The authorities’s four-year moratorium on AGR/spectrum funds will supply VIL cashflow relief and may lead to authorities taking on a large stake in VIL. However, Bharti’s utilization of its Rs 117-bn annual cashflow relief for capex will speed up market share shifts in its favour. We anticipate Bharti to gain 340bps market share to 39% over FY22-24 driving 20% Cagr in India cellular Ebitda. We increase our PT to Rs 850 on larger multiples to consider potential development acceleration. BUY
Government broadcasts various reforms: The Government authorised various reforms addressing three broad areas for the sector. Firstly, it has allowed a four-year moratorium on AGR and spectrum funds on an NPV impartial foundation to present close to-time period liquidity. Secondly, it has made investments simpler and extra enticing by eradicating Spectrum Usage Charge (SUC) and permitting give up of spectrum for spectrum acquired in future auctions and in addition fixing an public sale calendar. Thirdly, it has authorised removing of non-telecom revenues from Adjusted Gross Revenue (AGR) calculations and relaxed KYC necessities which ought to assist margins.
Govt. probably to take stake in VIL: The four-year moratorium on AGR and spectrum dues will supply Rs 250-bn annual cashflow relief to Vodafone Idea (VIL), enhancing its possibilities of surviving for longer. The govt. has allowed telcos/VIL to pay curiosity on deferment of funds by way of fairness. Per our calculations, the federal government may personal 26% of VIL on the finish of four-year interval, if VIL chooses to pay the cumulative curiosity of Rs 90 bn by way of fairness, assuming shares are issued at CMP.
Is duopoly nonetheless in play? Yes it’s however a bit delayed. Ignoring VIL’s whole spectrum and AGR dues, VIL’s monetary dues of Rs 225 bn want a quarterly Ebitda of Rs 5.6 bn for servicing curiosity. While VIL’s Ebitda in Q1FY22 was at Rs 12.8 bn, a 13% fall in its Q1FY22 cellular revenues will lead to its Ebitda falling beneath the Rs 5.6-bn threshold. This decline in revenues is feasible on condition that Bharti will probably redirect annual cashflow relief in direction of community investments, which is able to speed up its market share features.
Risk reward stays beneficial: The survival of VIL may drive a delay in tariff hikes; nonetheless, in such a situation, Bharti is probably going to gain extra subscribers/market share. Over FY22-24, we anticipate Bharti Airtel’s market share to rise by 340bps to 39%. While we preserve our estimates, we increase our PT to Rs 850/share on larger multiples for India cellular and non-cellular companies. Our PT implies a consolidated EV/ Ebitda of 8.9x, which is according to Bharti’s present 1-year ahead a number of of 9.1x and at 10% premium to its 3-year common. Further market share features from VIL may add one other Rs 80/share to our PT, whereas no tariff hikes over FY23/24 with identical subscriber assumptions and decrease a number of may see a bear case valuation of Rs 625/share. With threat reward beneficial, we reiterate Buy.