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Sunil Bharti Mittal's company, Bharti Airtel has relentlessly advanced through strategic direction and remarkable tenacity in the changing world of telecommunications, capitalising on every challenge and opportunity within this sector. The period from FY21 to FY25(till date) has witnessed a commendable status of Bharti's EBITDA multiples, driven by solid fundamentals and the strategic pivots that promise a robust trajectory over the next three years.
A Historical Context
According to industry and company historical data between FY11 and FY20, Bharti Airtel's valuation multiples were significantly reduced, averaging around 7.5x one year forward, with a dip to as low as 5.5x. This phase was marked by several critical factors, including the issuance and subsequent cancellation of 122 new licenses in CY08 and CY12, challenges in securing pan-India data spectrum in CY10, and an expensive foray into the African market through the acquisition of Zain Africa. The heightened competitive pressures from new entrants like RJio have already disrupted market dynamics and increased the pace of technological rollouts and capital requirements, thus affecting profitability.
The Competitive Edge
Bharti's competitive edge is also more potent, with its EBIDTA valuation of 11.3x for FY26E, unique among its competitors across the APAC region(Ex China). Bharti's expected growth in EBITDA is at a 14.8% CAGR, which ranges from FY25 to FY27E, while its peers are only seeing an increase of more than 4.5%. Bharti remains one of the strongest in free cash flow (FCF) yield, at a staggering 6.7% for FY26E compared to the average of 6% for the rest of its competitors.
Valuation and Growth Metrics
- Compound Annual Growth Rate (CAGR): Bharti is projected to experience an EBITDA growth rate of 14.8% for FY25-27E, showcasing its operational effectiveness and solid strategies for market expansion.
- EBITDA Ratio: For the fiscal year 2026, Bharti is projected to have an earnings measure significantly higher than its competitors' average, standing at 11.3x.
- Return on Equity (ROE): Bharti predicts a return on equity (ROE) of 26.1% for the fiscal year 2025, highlighting its efficient use of equity capital.
- Good Free Cash Flow (FCF) Yield: Bharti's FCF yield shows good cash generation abilities, which are crucial in providing returns and investing in growth avenues, hence availing expansions in future.
Current Valuation and Forecast: In significant opposition to the preceding turbulent years, the current one-year forward EBITDA multiple for Bharti Airtel presently is 11.9x, interestingly helped by substantial improvement of its five metrics like
- EBITDA growth
- gross block increase
- net debt reduction
- return on capital employed (ROCE)
- adjusted gross revenue (AGR) market share trends.
These substantial enhancements in the above metrics justify its current valuation and hint at the potential for sustained or enhanced valuations through FY25-28E.
Some of the risks faced by Bharti include losing market share in the Indian mobile sector, increased competition, and regulatory pressures. However, its solid strategies and good market position will allow it to withstand such difficulties, which puts the company in good stead in a capital-intensive industry.
Looking at all of this with FY25-28, Bharti Airtel is poised in a phase where it will likely undergo a strategic consolidation and focus on growing its market share. This means a distinct increase in focus on debt reduction, focusing on further enhancing return ratios whilst also seeing a potential slowdown in EBITDA growth with a decrease in gross block investments. Looking at the prospects of Bharti's stable AGR market share and potential for market share growth, it is clear that it can sustain itself and improve its performance in the future. Today, the telecom giant is at an inflection point and is well-placed to capitalise on growth opportunities and create value that puts it in a stronger position in the competitive global market.