Earnings Call Transcript - PDF

Final Transcript
Bharti Airtel Limited First Quarter ended June 30, 2019 Earnings Conference Call
Conference Call Transcript
Event: Bharti Airtel Limited First Quarter ended June 30, 2019 Earnings
Conference Call
Event Date/Time: August 02, 2019/ 1430 hrs.
Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the
prior written consent of Bharti Airtel Limited.
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CORPORATE PARTICIPANTS
Gopal Vittal
Managing Director and Chief Executive Officer - India & South Asia - Bharti Airtel Limited
Badal Bagri
Chief Financial Officer – India & South Asia - Bharti Airtel Limited
Nakul Sehgal
Corporate Chief Financial Officer - Bharti Airtel Limited
Komal Sharan
Head - Investor Relations - Bharti Airtel Limited
CORPORATE CALL PARTICIPANTS
Sachin Salgaonkar
Bank of America - Mumbai
Parag Gupta
Morgan Stanley - Mumbai
G.V Giri
IIFL Research – Mumbai
Ravi Menon
Elara Securities - Mumbai
Rajiv Sharma
SBICAP- Mumbai
Kunal Vora
BNP Paribas - Mumbai
Sanjay Chawla
JM Financial - Mumbai
Pranav Kshatriya
Edelweiss Securities - Mumbai
Vivekanand Subbaraman
Ambit Capital - Mumbai
PRESENTATION
Rajyita- Moderator
Good afternoon, ladies and gentlemen. I am Rajyita the moderator for this conference. Welcome to the Bharti Airtel Limited First
Quarter ended June 30, 2019 Earnings Call. For the duration of the presentation, all participant lines will be in the listen-only mode.
After the presentation, the question and answer session will be conducted for all the participants on this call. In case of a natural
disaster, the conference call will be culminated post an announcement. Present with us on the call today is the senior leadership
team of Bharti Airtel Limited.
Before I hand over the call, I must remind you that the overview and discussions today may include certain forward-looking
statements that must be viewed in conjunction with the risks that we face.
I now hand over the call to our first speaker of the day, Mr. Badal Bagri. Thank you, and over to you, Mr. Bagri!
Badal Bagri - Chief Financial Officer – India & South Asia- Bharti Airtel Limited
Good afternoon, ladies and gentlemen. Thank you for joining us today for this earnings call to discuss our results for the first quarter
ended June 30, 2019, which we announced yesterday.
Present with me on the call today are Gopal, Nakul and Komal.
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Before we proceed further into the call, I wanted to highlight that as you would be aware Airtel Africa has been admitted to the
premium listing segment of the London Stock Exchange, along with the parallel admission on the Nigerian Stock Exchange.
Consequent to the dual listing, Airtel Africa has now assumed an independence status having its own empowered Board and
management, which will be responsible to its shareholders for the performance and the governance of the company. While Airtel
Africa continues to remain a subsidiary for Bharti Airtel Limited, henceforth, our earnings call will be limited to India and South Asia.
Airtel Africa will conduct its own earnings call for the benefit of its investors as was done this time. The transcript of the same is
available on the website, www.airtel.africa.com.
As you are aware, the Ministry of Corporate Affairs notified the leasing standard, Ind AS 116, which replaces the existing standard
Ind AS 17. Ind AS 116 is applicable to all companies with effect from April 1, 2019, and our financial statements have been prepared
in accordance with the same.
Under the earlier standard, operating leases were treated as expenses, whereas under Ind AS 116, all long-term leases, whether
operating or finance, are required to be recorded in the balance sheet. Thus, our leasing agreements for network sites, bandwidth,
transponders, offices, retail stores, etc., which were being expensed till the last quarter will now be capitalized resulting in
depreciation cost and interest expense on the lease liability. This has impacted our margins and key financial ratios and therefore,
they are not comparable to prior periods. However, in line with our standards of highest corporate governance, we have also
provided a pro forma on the underlying financials.
Another key reporting change implemented in this quarter is on our DTH segment. Subsequent to the implementation of the new
tariff order, the service providers are responsible largely for re-transmission and not in a position to control the pricing of the content
being distributed, recording only the margin earned from the broadcasters for distribution of the content is considered as revenue.
Moving on to business and performance, let us talk about our wireless business first. The broader industry, having now consolidated
to three large players, continues to see some semblance of stability. Continuing the 4.3% sequential growth that we witnessed last
quarter, this quarter mobile revenues grew by 2.2%, led by our focus on quality customers, prudent tariff tweaks and up trading on
account of Airtel Thanks. While we have witnessed revenue growth despite any outright tariff increase, we continue to believe that
prices need to move up in the long-term to ensure industry viability. You will recollect that last quarter, mobile margins benefited
from certain one-offs and the underlying margins were close to 22%. Underlying EBITDA margin for the mobile segment stood at
23.2% for this quarter.
Our 4G base continues to grow, and we added almost 8.4 million customers during the quarter. With this now, we have 120 million
data customers of which more than 95 million are on 4G. We do believe that this 4G handset penetration still has significant
headroom to grow and therefore, for the foreseeable future, India will be largely a 4G market. However, the pace of handset
adoption has remained stagnant rather slowed down in the last few quarters due to high prices of the handset and adverse currency
fluctuations impacting the cost. We are hopeful that the pace of 4G adoption will accelerate, and this mix change will be a positive
catalyst for us.
Our focus on quality customers is also evident from the best-in-class operational parameters. Our ARPU are now at Rs.129, VLR
customer base is 99% plus, and the monthly average data usage of data from the customer base is at 11.7 GB per month. Within
mobile postpaid businesses, we also witnessed a strong performance on the back of simplified pricing architecture, our strong
brand, network and the trust that customers place on us.
In order to cater to this quality customer base, we are continuously realigning our strategy to win decisively in the market and be a
truly differentiated player. An average Indian smartphone customer is spending approximately four hours on their smartphones, and
devices are moving away from being pure connectivity to lifestyle. Hence, there is a need to offer something more to these
customers. Airtel Thanks, our biggest initiative, allows us to be the tether of this digital lifestyle of our consumers.
While originally Airtel Thanks was launched in August 2018, it was revamped this quarter to add more value to our customers and
provide a differentiated experience using technology, data and partnership. We further increased the gamut of our relationship to
include innovative offerings such as insurance, online courses from leading global academies while expanding the scope to include
home broadband customers as well. With more than 140 million customers under the program and diverse customer benefits
available at each tier, the program affords an ability for customers to move up the value chain, and we are beginning to see some
early signs of this up trading. All of these customer interventions need strong networks, and I am delighted to add that we continued
our quest for network excellence this quarter as well.
Talking of some noteworthy developments, we added more than 26,000 mobile broadband base stations alongside network
expansion. We also further added capacities across the network through additional sectorization and Massive MIMOs. Our VoLTE
adoption of 4G smartphone continues to grow, and a very significant portion of smartphone traffic now runs on VoLTE. In line with
ramping up our 4G networks, we completed reframing of our 900 MHz spectrum to 4G in all the 10 circles where it is liberalized.
This has improved indoor coverage for our 4G customers.
Airtel became the first operator in India to shutdown 3G network layer in Kolkata. This is one of the starting points for us, the
learning from which would be used for shutdown of 3G networks in other circles. This makes the network simpler, besides ensuring
better coverage and capacity for 4G customers. With the excellent network deployment, such an upgrade has been realized through
software upgrades alone, implying minimal additional investment. To cater to the exponential traffic growth, we further expanded our
fiber footprint to more than 280,000 route kilometers with most of the sites either single hub or 2 hubs from the fiber port.
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We continue to work with partners like Google, Facebook, Netflix, and Amazon for deeper and distributed content caching. This has
helped us to serve our customers with significantly lower latency, helping them to have lower buffering, better gaming experience
and faster transactions. Airtel has been the first operator across the globe to commercialize Google EPC, which will further help in
hosting content and latency-sensitive applications at the edge, translating into superior customer experience. Our efforts have
shown results. As per Ookla, Airtel has the best download speed in 16 out of 20 circles, with latency being lowest in 12 out of 20
networks compared to all other networks in May 2019.
Talking briefly about the other businesses, continuing the positive momentum of last quarter, homes business continues to see
positive revenue momentum. Our investments in FTTH pass deployment are now reaping benefits with an expansion in the base
and an increase in ARPU after 10 consecutive quarters of decline. We continue to be optimistic on the overall market opportunity
and focus on expansion of our fiber presence and efforts to offer superior propositions to our customers. The customer base stood
at 2.34 million as at the end of June 30, 2019.
Digital TV Services business continues to grow on the back of a strong customer additions and increasing upgrades to premium
plans. This quarter, we added 634,000 customers, almost double of our usual run rate. The total base now stands a little over 16
million as at the end of June 2019. Due to the change in reporting mechanisms as mentioned earlier, the first quarter numbers are
not comparable with prior periods. On an underlying basis, the business saw a 9.3% quarter-over-quarter growth in earnings.
Airtel business after marginal degrowth last quarter has reported revenues of Rs.32 billion, which is a 6.8% sequential growth. Net
revenues grew faster at 7.3%, sequentially. The business continues to grow, led by the demand for connectivity and solutions
across the spectrum. Overall, trends in the other lines of business remain intact.
Moving on quickly to other noteworthy areas and significant events for this quarter. As mentioned previously, Airtel Africa completed
its IPO this quarter. The issue received strong response from mainly high-quality investors from around the world. Airtel Africa is
now the first telecom company to simultaneously list on the premium segment of the London Stock Exchange and Nigerian Stock
Exchange through an IPO. Following completion of the offer, Airtel Africa is also expecting to be eligible for inclusion in the FTSE
U.K. indices besides the Nigerian indices.
Moving on to M&A; following the TDSAT’s order directing the DoT to take the merger on record and approval of the schemes of
arrangement by Delhi and Mumbai bench of NCLT, the scheme of arrangements of the merger of Airtel with Consumer Mobile
Business of Tata has become effective from July 1, 2019. Consequently, all customers, assets, spectrum and agreed liabilities of
these businesses stand merged with Airtel effective July 1, 2019. Airtel and Hughes Communications have entered into an
agreement to combine their VSAT operations in India. The combined entity will benefit from the enhanced scale, improved
operational efficiencies and wider market reach.
Moving on to our consolidated financials, consolidated revenues for the quarter stood at Rs.207 billion, up 4.7% on a reported basis
and 6.8% on a comparable basis. Growth continues to be broad-based, all segments across India and Africa. Consolidated EBITDA
of Rs.85 billion during the quarter increased by 24.2% compared to Rs.68 billion in the corresponding quarter last year. EBITDA
margins for the quarter was at 41% as compared to 34.5% in the corresponding quarter last year. Adjusting for the Ind AS 116
impact, EBITDA for the quarter stood at Rs.69 billion, up 1.5% year-over-year, and the consequent EBITDA margin is at 33.7%.
Depreciation and amortization expenses were at Rs.68 billion versus Rs.51 billion in the corresponding quarter last year, up 31.4%
year-over-year, primarily due to the impact of Ind AS 116 and sustained Capex spent aimed at enhancing our 4G capacity. Net
finance cost for the quarter was at Rs.32 billion, higher by Rs.11 billion as compared to the corresponding quarter last year increase
has largely on account of reporting changes and higher interest on borrowings and derivative and forex losses. The resultant loss
before tax and exceptional items for the quarter ended June 30, 2019 was Rs.15 billion as compared to the loss of Rs.3 billion in the
corresponding quarter last year.
The company recognized a net exceptional loss of Rs.14 billion during the quarter, mainly on account of derivative liabilities
pertaining to customary indemnities provided to a class of investors of Airtel Africa PLC, and expenses relating to its listing besides
charges on account of accelerated depreciation of 3G equipment and certain other items. Net loss post exceptional items came at
Rs.28.6 billion. Capex for the quarter was at Rs.50 billion as compared to Rs.82 billion in the corresponding quarter last year.
Consolidated net debt of the company stood at Rs.1,166 billion, primarily on account of increase in lease liabilities in line with Ind AS
116. On a comparable basis, consolidated net debt was Rs.930 billion. The sequential decline resulted from the repayment of debt
from the rights issue proceeds. The proceeds from the Africa IPO were realized in July and therefore, you will see the impact of the
net debt reduction from these proceeds in second quarter of the financial year. The finance lease obligation added on account of
adoption of Ind AS 116 is Rs.240 billion.
To sum up, the telecom industry in India continues to witness a huge expansion in data and voice. Our non-mobile business
continues to expand at a healthy rate, and Africa remains on its profitable growth journey. With our superior investments, quality
customer base, strong brand and innovative product portfolio, we are well poised for future growth.
With that, I hand you over to the moderator.
Rajyita- Moderator
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Thank you very much sir. We will now begin the question and answer interactive session for all the participants who are connected
to the audio conference service from Airtel. Due to time constraints we would request, if you could limit the number of questions to
two to enable more participation. Hence management will take only two questions per participant to ensure maximum participation.
Participants who wish to ask questions may please press “*” “1” on their touchtone enabled telephone keypad. On pressing “*” “1”
participants will get a chance to present their questions on a first-in-line basis. To ask a question participant may please press “*” “1”
now. The first question comes from Mr. Sachin Salgaonkar from Bank of America, Mumbai. Mr. Salgaonkar, you may ask your
question now.
Sachin Salgaonkar - Bank of America - Mumbai
Thank you for the opportunity. Congratulations for the good set of numbers. I have two questions. First question, in the last couple of
quarters, we did see a mix bit change between your subscribers and ARPU, either subscriber numbers were reducing and the
ARPU was improving. Now with most of this entire low-end subscriber rationalization behind us, the question is could we see that
trend continuing i.e., ARPU continues to inch up and your subscriber number grows at a relatively slower pace? That is first
question. Second question just wanted to understand EBITDA margin improvement levers for cellular business going forward? I
understand there could be a bit of pressure on IUC net revenue going down and perhaps a bit from Tata consolidation. But what are
some positive levers we are seeing actually?
Gopal Vittal - Managing Director and Chief Executive Officer - India & South Asia - Bharti Airtel Limited
Yes, we did see last quarter, which is Q4, an erosion of about 45 million customers and consequent bump up in ARPU. That has
kind of bottomed out now. So, we saw an erosion of about 1.5 million customers, Rs.4 increase in ARPU. I would say that as far as
minimum recharge plans are concerned, whatever had to be done is now done. The intrinsic movement or improvement in ARPU
will now be a function of upgrading from 2G to 4G, and our program on Airtel Thanks, which will drive some upgrading. Having said
that, we are entering into a seasonal quarter, as you know, if you look back over the last few years, you will always find Q2 is a
seasonal dip overtime.
As far as the EBITDA margin is concerned, I think the biggest lever will be revenue growth, clearly. At the same time, we are driving
a strong program on war on waste and we will continue to do whatever it takes on all of the up cost items that we can look at to try
and see what we can to get efficiency out of it.
Okay, Gopal, would you see in there clearly, your revenue appears to have bottomed out, but can we say the same thing about
EBITDA that EBITDA has also bottomed out?
I think the incremental revenue that we have generated over this quarter as well as the last quarter pretty much flowed through into
EBITDA to the extent of, I would say, probably about 60%-odd. Once you adjust for the one-off that Badal spoke about, if you recall,
we had said that there is Rs.200-crores one-off in the last quarter, which, once you adjust for all of that, you will see a flow-through
EBITDA. So yes, as the revenue grows, our effort is to try and see how we can keep cost lower than the growth of revenue.
Got it. One small follow-up do we see any risk to Capex given the fact that traffic on your network continues to rise steadily?
No. I think this is what Badal referred in his opening comments too, the fact that we are in the process of shutting down our 3G
networks. We have experimented quite boldly in Kolkata to really shut off the 3G network altogether, refarmed the 900 megahertz,
running on 3G on LTE. That worked very well for us. That has given us a lot of confidence. We now have a plan to pretty much shut
the 3G networks across the country by December. So, you will see a lot of action in this quarter. Do not forget that we have
anywhere between 10 and 15-megahertz of 2100 band spectrum in most circles. It is a very, very good mid-band spectrum. And
once you are able to get 10-megahertz going, and that sees through capacity for a period. So, our Capex will continue to look at
deployments of new sites wherever it is required in a very smart and clever way. The second part of the Capex will continue to be
some loading on the 2300 band, because 1800 band is pretty much deployed all across the country.
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Got it. Thank you Gopal.
Rajyita- Moderator
Thank you very much Mr. Salgaonkar. The next question comes from Mr. Parag Gupta from Morgan Stanley - Mumbai. Mr. Gupta
You may ask your question now.
Parag Gupta - Morgan Stanley - Mumbai
Thanks, So Gopal, I just had two questions. Firstly, when I look at the 4G subscriber base across the country, I guess the focus of
every telco, obviously, is to drive that part of the bucket. Just wanted to understand, based on your own 4G subscriber base, I
wanted to get some understanding of how the trends are out there, primarily with respect to are these subscribers using Airtel as a
primary SIM bulk of the time for the data usage? How do you see that trending? Like do you see people increasing data usage over
a period from another network to yours. Or do you see that relatively consistent trend? So just trying to understand your SIM versus
your competitor’s SIM? The second question I had was, on Airtel Thanks, all these apps that you are now providing and including,
the music app of Wynk. Could you give us some sense of what kind of usage patterns are you seeing out there? Are you seeing
higher engagement times? What is the daily active user base? And how do you see that trending, which is giving you some
confidence that this could lead to our ARPU upgradation over a period of time? Thank you.
On the 4G base we have about 95 million customers, which is what we reported in Q1 that is a growth of about 9 million customers.
When we report this customer base, by and large, most of these customers have the 4G slot on the primary SIM because one of the
things that you find on devices in India is that most devices have a data bearer only the first SIM slot. So, if you are on the second
SIM slot, you can fundamentally use only voice. Now when a customer buys a bundle of, let us say, Rs.160, Rs.170 with lots of
data, chances are that he will put it on the primary slot, and that is exactly what we are seeing. To the second question, which is on
the shift between us and competition that is difficult to say, I think our focus is to see what can we do to grow market share? We
have had, I would say, probably four quarters of kind of steady market share. This quarter, our expectation is that we would pick up
some market share, which will be satisfactory from our perspective given the competitive context. On Airtel Thanks, Wynk Music has
done exceedingly well in this quarter. We launched the feature of actually setting your ring tone through the music app, which has
actually gone very well, and that is, in a way, creating a lot of stickiness for our service. I can give you a quick sense of our monthly
active users. We have breached the 30 million mark. But if you take a slightly, maybe a definition of 90-day users, then that gets to a
much higher number, but the monthly active user is about a 30 million mark. Airtel TV is, again, similar. And between these two
apps, we have a base of almost 50 million customers engaged on a monthly basis. We have setup a platform at the back, I think, I
referred to it some time ago, called Customer 360, which is really looking at the intelligence by plotting the usage and the
understanding of this customer all through this platform of Customer 360, which is helping us to drive greater engagement and
greater stickiness.
Gopal, with what you are providing in Airtel Thanks today, do you think that this can keep getting richer at the same price points or
do you think this is good enough for the prices that are currently being offered?
I think our effort is always to raise ARPU. We do believe that the pricing today, and we made this clear over many, many quarters
now that the pricing levels in India are unsustainably low. It is you get, for 45 gigs of data, unlimited calling for about Rs.150, which
is clearly very, very low. That needs to rise. But that is a function of the competitive dynamic in the market. So yes, we will keep
adding value, but we will try and clear this up so that we throw in more value as people upgrade. As we are doing this, we are also
getting increased confidence that we could also use Airtel Thanks in a way to drive other streams of revenue, such as carrier billing
and perhaps some early ways to monetize this through advertising, but that is something that we are assessing right now. As of
now, our effort will be to try and upgrade.
Okay, got it. Thank you.
Rajyita- Moderator
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Thank you very much Mr. Gupta. The next question comes from Mr. G.V Giri from IIFL Capital, Mumbai. Mr. Giri you may ask your
question now.
G. V. Giri - IIFL Capital – Mumbai
This is a question on the derivative loss. You have some agreements with the pre-IPO investors in Africa. I just wanted to know how
long is this for? Is there a limit on the total exposure on this? And since you paid in cash terms also, is the protection
correspondingly reduced? Is it dependent on the stock price? Since in July, the Airtel Africa stock has fallen a little bit more from the
June closing level. Will there be another hit in 2Q? Those are my questions.
Nakul Sehgal - Corporate Chief Financial Officer - Bharti Airtel Limited
Giri, I will answer this question. This is Nakul. Just to give you bit brief from what Badal had actually alluded to. So just to give you a
background, a clutch of investors in Airtel Africa and a subsidiary of Bharti Airtel actually had entered into an agreement for investor
protection. This protection is interalia, pursuant to customary indemnities and warranties, which is pertaining to their investment in
equity shares of Airtel Africa. The arrangement to settle that you see in this quarter was part of the process to facilitate Airtel Africa's
admission to the premium listing of the London Stock Exchange. And In this quarter, as you rightly pointed out, the expected charge
that you see is pursuant to these derivative liabilities along with other listing expenses, which have been transparently recorded as
an exceptional item in this quarter. These liabilities, you would note, are quite customary in nature because such protections are
given to investors to give them comfort and which can only be crystallized as and when the event occurs, which in this case, is
obviously the IPO and since the IPO has happened, some of it has been crystallized, and a large part of it is already being paid out.
Some of the big items that you see is, of course, pertaining to tax demand, which includes Tanzania litigation that you would have
heard out, the IPO obligations and some minority adjustments, which are now being crystallized and resolved by way of an
arrangement which is already recorded in the books. I hope that answers your question.
G. V. Giri - IIFL Capital - Mumbai
So, my question is here, I think, in June end the stock closed at GBP0.80 and now it GBP0.69 as of today. So, is that movement
going to trigger another payout? That was the main question.
The amount that we have recorded is actually based on a derivative liability or a derivative financial instrument, which is based on a
balance sheet date of June 30. That is the best estimate of the liability that we have recorded for now.
Yes. But if the stock moves down, is there going to be more payout in future. So how should we even forecast this or is there a limit
beyond which there won’t be a payout?
Quite honestly, these derivative instruments run on complex pricing models, and we have used a complex pricing model to
determine the amount of liability that we should record and based on which a payout has already happened as of date.
G. V. Giri - IIFL Capital – Mumbai
Yes. But my question is on the future payout. I am not really asking you for an estimate of the amount. I just want to know if the
stock falls, will there be more payouts?
Honestly, it is very hard to speculate and give you an amount of what is going to be the future payout, but what we have recorded is
what has transparently been disclosed.
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Sure, sure. Thanks.
Rajyita- Moderator
Thank you very much Mr. Giri. The next question comes from Mr. Ravi Menon from Elara Securities, Mumbai. Mr. Menon you may
ask your question now.
Ravi Menon - Elara Securities - Mumbai
Thank you for the opportunity. Congrats on a good set of numbers. My first question is how many of the 140 million customers are
so worked out by Airtel Thanks have taken advantage of at least one of the offers of the program?
And what is your second question?
The second is how long do you think it will take to completely shut down 3G. So you said December, you would cover most of the
country, and what would be the likely cost savings from that and how much of the lease obligations should we say relates to 3G?
On Airtel Thanks, we do not quite report how many customers have taken any one service.. All the benefits in Airtel Thanks are
delivered through a digital layer. So, to that extent, it is not that 100% of them have taken it, but a very large portion has taken it and
many of them have taken actually two services. On the 3G question, we are, like I said, I think, this quarter, we shut down Kolkata.
We will, by September, I think, there will be another 6 or 7 circles that will get shut down and between December and March, pretty
much, the entire 3G network should be shut down.
And how much cost savings do you expect from the 3G shutdown?
How much what?
Cost savings.
The cost savings?
Cost savings. So, Ravi, the cost savings would not be enough because most of the places, we had already migrated to SRAN. So,
we will be using the same equipment to deliver 4G. So, there would not be significant cost saving from a network perspective,
except for the AMC and the managed services area where we will have some benefit.
Ravi Menon - Elara Securities – Mumbai
All right. Great. So, I guess, there will be really no changes in lease obligations as well, right?
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No. Lease obligations will not have any changes. There will be marginal impact on managed services and AMC, but they will be not
large.
One last question, if I may. You seem to have done far better compared to Vodafone-Idea in terms of how you maintain your 2G
subscriber base from through this churn. What do you think you would attribute that to? Is it because you think you have now more
population coverage compared to them or better-quality network? What would you say is the main reason?
I cannot speculate on what comparing ourselves to our competition. I think what we would see is that the fact is that we have still
lost 1.5 million customers and our effort will be how do we sort of make sure that we do not lose customers. Secondly, I think the
second thing that our obsession is to see how do we get really active customers. Our VLR percentages are close to 99.6%, so our
active customers are very, very strong, which means anybody who is engaged in our network is actually giving us revenue, and that
is important for us. And the third part, which is really our focus, whether it is 2G or 4G is, really how do we upgrade our customers.
We are happy to lose customers who do not pay us money, which is why we did the minimum ARPU plans. And from here onwards,
really how do we upgrade these customers and drive greater ARPU. I think that is really the focus. And the entire system is really
geared towards looking at about 670 districts at a district level. We have identified around 244 districts that are really the most
critical districts for us where the bulk of the industry is. Those are districts where we put a significant amount of resource, the right
investment, the metrics attract to that level. So those are the parts about execution, which I think we take very seriously as well.
Thank you for the detailed answer and best of luck.
Rajyita- Moderator
Thank you very much Mr. Menon. The next question comes from Mr. Rajiv Sharma from SBICAP Securities, Mumbai. Mr. Sharma
you may ask your question now.
Rajiv Sharma - SBICAP Securities – Mumbai
Thank you so much for the opportunity. Just a couple of questions from my side, firstly, Gopal, we still continue to lose subscribers.
Is it all related to the low-end subs, which is, which could be related to Jio Phone or we are churning because they are not paying
us, or there is some movement in the high end as well? Secondly, Jio is not offering any kind of postpaid or they do not seem to be
very serious about postpaid today. Vodafone and Idea are struggling. Do you think next two to three quarters, with your Airtel
Thanks, with your investments in network we could see some spike in your postpaid additions and ARPU improvement following
that? Lastly, I just want to understand, how many services like, you said, two services people have taken in this Airtel Thanks. How
many services one will have to take for your ARPUs to improve? And currently, how much of this Airtel Thanks subscribers have
resulted in ARPU improvement? Because I am also trying to understand there are a lot of these wallets like Paytm and PhonePe,
which are giving a lot of cash back and similar discount. So how do you differentiate among them? That is it.
So I think just to step back, before we did the minimum ARPU plans, I think we had 332 million customers, and our estimate was
that we would have probably have lost, which is what we had kind of indicated at that time, about 65 million to 70 million customers.
So, to that extent, I think we have been pleasantly surprised that we have not lost as many, and we have kind of held it now at about
281 million. From here on, our effort will be to try and see how do we not lose any customer and continue to see some growth. But it
will be modest growth given the, what is happening in the marketplace. Postpaid, you are right, is an opportunity. And we have re-
architected the pricing on postpaid. Historically, going back in time over the last decade, the acquisition pricing was always lower
than pricing for existing customers, which led to an arbitrage. And given the significant premium that postpaid has over prepaid, we
have re-architected pricing to fit in line with existing customers, which has led to no further downgrades. And this is the reason that
you are seeing an ARPU upside. Secondly, the acquisition continues to remain as it was and is also giving us an ARPU upside on
the acquisition. Our third focus on postpaid is to see how we actually give a better service and better experience. A lot of focus on
the network to try and make sure the network quality is better, making sure that we are sort of wiring up and getting the big resident
welfare associations, the big tech parks, we identified 10,000 to 12,000 buildings, over 4000-5000 tech parks across the country or
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Final Transcript
when I say tech parks, it is office, complexes, which are all really focused on to actually give a better network experience. Finally, we
are looking at how do we segment on our postpaid offer to deliver better value, whether it is in content, whether it is in terms of
experience, no waiting at the call center, no waiting at the store and so on and so forth. So those are the reasons that we think that
the postpaid business is holding up. We are not happy with the way our postpaid is. It should be much bigger. In fact, if you compare
a market like Brazil, for example, you will find postpaid is about 60% to 65% of revenues. Philippines, which is not much richer than
India, is about 40%-45%. So, India should be much bigger in postpaid, and the only reason this has not yet happened is because
prepaid is so underpriced when compared to postpaid. No. I do not think we look at it is how many services we have to take. I think
that if you look at, for example just to give you an example, if you look at the gold tier, where you have to spend about Rs.200 or
more then what you get access to is a lot of exclusive content through a partnership with Zee5. We also give you exclusive content
on English through our partnership with HOOQ and so on. So that, in itself, is a reason to upgrade. We are also trying to look at
what can we do to find more hooks to upgrade. Airtel Thanks will see a very big refresh in the next three to four months as we put
those hooks in place. I do not want to talk a little bit about it because it is premature, but we are putting some very strong hooks to
try and get upgrades going in the next three to four months.
Rajiv Sharma - SBICAP Securities – Mumbai
As I talked about Paytm, PhonePe, so how do you differentiate with them apart from your content bundling?
I do not think we are looking to differentiate with them. As far as, we are concerned we see them as a channel. They also distribute
our recharges. They are just a wallet. In the case of Paytm, it is a wallet, or in the case of PhonePe, it is just a kind of a UPI
platform, which the apps sit on top of the UPI platform with an underlying bank account. So, we do not see that as a competition.
Think of it as a storefront. You go to the retail shop and actually recharge. You recharge on PhonePe. You might recharge on
Flipkart. You might recharge on Amazon or on Paytm. These are kind of store fronts, as we see it. Some of them are wallets, but
they are kind of masquerading as storefronts, which is fine. For us, we want to partner with everybody to make sure that we are
getting recharges and payments through all of those. We are also focused on driving recharges and payments through our own
properties, which is our own website as well as our own app, Airtel Thanks, and that is also growing smartly. By the way, when we
get incremental business coming from these online platforms, you do see a reduction in cost because there is a lower channel
commission online, than happens off-line because it is a tiered distribution infrastructure with the distributor and a retailer and so on.
Rajiv Sharma - SBICAP Securities - Mumbai
So, it will be fair to say that every quarter, Rs.3 to Rs.4 of ARPU at least could improve for the next three to four quarters?
Well, I cannot give you a guidance on that. So what I can tell you is that we have entered into a seasonal quarter.
Rajiv Sharma - SBICAP Securities - Mumbai
Thank you very much.
Rajyita- Moderator
Thank you very much Mr. Sharma. The next question comes from Mr. Kunal Vora from BNP Paribas, Mumbai. Mr. Vora you may
Kunal Vora - BNP Paribas - Mumbai
Thanks for the opportunity. First one is you mentioned seasonal quarter like with large portion of revenue now coming from
customers on bundled plans, should we still expect the seasonal weakness in second quarter or it is generally general consumers
spending slowdown?
Yes. It is a good question that you have asked because, I mean, that is the same question that we have been asking ourselves, but
we still have a very large number of customers who are outside of bundled plans. Also, I think what happens is that when we look at
the purchase pattern, it is not necessary that every customer buys a bundle every month. We have a metric, which we track
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Final Transcript
internally to look at the continuity of the bundle purchases on a monthly basis and that number is certainly not 100%. It is lower by at
least 10% to 15%. Therefore, the question is what do customers do, and I think they kind of balance their budget, so sometimes
they will buy a bundle, sometimes they might buy a basic plan. So that kind of thing happens, and that is something what we see.
Kunal Vora - BNP Paribas – Mumbai
Sure. So you are like, are you indicating that the growth has slowed down compared to the last quarter because you are indicating
that the second leg, we should all be expecting the kind of growth that you see in this quarter?
I am not indicating anything else. I am just telling you that we have entered a seasonal quarter.
Okay. Second question, can you share your longer-term plans for the Digital TV business? Can we see further consolidation in the
industry and whether you are willing to commit more capital for the business?
That business is self-funding. We are committing as much capital as that business needs. It is a good need little business, which is
growing very well, and after the recent changes in the regulatory framework, I think we have been able to pick up almost 630,000
customers net additions in last quarter, which is a very, very big increase, a lot of it coming from the cable side. So, we are pleased
with how that business has progressed. One of the things we are looking at is to bring in a box, which will kind of offer a full
converged entertainment as well as the capacity to deliver broadband. This will happen soon, and we are very excited that once we
do that, then it is a full converged play that we can potentially deliver across multiple space. There have been some concerns about
cord cutting in the urban areas and metros. We have not seen any evidence of that yet.
Kunal Vora - BNP Paribas – Mumbai
I wanted to check really was actually on acquisition like any plans for acquisition. Would you be willing to be a competitor in the
market? There have been talks that Dish TV is looking regarding Airtel-Dish TV has been linked. So just want to check on that.
Yes. I think those are newspaper reports, so that is something that we cannot comment on.
Lastly, just the status of litigations that are like lot of litigations, the point of interconnect like Jio and license fees and excess
spectrum charges, what is the status? When do you see resolutions and whether you see any risk of payments?
The case is in court. The hearings have been concluded. The order now is reserved. So as soon as the orders come, we will know.
And that is what we are talking about the AGR case.
Okay that is from my side. Thank you.
Rajyita- Moderator
Thank you very much Mr. Vora. The next question comes from Mr. Sanjay Chawla from JM Financial, Mumbai. Mr. Chawla you may
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Final Transcript
Sanjay Chawla - JM Financial - Mumbai
Good afternoon. Thank you for the opportunity. My first question is on the Capex front. What sort of a Capex we should expect ex-
Africa and particularly in India mobile? Is 50 billion going to be the run rate or we see, a pickup going ahead in the third and fourth
quarter? That is the first question. The second question, Gopal, just a question on the there is obviously a lot of talk of price hike
happening in the future, which will happen but on the construct of price hike over the long term, from an industry point of view,
customers are already getting 1 GB, 1.5 GB per day for Rs.122 a month. So my question is how difficult do you think it is going to be
to get subscribers to shift to, let us say, more data for more higher amounts or do you think we will also have to do, basically get
them to on a less for same kind of a platform where you have to cut the data allowance at Rs.122 price point to get some of those
guys to move up, so just wanted your thoughts on the construct of price hikes that you see over the long term?
On the Capex front, we have stopped giving guidance as we mentioned in the beginning of the quarter, but we also did indicate that
this is going to be a lower Capex year than last year. Typically, we will see a higher upfront Capex in the first half of the year tends
to be higher than the second half but by and large, the Capex will be moderated compared to last year. That is the first point. On the
second point, I think, I will answer the question in theory and probably then in practice. In theory, in a market like India, which is so
stratified and where people, there are the rich, the middle as well as the poor and I am probably oversimplifying. There are people
who can easily pay Rs.1000 for a mobile telephony and at the same time, there are people who probably cannot pay you more than
Rs.50 to Rs.70 for mobile telephony. So, the problem with pricing at Rs.120 for everything is that the one with the Rs.1000 will crash
down there. And so somebody who is at Rs.50 is not necessarily going to up to Rs.120. So, I think that from a theoretical
perspective, the architecture on pricing must be such that it invites upgrading, which is your point about what you called it, which is
less for more or more for more whatever phrase that you used. So that is the way the theory should work. Having said that, we are
where we are. We are at a situation where for Rs.130, you get everything and here, I would imagine that the elasticity, if given the
amount of data that is getting consumed on the network, 11.7 GB, as Badal mentioned, people spending four hours a day on the
mobile device. Lifting this by Rs.20, Rs.30, Rs.40 is something that can easily be done. That said, like I said, this is a competitive
situation. We are not expecting any pricing to move up. We are prepared for it to not move up even though it is an unsustainable at
this stage.
Sanjay Chawla - JM Financial – Mumbai
So, you are pointing to the difficulty of raising the pricing in this market with so much stratification...
No. I am not saying it is difficult to raise, I think it will go through very easily. The question is will it, and if so, when? That is the only
question.
Okay. And if I could just squeeze in one little question on the depreciation expense that seems to have gone up quite a lot, I am just
looking at the depreciation without the Ind-As 116 impact. We have seen Rs.500 crores, Rs.5 billion quarter-on-quarter increase. So
what exactly is driving that this quarter? We have not seen this type of increase ever.
Badal Bagri - Chief Financial Officer – India & South Asia- Bharti Airtel LimitedCorporate Chief Financial Officer
Sanjay, the increase is primarily driven by the investments which we have made. Firstly, we have an average Capex of close to
Rs.4500 crores to Rs.5000 crores every quarter, and it is a proof of depreciation on account of that.
There is no accelerated depreciation or anything which is sort of reflecting here.
Badal Bagri - Chief Financial Officer – India & South Asia- Bharti Airtel Corporate Chief Financial Officer
Accelerated depreciation is deemed, as I pointed out earlier, Sanjay, is reflected in the exceptional items.

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Final Transcript
Thank you for that and all the best.
Rajyita- Moderator
Thank you very much Mr. Chawla. The next question comes from Mr. Pranav Kshatriya from Edelweiss, Mumbai. Mr. Kshatriya you
may ask your question now.
Pranav Kshatriya - Edelweiss Securities – Mumbai
Thanks for the opportunity. I have just two very small questions. Firstly, regarding this exceptional item of 15-odd billion. Can you
please tell us that what is the underlying asset of the derivatives for which this expense has been done? Second question is can you
throw some color on fiber monetization where we are and how do you see it panning out? Thank you.
I will take the first part of your question, Sanjay. I think we did discuss it in a good amount of detail, but just to explain a little bit
more. There are a few items when you look at the exceptional and the indemnities, and which I have mentioned earlier it is a tax
demand, which includes Tanzania, some minority adjustments, IPO obligations and so on and so forth. And whatever was an
estimate, most of them have been resolved by way of an arrangement and an amount for which has been determined at all, we
have already accounted for in the books, and most of it has been paid as well. This is what I can mention about this, nothing further
than this. Yes, and if you have any follow-up, we can take it subsequently.
Pranav, as mentioned in our earlier calls, we had moved all our fiber assets to a 100% subsidiary, and we have all approvals in
place right now, and that is going to be affected in this current quarter. Regarding monetization, we will continue to evaluate
opportunities and at the right time, we may choose to see what could be the potential structure at that particular point in time. We
continue to evaluate opportunities, which comes in front of us.
Pranav Kshatriya - Edelweiss Securities – Mumbai
Thank you that is it from my side.
Rajyita- Moderator
Thank you very much Mr. Kshatriya . The last question comes from Mr. Vivekanand Subbaraman from Ambit Capital, Mumbai. Mr.
Subbaraman you may ask your question now.
Vivekanand Subbaraman - Ambit Capital - Mumbai
Thank you for the opportunity. I have two questions. One is you mentioned that you are shifting your 3G spectrum and reallocating it
to 4G. Is it possible for you to share the proportion of spectrum that is allocated across technologies? A ballpark number is also
good. How has this changed over the last year? And where do you see this going, let us say, by March 2020? Second question is
with respect to the voice customers to data ARPU or voice customers’ migration to data, the ARPU uplift. Last time, you had
indicated that it was around 2x ARPU uplift. Is that the trend that you see even in the current quarter or is it any different? Thank
you.
I think on the second question, yes, we do see an upgrade when somebody moves from 2G to 4G and the increase is along the
lines of what you indicated. We have not seen any change in that. The second part is on the overall spectrum. I would suggest the
way you should look at it is look forward, let us say, probably April 2020. We will really have only 2G and 4G. So all our spectrum
will sit on 4G other than the administered spectrum, which is on 2G, and that can be easily worked out based on the spectrum
holding that we have, plus a small slug of spectrum that we require to run our 2G networks, which will be anywhere between 5 and 7
to 8 megahertz. Everything else will really be sitting on the 4G band.
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Final Transcript
All right, so Gopal, the small slug 5 and 7 to 8 megahertz, that It’s in the 1,800-megahertz band, right, none of the 900?
It is mostly in 1800 band, in some circles, it is also in the 900 band where we have enough 900 bands spectrum.
All Right. I understood. Thank you.
Rajyita- Moderator
Thank you very much Mr. Subbaraman. At this moment, I would like to hand over the call proceedings to Mr. Badal Bagri for the
final remarks.
Thank you all for joining and look forward to talking to all of you in the coming quarters.
Rajyita- Moderator
Ladies and gentlemen, this concludes the conference call. You may now disconnect your lines. Thank you for connecting to audio
conference service from Airtel and have a pleasant evening.
- 14 -

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Conference Call Transcript

Event Date/Time: August 02, 2019/ 1430 hrs.

CORPORATE CALL PARTICIPANTS

Sachin Salgaonkar - Bank of America - Mumbai

Sachin Salgaonkar - Bank of America - Mumbai

Sachin Salgaonkar - Bank of America - Mumbai

Sachin Salgaonkar - Bank of America - Mumbai

Got it. Thank you Gopal.

Parag Gupta - Morgan Stanley - Mumbai

Parag Gupta - Morgan Stanley - Mumbai

Parag Gupta - Morgan Stanley - Mumbai

Okay, got it. Thank you.

G. V. Giri - IIFL Capital – Mumbai

Nakul Sehgal - Corporate Chief Financial Officer - Bharti Airtel Limited

G. V. Giri - IIFL Capital - Mumbai

Nakul Sehgal - Corporate Chief Financial Officer - Bharti Airtel Limited

G. V. Giri - IIFL Capital - Mumbai

Nakul Sehgal - Corporate Chief Financial Officer - Bharti Airtel Limited

G. V. Giri - IIFL Capital – Mumbai

Nakul Sehgal - Corporate Chief Financial Officer - Bharti Airtel Limited

G. V. Giri - IIFL Capital - Mumbai

Sure, sure. Thanks.

Ravi Menon - Elara Securities - Mumbai

And what is your second question?

Ravi Menon - Elara Securities - Mumbai

Ravi Menon - Elara Securities - Mumbai

How much what?

Ravi Menon - Elara Securities - Mumbai

The cost savings?

Ravi Menon - Elara Securities – Mumbai

Ravi Menon - Elara Securities - Mumbai

Ravi Menon - Elara Securities - Mumbai

Thank you for the detailed answer and best of luck.

Rajiv Sharma - SBICAP Securities – Mumbai

Rajiv Sharma - SBICAP Securities – Mumbai

Rajiv Sharma - SBICAP Securities - Mumbai

Rajiv Sharma - SBICAP Securities - Mumbai

Thank you very much.

Kunal Vora - BNP Paribas - Mumbai

Kunal Vora - BNP Paribas – Mumbai

Kunal Vora - BNP Paribas - Mumbai

Kunal Vora - BNP Paribas – Mumbai

Kunal Vora - BNP Paribas - Mumbai

Kunal Vora - BNP Paribas - Mumbai

Okay that is from my side. Thank you.

Sanjay Chawla - JM Financial - Mumbai

Sanjay Chawla - JM Financial – Mumbai

Sanjay Chawla - JM Financial - Mumbai

Sanjay Chawla - JM Financial - Mumbai

There is no accelerated depreciation or anything which is sort of reflecting here.

Sanjay Chawla - JM Financial - Mumbai

Thank you for that and all the best.

Pranav Kshatriya - Edelweiss Securities – Mumbai

Nakul Sehgal - Corporate Chief Financial Officer - Bharti Airtel Limited

Pranav Kshatriya - Edelweiss Securities – Mumbai

Thank you that is it from my side.