Home / Markets / Mark To Market /  A good news for Airtel investors

After the recently concluded auctions, telecom investors will be keen to hear from companies about future prospects of 5G. For Bharti Airtel Ltd investors, the good news is that a spike in capital expenditure (capex) is unlikely.

The management aims to accelerate the 5G rollout and plans to cover 5,000 towns and key rural areas by March 2024, it said in the June quarter (Q1FY23) earnings call. Hence, Airtel’s capex will increase over the next 18 months, but as the investment in 4G will be replaced with 5G, the capex profile over a three-year period would remain unchanged. Besides, Airtel is not likely to make significant spectrum purchases in the coming years.

On the front foot
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On the front foot

“These comments are reassuring as they validate Airtel’s frugal spectrum purchase strategy that was aided by opportunistic mergers and acquisitions," said Ambit Capital Pvt. Ltd analysts, adding that capex uncertainties are now behind.

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In Q1, capex for Airtel’s India mobile business increased by 41% sequentially to 3,694.5 crore.

Airtel acquired 19,868 megahertz (MHz) spectrum across frequency bands in the 5G auctions. However, unlike competitor Reliance Jio, it did not bid for the expensive 700MHz frequency band as Airtel believes its current spectrum holdings are sufficient to offer quality 5G services.

That said, the payback from investing in 5G on revenue growth is not very clear. The management noted that globally, 5G by itself has not provided incremental average revenue per user (Arpu) to any operator. Analysts concur. “The use-case in 5G is still evolving and benefits of private 5G networks are yet to be established. We expect revenue from enterprise customers to be more gradual as the use-case develops and this is unlikely to contribute any meaningful revenue in the foreseeable future," said analysts at ICICI Securities in a report on 10 August.

Nonetheless, since 5G strategies adopted by Airtel and Jio vary significantly, investors will keep a close watch on execution, analysts said.

Meanwhile, after the 5G auctions, a near-term trigger for the telecom sector is tariff hikes, which is crucial for the Arpu outlook. As the chart alongside shows, Airtel continues to lead with an Arpu of 183 in Q1. Its management is confident of achieving an Arpu of 200 and 300, eventually, backed by tariff hikes.

In the past one year, the Airtel stock has rallied 15%, beating Nifty50’s nearly 8% rise. Any disappointment or delay on tariff hikes could negatively impact investor sentiments towards the stock, analysts said.

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Vineetha Sampath
Vineetha Sampath is a chartered accountant and is experienced in the field of research analysis. She joined Mint's Mark to Market team recently and this is her first stint in journalism.
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