Bharti Airtel's Strategic Dilemma: Balancing Growth and Investor Returns
Bharti Airtel Ltd finds itself at a critical juncture, with investors demanding a clearer path forward. The telecom giant must choose between pursuing an aggressive growth strategy fueled by additional debt or increasing dividend payouts to shareholders. This decision comes amid a backdrop of strong performance in Africa but stagnant growth in India's key metrics.
Financial Performance Highlights
In the December quarter of FY26, Bharti Airtel's consolidated Ebitda grew by 4.1% sequentially to reach ₹30,783 crore. However, the growth story diverges significantly between regions. India's mobile services Ebitda saw a modest increase of 2.2% quarter-on-quarter, while the Africa mobile business outperformed with a 6.8% rise in constant currency terms.
Africa's user base expanded by 3.2%, outpacing India's 1.2% growth. The data customer base in Africa surged by 4.7%, with significant room for acceleration as it currently constitutes 45.6% of the total, compared to 79.8% in India. This growth potential is further underscored by Africa's data usage per customer, which stands at just one-third of India's 30 GB per month.
Arpu Challenges and Opportunities
India's mobile Arpu growth remained soft at 1.1% q-o-q, settling at ₹259. Management cited difficulties in implementing differential pricing for 5G over 4G, fearing market confusion among customers unable to distinguish between the two technologies. Traditional Arpu drivers, such as premiumization and migration from prepaid to postpaid, had minimal impact last quarter.
New revenue streams are emerging through partnerships with AI providers. Bharti is offering Perplexity AI, similar to Jio's collaboration with Google's Gemini. These arrangements allow for revenue-sharing opportunities when users opt for paid AI plans. However, widespread adoption of paid AI services in India is expected to be a long-term endeavor, offering limited near-term Arpu uplift.
Africa's Rising Star Amid Currency Risks
Africa's Arpu holds substantial upside potential, driven by higher data Arpu of $2.70 compared to $1.10 for voice. As the share of data customers grows, this metric could see further improvement. Despite these positives, currency devaluation remains a significant risk to Bharti's African telecom operations, potentially offsetting gains from volume and Ebitda growth.
The Leverage Debate and Capital Allocation
Bharti's conservative net-debt-to-Ebitda ratio of 1.2x has sparked calls for more aggressive capital deployment. With nearly ₹16,000 crore expected from the final call on the rights issue by March, the company has room to borrow more, potentially stretching this ratio to 2x to pursue inorganic growth opportunities, particularly in data centers.
Data centers represent a key focus area for Bharti, with ambitions to increase market share from 12% to 25% over the next three to four years. A net-debt-to-Ebitda of 2x is not considered high for a telecom company, given the stable nature of the business, but management has indicated no immediate plans to increase leverage.
Dividend Payout Considerations
Analysts have questioned whether Bharti could consider a sizable increase in dividend payouts, given the ₹50,000 crore in annual free cash flow generated from India's mobile services business alone. Management has not confirmed such plans, leaving investors to ponder whether aggressive growth via higher leverage or enhanced dividends would better serve their interests.
Market Dynamics and Valuation Pressures
The upcoming Reliance Jio IPO threatens to erode Bharti Airtel's 'scarcity premium' as the sole listed telecom stock. Post-listing, it will be crucial to observe whether Bharti's valuation adjusts in response to increased competition for investor attention. Currently, Bharti's stock trades at an EV/Ebitda of 10x for FY28, based on Bloomberg consensus estimates, a valuation that reflects the near-duopoly status of India's telecom industry but may face scrutiny as market dynamics evolve.
In summary, Bharti Airtel stands at a crossroads, with investors eager for a decisive strategy that balances growth ambitions with shareholder returns, all while navigating regional disparities and emerging competitive threats.
