How Airtel can touch $100-bn valuation

New Delhi: Bharti Airtel can achieve a $100 billion valuation, Rs 300 average revenue per user (ARPU) and 15% return on capital employed in the next 3-5 years, if the telco strengthens its balance sheet further by selling stakes in its tower and Africa units and steps up its game in digital offerings, analysts say.In a report, brokerage firm SBICap Securities said that the near-doubling of Bharti’s ARPU from Rs 154 in FY20, is probable in five years. And for that, “Bharti must address its balance sheet first and consider selling stake in its tower assets, bringing down stake in Africa business, and raising additional equity.”It added that Bharti’s Airtel’s debt position, which is three times its earnings, does not portend well given that rival Reliance Jio Infocomm has become net debt free at the consolidated level. “The combination of IPO and ability to raise debt allows Jio to raise additional money; potential digital and 5G war chest is seen in excess of USD20-25 billion.”In early trade Monday, Airtel’s shares were down 0.2% at Rs573.75 on the BSE, giving it a market cap of Rs 3.13 lakh crore (nearly $42 billion).For the fiscal ended March 2020, Bharti Airtel’s consolidated India debt stood at Rs 1.1 lakh crore whereas, Jio’s parent Reliance Industries declared itself net debt free last month, after raising cumulative funds via stake sales in Jio Platforms and a rights issue.Sunil Mittal, Chairman, Bharti Airtel, last December, said telecom sector ARPUs need to reach Rs 300 in the medium-to-longer term to strike a balance between technology investments and healthy growth of the bleeding sector. The company since then has stressed on this need on several occasions including the proposition for floor price.IIFL Securities estimates that Bharti Airtel could reach the Rs 300 ARPU level by FY23 with a subscriber base of 394 million (up from 283 million in FY20), which can help achieve an enterprise valuation of $95 billion.IIFL’s bull case considers the doubling of ARPU for all three telcos by FY23. “In such a scenario, the implied industry revenue CAGR (compounded annual growth rate) would be 35% over FY20-23. FY23 industry revenue would be Rs 3.5 trillion, which translates into around 2.3% of consumption expenditure (versus around 1.2% now; 2.2% before Jio’s entry; around 3.2% peak), suggesting that the bull case scenario is not improbable.”It estimates Bharti’s capital expenditure on spectrum and equipment to be Rs 72,000 crore, 20% higher than base case in the next three years.“We raise our spectrum price assumption, from Rs 30 billion per MHz to Rs 40 billion per MHz, as the rising industry revenue may prompt the government to keep spectrum prices elevated,” IIFL said in a report.