel today is in safe hands when its towers are radiating on the basis of what Indus has created. On the OneWeb, I think this question keeps on coming occasionally. Airtel has no investment into OneWeb Global. The entire investment into OneWeb from Bharti's, from Bharti Enterprises, with no correlation with Airtel. In as far as the Airtel is concerned, it will be a partner of choice for OneWeb in India. And the total investment in India of OneWeb in setting up ground stations will be circa $30 million, $40 million. So let's say, about INR 250 crores, INR 300 crores, of which Airtel -- OneWeb Global will be taking some debt. Airtel's equity participation in Indian joint venture could be in the order of magnitude of $5 million, $7 million. So we are talking about INR 30 crores, INR 40 crores, INR 50 crores of investment in OneWeb for India segment only. So I must make this very clear, there are no plans for Airtel to buy my stake from Bharti Enterprises or invest into OneWeb Global. We are talking about very tiny amounts for Airtel to be the custodian of OneWeb on the Indian and South Asian market.

Sir, the next set of question is around the balance sheet. India Inc. in general has been talking about reducing leverage. And what is the view of Bharti Airtel's promoter on deleveraging the Airtel balance sheet? And what is a steady-state net debt-to-EBITDA target, if you can share it, for the company? And a related question is for the FC generation opportunities going forward into next year, how are we thinking about it? Would we delever the balance sheet? Or would we invest it back into something related?

Well, we are a very pure-play telecom company. We have never deviated. We don't do other industries from Airtel. All those are done painstakingly by our family entities or Bharti entities. We have never mixed and matched. We don't do real estate from here. We don't do manufacturing from here. We don't do other stuff from here. This is a pure-play telecom company. This was a commitment to our shareholders back in 25 -- 25 years back when we started and we have kept absolutely pure to it. There are some adjacencies, which keep on knocking at our doors. We evaluate them. Most of the time, we have rejected it. If something comes up, which is digital in its nature and core to our business, in the future, we could look at that, but they have to be very, very low capital intensity opportunities. Our large capital intensity or 95% of it has to be in the telecommunications arena. So I would say, in as far as our deleveraging strategy is concerned, if you ask me personally what's my comfort level, my comfort level is debt-to-EBITDA ratio of 2. Can we get there? My own view is by and by, we should get there. We have, as I said, very large monetizable assets. We have a huge equity in Africa. We have a huge equity sitting here in Infratel-Indus now. And we have huge fiber assets that have not been [ encashed ] at all, 100% sitting with Airtel. There are, of course, many large real estate assets. At some point in time, they could become opportunities as well. And I also believe that the cash flow from this industry are bound to increase. If this industry has to be sustainable, you will start to see an early pickup of tariffs and ARPUs going into the next several months. So a combination of monetization on one hand and improved financials on the other to start to see in the next few years -- I'm not talking about 10 years, I'm talking about just 2, 3 years -- Airtel becoming much, much more comfortable in its debt profile.

Thank you, sir. The next set of questions are around our CapEx trajectory. Would today's narrative around 5G and accelerated CapEx meaningfully change our CapEx trajectory? And in the instance that the Indian market goes to a duopoly, could there be a meaningful change in our CapEx?

Well, I would say we have done significant CapEx. I mean we have not shied away from CapEx. We know telecom companies who have pulled their hand on CapEx have suffered heavily. And this is something we have known for 20 years. And therefore, always, we have been ahead of the CapEx game. My own view is that we will continue to roll out CapEx that is required. I also personally feel that as we go forward, the consumption of a user or customer user is not going to exponentially grow from 16 GB, which is already a global record by the way. So we believe there's enough capacity that has been created to now generate rewards back for us. In the event there was a situation where more customers were to suddenly to come into the Airtel fold, I think we are in a good shape to carry them through our fiber mobile networks. And I don't see, therefore, any reason for us to be worried about it. But yes, this INR 21,000 crores gives us exactly that leverage that we need, the fuel to grow that extra mile that we can sense is around the corner.

Thank you, sir. A related question is, as part of this larger investment that we are talking about, could we also see a change in our handset strategy?

I want to pass this to Gopal. He is much more closer on the handset side. So far, our company has been fortunate or the industry has been fortunate for, I would say, 25 years not to spend billions and billions of dollars of subsidies that the world does across their markets. India has escaped that. So far, we have not been requiring to do it, but I'm sure Gopal has a clear strategy on that as well.

Yes. I think we've spoken about this in previous earnings calls as well. Handset subsidies by themselves are pretty much, I would say, a months game because what happens is that when the handset comes up for a renewal at the end of 2 years or 30 months, the customer makes the choice all over again to choose a network of his or her choice. And as a consequence, to stay in the same place, we need to keep subsidizing again and again. And I think world over it's now clear that handsets are really value destructive in that respect. Having said that, I think this is a competitive industry. So we will look at what happens in the marketplace through a combination of good marketing optics, through a combination of some capabilities, platforms around locks. We've experimented with lending options to actually provide some loans to our banking partners on a locked device. We've done some pilots with a few companies, some of the large manufacturers, OEM manufacturers. So we pretty much have clarity on how we deal with this. But the one thing I do want to underscore is that if you look at handsets as a market, unlike any other consumer market in India, the lowest-priced handset, smartphone specifically, between INR 4,000 and INR 6,000, strangely have actually the smallest market share of the total handset market in India. And that is simply because consumers spend 4 to 5 hours on their device. And therefore, when they upgrade, they're looking for a good quality device. As a consequence, I think we are going to watch the space. And then based on what happens competitively, we will take [ our drivers ].

Gopal, the next set of question is on ARPU. What do you believe is a long-term ARPU trajectory for the Indian industry as a whole? And which player do you think will blink first in terms of picking up the tariff hikes this time around?

Well, I know this has been my stated position for the last several years. We need to get to INR 200 very quickly. And I don't have a crystal ball in front of me, but if I have to say this industry needs to survive, this industry needs to thrive, we need to get to INR 200 within this financial year. I would say we should aim to be at INR 200 by the time we end this financial year. Eventually, this industry needs to be at INR 300 per customer per month. And in that, you can enjoy a ton of data where Indians are used to. Music, entertainment, Netflix, Amazon Prime, whatever is required, should be available to our customers, financial services, banking, electronic banking, health services. So we will put in a lot more stuff, but we need to get to a INR 200-point and then eventually INR 300. The beauty of our industry is it's very granular. It's very segmented. For INR 100, a customer will be able to be on the network, have a small amount of snacking of data. And then you can have customers going up to INR 600, INR 700, INR 800, enjoying everything possible under the sun. Even then, the tariffs in this country will be by far the lowest anywhere in the world. So I remain very confident that we have seen the worst now in terms of tariff wars. We have seen the worst in terms of ARPU contraction. Do remember that in 2016 September, at the launch of new powerful competitors, we had all gone below INR 100. We are at about midpoint, INR 145, INR 150-ish. This will start to trend towards INR 200 within this financial year. That's where my indication is. I would hasten to add that I have a strong confidence that the industry will get to INR 200 within the financial year.

Thank you, sir. One set of questions from investors is around the timing of the rights issue. In general, we have seen that our stock price was doing very well. Our on-ground execution has been strong. We have been gaining market share. So why did we choose to dilute now rather than waiting for the industry to consolidate even more and share price to reach 750,000 levels?

Well, there's never the right time for anything. You can always, in hindsight, look at things. But imagine, if we wouldn't have done our first rights issue, imagine we wouldn't have done our QIP and FCCB, possibly we wouldn't have had the right to do another rights issue. Our company could have been in doldrums. We could have been in serious difficulties. So rather than being too opportunistic, too greedy in terms of what pricing can come through, you have to do things at the right time. My biggest concern would be that you would have accused me and my team back to say, "Why didn't you wake up in time when you knew very clearly there's such a large growth opportunity staring at you?" We can see it, and I'm not exaggerating here. We can see it, and the time, as I said, is here and now. Any delay, you could have 1 or 2 months delay, I'm not talking about -- a delay of more fundraising to next year could have been detrimental to the fortunes of this company. And I hope that we will be able to have a chat a year from now, and you will be able to say this was the right decision.