Bharti Airtel share price: HSBC raised EBITDA estimates by 1%-3.5% over FY21-23e and net profit by 30% for FY22e, driven by higher India ARPU estimates. HSBC raised Bharti Airtel target price as they incorporate higher ARPU estimates and roll forward valuation to Dec-2021e. At HSBC’s target price, the implied valuation for Bharti Airtel's India and South Asia business would be 11.7x FY22e EV/EBITDA and 10.4x FY23e EV/EBITDA, respectively.

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Bharti Airtel ARPU is set to rise at 14% CAGR over three years:

India mobile ARPU is well poised to rise driven by:

(1) acquisition of high value subscribers
(2) subs migration from 2G to 4G
(3) potential tariff hikes during FY22e

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Bharti Airtel subscriber addition stood at 3.7 mn and remained robust in the month of Oct-20. Its post-paid subs addition was robust at 695k in Q2 FY21 and 4G subs penetration improved to 52% as of Q2 FY21. CLSA expects 4G subs penetration to surge to 80% by FY23e, which would support ARPU increases. Thus, HSBC expects Bharti Airtel’s consolidated revenue and EBITDA to expand at 12% and 15% CAGRs, respectively, over FY20-23e.

Key downside risks include:

1) higher than expected customer churn
2) ARPU recovery stalls owning to higher competition
3) higher spectrum investments

Abundant spectrum supply during the March 2021 auction is a positive; industry likely to skip 700MHz: On 6th Jan 20, the Department of Telecommunications (DoT) announced it will conduct spectrum auction across bands on 1 March 2021. HSBC believes industry is unlikely to purchase 700MHz as the reserve price is pegged at INR329bn (USD 4.5 bn) per 5MHz block, implying USD 0.66 per MHz per capita - HSBC compare this to spectrum prices seen across the region. More importantly, shows the relative comparison of ARPU vs. spectrum price and it demonstrates the 700MHz reserve price is high in India.

HSBC doesn't expect operators to purchase the entire spectrum coming up for renewal as operators have enhanced their spectrum holdings over the last few years. In base case, HSBC forecast investment for spectrum coming up for renewal. Bharti Airtel and Reliance Jio could buy incremental growth spectrum in sub-GHz and 1800/2300MHz which would then reduce network capex forecasts.