Transcript of Conference Call on Rights Issue- Bharti Airtel August 30, 2021

(Bharti Airtel plans to raise up to Rs 21,000 crore by way of rights issue, at a price of ₹535 per share. Eligible shareholders would be entitled to one share for every 14 held on the record date. The terms of payment include 25 percent of the price to be paid at the time of application. The balance 75 percent will be paid in two or more calls that will be decided by the board. The maximum timeframe for the payment is 36 months.)

Sunil Bharti Mittal, Chairman, Bharti Entreprises
“India is truly moving into the digital world on a very accelerated basis. The phase that we have entered now cannot be described anything short of being exponential. More and more people are joining the bandwagon of being on the digital services. Millions and millions of phones are going into the hands of Indians. These are powerful computing devices capable of doing a lot more than we ever saw before.

Digital India is just not a dream anymore, it’s a reality. Government services are moving through digital medium. Businesses are moving through digital medium. Monies are moving through digital medium.Healthcare services, education; any and every touch point of our economy, all public services are now relying more and more on the digital medium to a point that the need for our digital infrastructure is growing exponentially in the country.

Rate of adoption in fact is something that has surprised all of us. Even at the lower end of the pyramid, people in the rural areas, people on the fringes of society are all joining the mainstream of being on the digital medium. The last 18 months of pandemic in fact has accelerated this particular aspect, and I would like to take a lot of credit as our industry, jointly by all the players who are here, that we truly stepped up our efforts and work to ensure that India remain connected.

People who moved into their homes, the traffic that moved with them to their homes, was well managed. And I think we can all, and you can agree with me, compliment the huge effort put in by the teams of all the telecom companies, to ensure that India remain connected during these very difficult and trying times, not just for us as the individuals, but even for companies at large.

I think India has done very well by rolling out extensive 4G network across the country. Today India is in step with the globe in terms of ensuring that the citizens enjoy a very high quality broadband services, based in 4G. In fact, the 4G rollout has been exponential in this country in the last three or four years. Almost every corner of the country is now ably covered by 4G. Efforts made by all companies in this regard are lauded. I would say in particular, Airtel has been able to see this trend coming right from 2012, when we became India’s first company to launch 4G services in Kolkatta and thereafter stepped up on our rollout of the services to ensure that we remained relevant, valid, and a leading player in providing mobile broadband services.

This 15th August, our honourable prime minister made a very strong appeal to the industry at large.He asked us to take more risks. He asked us to put more capital. He indeed exhorted the industry and industry players to show their animal spirits and go and grow the country’s infrastructure to ensure that Indians can benefit from the futuristic networks that we can all roll out. Prime Minister’s pillar of Digital India has been an article of faith with us at Airtel. We believe that the call could not have been more timely by the Prime Minister. And today, when we have taken the step to make a significant announcement of capital investment, which I’ll explain in a little while, in response to his call to the industry at large to put in more manufacturing facilities, to put in more money into healthcare services, to go and do more biosciences, to do more research and activities, more importantly, ensure that all this is enabled to a very strong medium of Digital India, a vision that he holds very dearly.

With all this in mind, it was time for us at Airtel to respond. Yesterday, in the board meeting, on a unanimous basis, including our esteemed partner Singtel, we all came to the conclusion that the company needs to raise more capital. Yes indeed, this has been a flurry of round of capital increases in the company, but you all know that companies who have not been able to raise capital in time have suffered, and importantly have not been able to partake the benefits of a growing economy that we are all seeing. The capital that we have decided to raise, is known to you, is Rs 21000 crores which will be by way of rights issue, the details are already with you from our release of yesterday.

Why are we raising this amount of money? Some questions have been asked, some queries have been posed. The reason for this is very simple. You have expressed from time to time the leverage in our company to be something that bothers you, it bothers us as well. We have been loaded by extraordinary debt, which we could have not imagined just two years back. Even one year back perhaps. The load of AGR, the load of spectrum payments have indeed created an extraordinary load of debt on the company. While we remain very comfortable and Gopal has talked about it in the past. I think we’re comfortable for business as usual. We will be fine with rolling out more 4G networks, we’ll perhaps even be fine with rolling out parts of our 5G networks in substitution to the 4G network. But we believe there is an opportunity to really accelerate our growth path now and for that we wanted to lower our debt leverage, improve our debt leverage, and therefore have access to capital, as and when we need, for the growth of capital that we require.

What are the growth triggers that we see imminently in front of us? 5G is upon us now. I have been saying it for the last three or four years, that H2 2022 will be the time when 5G will start to become a reality in our country. Slowly in the key cities and then going into 2023-24, into the rest of the country, across the length and breadth of our current network. And it seems to me that we are really coming close to that prediction now. The auction of spectrum is likely to happen sometime early next year and by H2 next year which is H2 2022-23, we will start to see 5G services coming in key cities of India.

The other aspect for any new technology or services is the device ecosystem, and I’m very glad to inform all of you that, that particular area is looking very good. 15 percent of devices are 5G-enabled and by the time we get into H2 next year, a very large amount of smartphones will truly be 5G-enabled. Another heartening feature is that the price points for 5G devices are coming down. And I know, once you get used to 5G speeds and 5G throughput capacities, customers will start to lap those services more and more. It’s also India’s cherished desire to see 5G coming in fast. We do of course hope that the pricing on spectrum will be equally made attractive by the government to ensure India benefits from a robust 5G ecosystem.

In addition to 5G, I think we need to roll out more fiber, more than what we have done in the past. We need to prepare our networks for backhauling 5G type of capacities. While we have done a lot of fiber rollout, a lot more needs to be done. And as we do that, we will also do millions of new home passes for FTTH broadband services into homes and of course offices. This has picked up a lot of momentum in the last 12 months. We are seeing more and more people joining Airtel’s broadband network. If you have seen our last quarter announcement as well, the number of fixed broadband connections are now truly rising exponentially. We cannot let that opportunity be missed out by Airtel, which has been in a leading position, other than BSNL to serve India’s connected needs into homes and offices. That will require capital as well.

In the last one year, we are seeing accelerated demand by hyperscalers on Airtel to set up data centers. This is one place where Airtel has the right to win. We not only know how to build data centers, we have the domain knowledge to operate them more efficiently than anybody else in the country.

We have submarine cable assets. We were the pioneers in submarine cables. India’s first submarine cable going from Chennai to Singapore was done by Airtel, and since then we have now got participation and ownership in multiple other submarine cables, which is the heartbeat for any data center. And of course we have a ton of fiber on ground to ensure resiliency of our data centers. We believe, we have a significantly higher chance of winning this space and attracting hyperscalers, as compared to pure play real estate players. So that will require investments as well.

So, the clear position in front of us was, business as usual, for which we believe we are well funded. I think you also believe that, or now go and accelerate on our growth path. What are we seeing in the market place? More and more customers are choosing Airtel. Airtel is becoming a place of choice. The brand is resilient. We are in a lifetime high of our mobile revenue market share. We are getting more and more broadband customers on to us. In the enterprise space, which I have not spoken of because it takes much lesser capital, the large corporates, the mid-sized companies, MSMEs are all knocking at our doors to connect them, to provide them solutions and we are also accelerating that path as well.

To my mind, there would never been a better time for us to press on the gas, put more capital into the system, and ensure that we take disproportionate gains out of the market, as India grows and adopts more and more digital services. It would be a grave error of duty on our part if this was a time when we stayed with business as usual.

I can share with you, I have never felt more confident and I’ve never felt more comfortable in saying I can see Airtel taking a very special place in India’s corporate pantheon of companies. I believe we can press on the gas now and move forward to take more market share in mobile services, significantly higher share in FTTH business, step up on enterprise and global businesses, and importantly, also back it up with strong data centre business.

I’m glad that some of the pain we took earlier is paying dividends today and will hold us for the future. We have the largest spectrum pool in the country. We bought a lot of spectrum in the past auctions, we renewed a lot of spectrum. Importantly we also brought in a lot of spectrum from Tata’s, from Telenor, from Videocon, from Aircel, which is all today helping us in serving our customers, but importantly has become the bedrock for us to serve the customers for many more years to come without spending more money on spectrum. There may be marginal renewals coming up in 2023 and 2024, but they are very small and modest. So other than the 5G spectrum, which we will hopefully secure at a reasonable price in the coming year, we are pretty much done on spectrum, which as you know is not only a lifeline for us but also a very heavy capital commitment that goes into it.

As we respond to the government’s call to invest more money, accelerate the digital vision of India, we equally expect the government also to respond by having lighter touch regulations, by making life simple for telecom companies. Rs 35 rupees of every Rs 100 rupees that the telecom revenues generate as revenues go into government levies. The levies are far too high. If India has to be truly a place where the citizens enjoy digital services – where the government gets a ton of revenue because of digital vision – it’s important that the levies and the load on our industry needs to be brought down.

Lastly, yes this industry needs to have the right economic model. For far too long, we have played this game by growing the industry at very minimal pricing level. People are consuming 16 GB of data, average per user per month. It’s time that the tariffs do take a take-up to make this industry viable and more importantly, having the decent and appropriate returns on capital to grow into more technology arenas, to roll out more networks and become a much more viable model of sustainability in the future.

In closing let me say we have been, and we always will be very responsible. We continuously watch our expenses, we continuously watch our , we put reasonable that we can see ahead on the runway. We will not invest ten years out, but we’ll never be short that in the next one or two years growth that comes through is not captured by Airtel. I can assure all of you that this money will be well spent. Spent in the areas that I’ve described to you and we’re committed to partake the gains this country offers to a handful of players in the marketplace. In my opinion, this is once in a lifetime opportunity, and the time for that to invest more, to accelerate is here and now. “

Question-Answer session
In the recent earnings call the management had indicated that leverage level is comfortable, is there any change in our thought process and why are looking at equity rather than monetizing some of the assets we hold?
Well the first part is I think very well answered by me. Business as usual does not require anything. I think we have sensed an opportunity for which we need to accelerate. Could we manage to raise more debt? I have to be honest we can. There is a lot of goodwill in the marketplace. Our lines from the banks are very low. We can draw more money from the banks. We are getting great responses from the bond markets as well but as you have pointed to us repeatedly, as also our rating agencies, there’s the right balance to be achieved between more debt and some equity. In my own opinion, therefore this new equity is not a change in game plan, this is not a change of heart. This is the need of the hour. This is the need for the company to accelerate beyond business as usual.

As to the second part, I think we remain committed to monetization, but monetization at appropriate time, on appropriate terms. We have a very large shareholding in our tower company Indus, at nearly 42 percent. That’s an asset which is not core to the heart of Airtel but equally, it’s a very important asset which we don’t take lightly. We have ton of fiber. There are moves that we have seen across globally and here in India where fiber have been monetized but in the right and appropriate way. I can show you that these assets are on our radar to be monetized at an appropriate time. We are not giving you a different signal today by saying, we will not monetize them but we will not monetize them at any cost. We would do it at the right time, at the right valuation, in the right structure.

The next question is around the promoter’s stake. The promoter stake in Airtel has declined over the last few years. While the rights issue will obviously not result in any reduction but how are thinking about the long term stake of promoters into Airtel?
We have to really see it from a promoter group as one, rather than seeing as separate promoter groups. At 56 percent, promoter holdings in this company, I would say this a fairly large shareholding for the size of the company we are in. Bharti Telecom which is the premier promoter group company in itself holds about 36 percent, which in itself is a very large block. Then there are blocks held directly by Bharti entities, and Singtel entities, outside that. So I would say we are at a comfortable level at 56 percent. If your specific question is about Bharti Enterprises’ stake I think we see Bharti Telecom as a key subsidiary of the group which holds 36 percent, plus another plus percent held by other group companies. At 42 percent, we remain a very comfortable shareholding level and honestly we don’t see any reason for market to be alarmed about it. But you also should know that no promoter goes down his shareholding by choice. This industry has seen hell for the last four-five years. Eight, nine operators have disappeared. A very strong combined operator today is struggling. In the face of that, I think you will give us credit that we did dilution or raising of more capital in good time rather than chasing capital when none would have been available. We were timely, we did the right things, we did not bother about the stock price at different levels. We raised capital and the outcome has been very clear. We are today standing very tall because of the large amounts of money that we have raised. If that has resulted in some drop of our shareholding, we are fine with that.

Bharti had recently added five percent equity stake in Indus Towers, so therefore does the company plan to further increase stake in tower company with the rights issue? The second question is on OneWeb. What are your thoughts on the satellite business and would Bharti Airtel also be investing in OneWeb in the future?
Well you know both points I did cover in my earlier remarks but as far as Indus is concerned it’s a very strategic asset. A life of a telecom company is in the hands of a tower company. You cannot have a situation where you have a weak tower company and then you’re struggling to run your networks appropriately.

We have seen in the past there were weak operators, GTL and one or two others who where the operators riding on these networks suffered immensely. Airtel cannot afford that, and we ran Infratel as a 100 percent controlled company and it was listed as you know. Then we had a lower stake in the same: in Indus, we had a 42 percent stake. After the merger our stake was at a level where we were less comfortable in having greater influence on it. A five percent stake was bought last year and all I can tell you is the money that we have planned to raise from the rights issue, there is no allocation toward buying in the stake, but would we desire to have greater influence in Indus at some point in time in the future?

The answer is a definite yes. But it will be done at the appropriate time. It will be done only with a purpose, strategic purpose, and importantly as I said, this is a monetizable asset and I can tell you, if you have to monetize it tomorrow, you will be significantly better served by handing over influence to somebody else rather than giving them a weak shareholding in their hands. So let’s watch this space. There is no hurry on this. But last year’s five percent has given us an extra board seat which has increased the influence in Indus. We look at it a much stronger way and we feel much more comfortable that Airtel today is in safe hands when its towers are radiating on the basis of what Indus has created.

On OneWeb, I think this question keeps on coming occasionally. Airtel has no investment into OneWeb Global. The entire investment into OneWeb is from Bharti from Bharti Enterprises with no correlation with Airtel. In as far as Airtel is concerned, it will be a partner of choice for OneWeb in India and the total investment in India of OneWeb in setting up ground stations will be circa 30, 40 million dollars, let’s say about Rs 250-300 crores, of which OneWeb Global will be taking some debt. Airtel’s equity participation in Indian joint venture could be in the order magnitude of five, seven million dollars. So we are talking about rs 30, 40, 50 crores of investment in OneWeb for India segment only. So I must make this very clear, there are no plans for Airtel to buy my stake from Bharti Enterprises or invest into OneWeb Global. We are talking about very tiny amounts for Airtel to be the custodian of OneWeb on the Indian and South Asian market

On the balance sheet. India Inc in general has been talking about reducing leverage and what is the view of Bharti Airtel’s Promoter on deleveraging the Airtel Balance sheet and what is the steady state net debt to EBIDTA target if you can share for the company? And a related question is for the FCF generation opportunities going forward into next year, how are we thinking about it? Would be delever the balance sheet or would we invest it back into something related?
Well we’re a very pureplay telecom company. We have never deviated. We don’t do other industries from Airtel. All those are done painstakingly by our family entities, our Bharti entities. We have never mixed and matched. We don’t do real estate from here, we don’t do manufacturing from here, we don’t do our other stuff from here. This is a pure play telecom company. This was the commitment to our shareholders 25 years back when we started, and we have kept absolutely pure to it. There are some exigencies which keep on knocking at our doors, we evaluate them. Most of the time we have rejected it. If something comes up, which is digital in nature and core to our business, in future we could look at that, but they have to be very low capital intensity opportunities. Our large capital intensity or 95 percent of it has to be in the telecommunications arena.

Though I would say in as far as our de-leveraging strategy is concerned, if you ask me personally, what’s my comfort level? My comfort level is debt to EBIDTA ratio of two. Can we get there? My own view is, by and by, we should get there. We have, as I said very large monetizable assets. We have a huge equity in Africa. We have a huge equity sitting here in Infratel, Indus now. And we have a huge fiber assets that have not been encashed at all, 100 percent sitting with Airtel. There are of course very large real estate assets, at some point in time, they could become opportunities as well.

And I also believe that the cash flow from this industry are bound to increase. If this industry has to be sustainable, you will start to see an early takeoff of tariffs and ARPUs going into the next several months. Though, a combination of monetization on one hand and improved financials in the other could start to see in the next few years, and I’m not talking about 10 years, I’m talking about just two, three years. Airtel becoming much much more comfortable in its debt profile.

The next set of questions are around our trajectory. Would today’s narrative around 5G and accelerated meaningfully change our trajectory? And in the instance that the Indian market goes for duopoly could there be a meaningful change in our ?
Well I would say we have done significant. I mean we have not shied away from. We know our telecom companies, who have pulled their hand on have suffered heavily and this is something we have known for 20 years, and therefore always we have been ahead of the game. My own view is that we will continue to roll out that is required. I also personally feel that as we go forward, the consumption of per customer user, is not going to exponentially grow from 16 GB, which is already a global record by the way. So, we believe there’s enough capacity that has been created to now generate rewards back for us. In the event there was a situation where more customers were to suddenly come into Airtel’s fold, I think we are in a good shape to carry them through our fiber mobile networks and I don’t see therefore any reason for us to be worried about. But yes, this Rs 21,000 crores gives us exactly that leverage that we need. The fuel to grow that extra mile that we can sense is around the corner.

As part of this larger investment that we are talking about, could we also see a change in our handset strategy?
I’m going to toss this to Gopal. He was much more closer onto the handset side. So far, our company has been fortunate, or industry has been fortunate, for I would say 25 years not to spend billions and billions of dollars of subsidies that the world does across their markets. India has escaped that, so far we have not been required to do it, but I’m sure Gopal has a clear strategy on that as well.

Gopal Vittal. Handset subsidies by themselves are much I would say a mugs game. Because what happens is that when the handset comes up for a renewal, at the end of two years or 30 months, the customer makes the choice all over again, to actually choose a network, and as a consequence to stay in the same place you need to keep subsidizing again and again. And I think world over it’s now clear that handsets are really value destructive in that respect. Having said that, I think this is a competitive industry so we will look at what happens in the marketplace through a combination of good marketing optics, through a combination of some capabilities, platforms around locks, we’ve experimented with lending options to actually provide some loans to our banking partners on a locked device. We’ve done some pilots with a few companiesom, se of the large manufacturers, OEM manufacturers. So we pretty much have clarity on how we deal with this.

But the one thing I do want to underscore is that if you look at handsets, as a market, unlike any other consumer market in India, the lowest priced handset, smartphones specifically, between four and six thousand rupees, strangely have actually the smallest market share of the total handset market in India.

And that is simply because consumers spend four to five hours on their device and therefore when they upgrade they’re looking for a good quality device. As a consequence I think we are going to watch the space and then based on what happens competitively we will take our position.

Thank you Gopal. The next set of questions are on ARPUs. What do you believe is the long-term ARPU trajectory for the Indian industry as a whole and which player do you think will blink first in terms of taking up the tariff hikes this time around?
Sunil Mittal. Well you know this has been my stated position for the last several years. We need to get to 200 rupees very quickly, and you know I don’t have a crystal ball in front of me but if I have to say this industry needs to survive, this industry needs to thrive, we need to get to 200 within this financial year. I would say we should aim to be at 200 by the time we end this financial year.

Eventually this industry needs to be at 300 rupees per customer per month. And in that you can enjoy a ton of data that Indians are used to, music, entertainment, Netflix, Amazon Prime, financial services, banking, you know electronic banking, health service, whatever is required should be available to our customers. So we will put in a lot more stuff but we need to get to a 200 point and then eventually 300. The beauty of our industry is it’s very granular, it’s very segmented. For 100 rupees, a customer will be able to be on the network, have a small amount of snacking of data and then you can have customers going up to six, seven, eight hundred rupees enjoying everything possible under the sun, even then the tariffs in this country will be by far the lowest anywhere in the world.

So I remain very confident that we have seen the worst now in terms of tariff wars. We have seen the worst in terms of ARPU contraction. Do remember that in 2016 September at the launch of a new powerful competitors, we had all gone below 100 rupees. We are at about mid-point 145-150ish, this will start to turn towards 200 within this financial year. That’s where my indication is. I would hasten to add that I have a strong confidence that the industry will get to 200 within the financial year.

One set of questions from investor is around the timing of the rights issue. In general,, we’ve seen that our stock price was doing very well. Our on-ground execution has been strong. We have been gaining market share, so why did we choose to dilute now rather than waiting for the industry to consolidate even more and share price to reach 750-1000 levels?
Well you know, there’s never the right time for anything. You can always in hindsight look at things but imagine if we wouldn’t done our first rights issue? Imagine, we wouldn’t have done our QIP and SCCB. Possibly we wouldn’t have had the right to do another rights issue. Our company could have been in doldrums. We could have been in serious difficulties. So rather than being too opportunistic, too greedy, in terms of what pricing can come through, you have to do things at the right time. My biggest concern would be that you would have accused me and my team back, to say why didn’t you wake up in time, when you knew very clearly that such a large growth opportunity is staring at you? We can see it, and I’m not exaggerating here. We can see it, at the time as I said is here and now. Any delay one or two months delay, I’m not talking about, a delay of more fundraising to next year could have been detrimental to the fortunes of this company. And I hope that we will be able to have it chat a year from now and you will be able to say this was the right decision.

The next set of questions are on our digital strategy. With recent restructuring, should we expect Bharti Airtel to be more aggressive in the digital side, and are we looking to monetize the digital side of the business? Could we have any strategic investment coming in either at the Airtel level or into the digital side of the business?
Well you know digital has been an area where we picked up momentum, albeit slowly. I think most companies which are coming from traditional backgrounds, even though they are in technology like Airtel take a little bit of time to get going, and many don’t actually get going at all. We have never used narrative of digital to galvanize our story. We have been working in the trenches on our digital strategy, and I can tell you that I am today so pleased to share with you, that Airtel truly is today, a company which is digital in its core, digital in its services, and importantly the customers are feeling it. Whether it’s the advertising side of it, whether it’s the Airtel IQ, various touch points to our sales team, our entire sales management, distribution management, our networks internally are being monitored on digital. But importantly, more and more enterprises are picking up our digital services.

Wynk has got now a record number of customers using it, active customers. Airtel Payment Bank has got a record throughput of transactions and customers on its network, Airtel Thanks is in a record-breaking addition of customers using a variety of digital services. So, today I would say we are strongly a digital company and in the coming quarters you’ll start to see us now talking a lot more about it and also trying to give you our revenues coming from the digital, which will start to get fairly impressive I would say.

Pure play digital revenues which are all more or less flowing through the EBIDTA line are all coming through very, very strongly, and we have again a right to win there because the right platforms have been laid out. It has taken us four-five years to get there but we are there now.

In terms of, will we monetize digital? I have heard this feedback from the market. Why did you buy out 20 percent stake back in Telemedia on the DTH? I think people get wiser in hindsight. All our customer facing units, where we go to the customer, needs to be in the complete control of one company and one, which is Airtel. When you have a subsidiary which has a different set of shareholders, however friendly, and, known to us like Warburg are, there are two boards, two separate companies, related party transactions. You have seen the Airtel Black, it’s been hugely well received in the marketplace, big success. We want to give all our services which are go to market, customer facing, as one. So digital to my mind again is something we can’t slice and dice. We need to keep it all under one company, which is Airtel.

Whereas infrastructure pieces like fiber and towers are very different. They are not my go to market assets. They can be sold off, they can be monetized, they can be part monetized or wholly monetized, but the company, which faces the customer must remain one. So if you will see ever any alliances, any tie-ups, any equities being given to some strategic key investors from the globe, they’ll be only at Bharti Airtel and not in bits and pieces downstairs.

Some investors actually moving back to the tariff narrative we just discussed and people want to know that why doesn’t Airtel take the lead in raising tariffs in the industry?
Well you know, in a limited way we have been doing it. We’ve moved you know first to 49 rupees as a minimum click-in charge, then we have taken it recently to 79 on all India basis. And the good news is that it’s been very well received in the marketplace. Can this go to 99 eventually? My answer would be an emphatic yes! The question is when?

In the end we are also bound by the market forces. We can’t be an outlier beyond a point. You can be having a sum premium, given your strength of brand and the attractiveness of you to the customers but you can’t go beyond a point where you start to hurt yourself.

We will be vigilant, but we will be happy to take small baby steps which could even be first and foremost compared to others. So I can assure you that we will not shy away from doing it, and these 79 rupees and some post-paid plans, which have been taken up are a testimony that we have run out of patience and we have taken the first book.

The next set of questions are on Airtel Africa. How do you think about Airtel Africa over the longer term or the medium-term horizon? And could Bharti actually look to exit the asset at some point of time in the future, if we felt that the India opportunity in itself was very compelling?
Well you know Africa is now done. If we had to wind back the clock, that money could have been put into India. The answer could be toss-up. Could be both ways. Africa looked very attractive and we went in there. It’s taken us much much longer than we were originally thought in creating a success. It’s been 10 years now, we are in our 11th year there.

But the last four years have been delightful. What a turnaround story this has been, and this is a true Bharti Airtel DNA where we don’t easily give up.

Today that company is outstripping the competitors in terms of growth rates in every market that they operate. It’s a solidly EBIDTA positive company, it’s a dividend paying company, and a regular dividend paying company. And we also have a very clear dividend strategy there. And the stock price is also rallied up in the last year, year and a half.

It’s an asset which doesn’t load Airtel India. It’s an independent asset, an independent board, it’s a FTSE 250 company, listed on the London Stock Exchange. Company will continue to hopefully grow at a faster clip. We have made reasonably strong interventions and investments in Africa to reap the rewards, going forward.

Could there be an event in Africa at some point in time? Who knows, I mean you can never say never to anything. But of recent vintages, what we’ve done is showcasing Airtel Africa Money which is brought in three very strong marquee investors demonstrating a massive hidden value, a hidden gem within Airtel Africa. Which is probably the same value as the mothership. And that has been demonstrated through investments recently by QIA, before that TPG, and of course Mastercard. And I can share with you lot more people are very keen to subscribe to more equity of Airtel Money there.

So my own view is we have a very strong asset which is growing at probably twice the pace of our competitive set of players in the market. So let’s grow this asset, we have spent a lot of time, lot of money on this. Let this be USD 10, 15, 20 billion asset in the next few years. I’ve no doubt, that if we can continue to show what we’ve been doing in the last few years, the next four or five years could have a multiplier effect on the value creation in Africa.

Shifting gears a little bit. Some of the investors want to know what is the leverage at Bharti Telecom. And could we actually have a scenario where Bharti Telecom again sells shares in the future to bring down leverage?
Well I know most of you are upset with what we did, and I know this may be a matter of concern. I think we’re at a level where selling anymore would really be not appropriate for us and we have no plans. I think we have to see ourselves in the situation when we did that. The debt load on the company was high, AGR had come like a ton of bricks, rating agencies had started to roll in that debt into our overall debt. The messages we were getting was that people hate promoter companies being leveraged.

Even though we had no pledge of shares or anything like that, which we’ve never done, that message was loud and clear. We responded to that. Today Bharti Telecom has zero debt and that means that, that company doesn’t need to do anything. We didn’t last time sell and pay ourselves rich dividends to enjoy cash flows coming to us as shareholders, it was just to pay back the debt which has been done. So there is no plan, I don’t want to ever pin myself down to say, ever, but there are no plans to sell anything and Bharti Telecom is absolutely in a comfortable position to subscribe to its portion and perhaps much more.

One question is on the structure of the rights issue itself. Why this deferred payment structure rather than actually taking money upfront? Why staggering it out over 36 months?
Well, I think we’ve followed some of the best leading rights issue in the marketplace. We saw Reliance and Tatas do it, we just felt that was the right thing to do.

Secondly, more importantly, this allows the shareholders to put in money over a period of time, gives them a better, I would say time value for their money. And we will draw this money as Gopal’s plans keep on getting crystallized, as his acceleration starts to take place we will keep on coming back to the market. In our assessment, it should not be more than three years. But will it be six months? No.

So there’s a reasonable period indicated out there. We’ll pick up 25 percent immediately. One tranche will happen probably midpoint. And then much before the three years, or depending on how the cash flows. If the tariffs suddenly rise, maybe we have more leverage to defer by a few months. So let’s see how it goes. The idea was to make it easy for all to invest and take money only when it is required.

A related question is what is the general capital allocation policy you would like to follow? How do you think about raising money at the parent level and what are the parameters within which you would invest it in the subsidiary companies?
Well I mean, I would say subsidiary companies are all. It’s our go to market, are going to be intrinsically 100 percent owned by us. Today, if we had a clarity on non-telecom revenues not being AGRized I would put DTH in the same bucket as Airtel. So even if they are 100 percent subsidiaries, whether it’s DTH or it is our digital player, they’re all really part of the mothership, so take it as one. And the capital allocation is for all these areas.

In terms of infrastructure site, data centers where we have got Carlyle now so that becomes a subsidiary in which you have an additional shareholder. The money that we have got from Carlyle and some more is to come by March, probably is giving us enough leverage to roll out some data centers. But to accelerate that, we are allocating some more money from this rights issue.

The allocation will be on a need base. What we can see for the next two years, next three years, we’ll start to invest in that. We don’t want to heavily front-load investments. And the beauty of telecommunications is you don’t go out and build 10 million steel plant or a 10 million ton refinery or a 10 million ton fertilizer plant. You grow as the need comes but equally you need to be prepared for a large influx of customers or traffic rising, and to that extent, as I said we will be very responsible in putting just enough to take us for the next one or two years, because even if you go wrong in your assessment you always catch up with the normal growth. So that’s the way we will allocate our money.

We are very responsive. Two things are critical for us, war on waste, we challenge every dollar that we need to spend, but equally we don’t hesitate to spend 100 million dollars where it’s required, so that’s the philosophy we’ve always had and we’ll continue to.

So in the interest of time I will only be taking two more questions. The first question is on a related question on . The 4G cycle eventually saw us investing close to 35 billion dollars. Where do we think the 5G cycle will lead us? What will be the total investment that we foresee over the 5G cycle. And the second question is, there is a third operator in the market who is weak, possibly likely to go through the IBC route. Would we be interested in any assets there?
Well the second question is very hypothetical. I shouldn’t be answering. My stated position has been India should see a three private player scenario and I will still keep on actively supporting that. We have enough spectrum, we really don’t need any more assets to be taken from anybody else. In our industry the value of base stations, and towers is very limited. Fiber which is sunk into the ground is very limited. So I would say we should all hope that even though weaker, our third operator should be there, and be in the marketplace.

On the 5G I would say in my opinion, 4G is largely done, other than the extra capacity that we are trying to create for any surge in traffic, for which we will provide for. Otherwise the 5G will start to replace our cycle of 4G . So I don’t see a significantly higher amount of 5G coming through. And the beauty of 5G is that it has very large capacities. I mean the difference from 2G to 3G to 4G we have seen the delta of capacity creation with the same dollar is huge, and in 5G of course it goes into 100x situation from 4G.

So, putting a 5G in areas where there’s more traffic on 4G will be ideal. We will be very granular, very modular in our approach. Key cities will be taken up first. We spot the 5G device population in each of our market. We go actually each of our vice data. So wherever we see more 5G devices showing up on our network we will start to light those 5G base stations up. But they will work very seamlessly with our 4G network as well.

So it will be very judiciously spent. That’s why I’m saying, if we can somehow have the right price point for the spectrum, which we urge the government to look into, the growth of the 5G network will follow the traffic, the devices.

I mean I travel, even despite the pandemic, actively across the world, and I can tell you it’s not that everywhere you’re going into London or into Paris or into New York, you’re seeing 5G networks or people actively using 5G networks. It’s getting better by the day, but it’s not a house on fire at the moment. So India will also see 5G coming in, in a nice pace, which will not put too much pressure. But one area which I must highlight is the fiber. You cannot be caught without guard by not having the backhaul in place. That part you need to invest now, because 5G is coming. It’s only a matter of whether its six months after the H2 next year, or one year. And that takes time. Fiber digging, fiber connectivity, is a long lead time and a large investment has to go there. On the radio network side, or the core of 5G, I will not worry too much. It’s very modular and will be well planned.

Any closing remarks.
Well, thank you very much. We may not have been able to answer all the questions in the given time, but I hope you get a drift of where our mind is. We will remain very, very focussed on how we spend our monies. Your monies actually, you give us the money. We are the custodians. We participate alongside you, to give you the confidence that it’s not just your money, but it’s a collective pool of monies that we are responsible for. It’ll be very well spent.

I personally feel that the dollar that we’re going to spend here and after is going to yield a significantly better return than we’ve seen in a long period of time. Will we get to the heady days of the first ten years of Airtel where we had 32 percent IRR? Possibly not.

But will be remain in these two, three, four percent kind of returns? Answer is again absolutely not. We will be in healthy teens, and I’m not talking about too distant in the future. So every dollar that we can spend now, must be spent, otherwise we’ll miss this opportunity. Thank you.” BCS Bureau