The recently concluded financial year (FY21) is when Bharti Airtel came into its own after its India mobile business (Airtel) bled losses for nearly three years. Bharti Airtel ended FY21 with two consecutive quarters of profits, the first time in three years the company managed to achieve such a feat.

The thing to note though is that a Rs 347.5 crore crore writeback of an impairment charge led to an exceptional gain, which bumped up the company’s net profit.

Bharti Airtel raised enough funds ($12 billion) over the past few years to shore up its finances through an IPO of its Africa unit, and through a minority stake sale of Airtel Money Africa, and fund raise by Bharti Airtel. The company also traded excess spectrum in the 800 MHz band with Reliance Jio.

Investors are looking at Bharti Airtel as the gainer from the bruising battle for supremacy between the three remaining private telecom players in India. Let us look at how this came to pass, and what it bodes for the future of the company.

India telecom business is becoming a two-horse race

With the bruising price war with Reliance Industries’ arm Reliance Jio not ending anytime soon, Sunil Bharti Mittal’s Bharti Airtel is taking the fight to the Mukesh Ambani owned telecom leader. The third private telecom player—Vodafone Idea—has been relegated to an also-ran, with the company losing subscribers continuously over the past many months. Although in February 2021 Vodafone Idea saw net subscriber additions, it is in dire need of funds to survive, and its fund-raising plans have been delayed for a while now.

A delayed tariff hike by the telecom industry meant the average revenue per user (ARPU) for both Airtel and Jio fell in Q4FY21. This will delay the repair of finances for the industry as a whole. But Vodafone Idea will be hurt the most from the status quo on tariffs.

Airtel’s ARPU fell marginally in Q4FY21 on an adjusted basis, but most of it was because the company added 13.4 million subscribers in India. The total 4G subscribers in India are now nearly 56% of its total subscriber base. A large 4G customer base will help Airtel improve its ARPU over the next few years and its EBITDA margins as well.

Subscriber additions help shore up free cash flows

The subscriber additions over the past four quarters helped Bharti Airtel’s consolidated earnings before interest, tax, depreciation and amortization (EBITDA) margin to rise 6.5 percentage points to 48.9%. This along with the peaking of the company’s capital expenditure (capex) in FY21 aided the rise of the company’s free cash flows. With 4G subscribers expected to rise in the future at the expense of Vodafone Idea, Bharti Airtel continues to remain the consolidation play in the Indian telecom space. The next trigger for capex will be the rollout of 5G services in India.

On the debt front, Bharti Airtel’s debt rose by nearly Rs 22,000 crore in FY21 due to liabilities on statutory dues on past adjusted gross revenues. The company has already paid Rs 18,000 crore upfront, and the balance dues have to be paid over the next 10 years. The company bought spectrum in the recently concluded auction conducted by the government, which led to its debt-to-equity ratio rising in FY21.

Home broadband and enterprise business post steady growth, Africa stutters

Home broadband business posted the best ever quarterly growth of 2,74,000 subscriber additions. Revenues for the business rose by 6% QoQ to around Rs 601 crore. The higher intensity of capex for the business meant its free cash flows were a mere Rs 2 crore, but higher than the negative free cash flow in the previous quarter ended December 2020. The company has tied up with local cable operators to improve its reach to over 200 cities in India. The business ended with a mere 4% YoY rise in its revenues in FY21. This was because the company halted the rollout of its One Airtel plan which was meant to target 50 million households that would help increase the company’s broadband and DTH customer base.

The enterprise business (or Airtel Business) posted steady sequential growth over the past four quarters. Bharti Airtel sees this Rs 50,000 crore business opportunity as a future growth driver. The company currently has a 31% market share as of December 2020, which is a 8 percentage points gain in two years.

On the Africa business front, the company has been deleveraging post the IPO of its Africa unit. The divestment of a small stake in Airtel Money Africa has helped shore up its finances. After two quarters of growth till December 2020, Africa wireless revenues fell QoQ in March 2021 by 0.6%. This was due to a regulatory diktat by the Nigerian telecom regulator to verify all mobile subscribers with the country’s national ID number. Once this is resolved, Africa revenues might return to sequential growth.

For now, Bharti Airtel looks in great shape to take on Reliance Jio. But the ace in the hole for Jio is the much-anticipated launch of the smartphone version of its JioPhone in partnership with Google in India. This has the potential to steal away mobile subscribers from existing players, including Bharti Airtel. It will be interesting to see how the company will change its strategy to respond to such a move.