Bharti Airtel Ltd
NSE:BHARTIARTL
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
971.55
1 771.1
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Bharti Airtel Ltd
You don't have any saved screeners yet
Good afternoon, ladies and gentlemen. I am [indiscernible] the moderator for this webinar. Welcome to the Bharti first quarter ended June [ 30 ] 2023 earnings given off. Present with us today as [indiscernible] leadership team BA Limited.
I must remind you that the overview and discussions today may include certain forward-looking statements that must be viewed in conjunction with the risk [indiscernible]. Post the management opening remarks, we will open up for an uninterrupted Q&A session. [Operator Instructions] With this, I would now like to hand over to Mr. Gopal Vittal for the opening remarks.
Thank you very much, and a very warm welcome for our earnings call for the quarter ended June 2023. With me on the call are Soumen, Harjeet Kohli, Naval and Sunil Aldar. Let me start by giving a quick update on our business, and I will start ESG. During the quarter, we were recognized by the economic times as well as business world for our sustainability practices and leading the charter in India. Let me give you a few examples of the progress we have made, especially on our green agenda. Nxtra now utilizes renewable energy for 41% of data center energy needs. That's a big jump from 32% a year ago. 43% of our network sites are now green sites. These sites consume less than 100 liters of diesel in the quarter versus 420 liters on an average for other sites. The rural site expansion we want to take is leveraging green energy for 35% to 40% of requirement. Such initiatives have us reduce our diesel emissions in the network by almost 48% per terabyte of data. And this is lower the last 2 years. In addition, we continue to double down on our agenda to drive diversity in the workforce as well as make agile a safe and secure workplace.
Let me turn to our financial performance. We've delivered a strong competitive performance this quarter. Consolidated revenues grew by 4% sequentially to a shade under INR 37,500 crores to INR 37,440 crores precisely. Powered by a strong India performance. India revenues grew by 4.5% sequentially to INR 26,675 crores. EBITDA margins were at 52.7%, this is an expansion of 0.5% from the last quarter, aided by the continued momentum on the war on waste program. And let me talk a little bit on this program. This quarter, we really focus on our network costs. Our network cost takeout program has been delivering a very strong outcome. Network OpEx for India declined by 0.5% despite our roll-ups. So in effect, for the first time in the history of the company, the operating cost per site per month was actually lower than what it was in prior quarters. And this was done through a combination of identifying very high-cost sites, I had referred to this a quarter ago.. that we've identified over 15,000 sites that are more than a lack per month in terms of network OpEx per site. We -- our teams have visited every one of these sites. We've put in place basic hoc solutions that include either solar solutions or better batteries, sometimes reconfiguring the site rental negotiations or indeed even relocating the site. And this is really what has helped us take this cost to sell a new baseline on the network OpEx per site.
The company generated operating free cash flows of INR 4,827 crores for India despite the elevated CapEx. Our CapEx, as I've highlighted earlier as well, continues to be front-loaded at about INR 9,300 crores for the quarter. So while the full year CapEx is more or less in line with the INR 28,00 crores to INR 31,000 crores guidance that we've given for the year. You must also remember what this CapEx is for. It is really for future proofing edge, 5G radio rollout, transport infrastructure, broadband rollout and data centers, each of these is a massive opportunity for future growth. At the same time, despite the elevated CapEx, our net debt to EBITDA for India is down from 3.43% in quarter 4, of last year to 3.19% in quarter 1 of this year. In fact, I do want to mention that in addition, we prepaid INR 8,024 crores of relatively high cost liability from the [indiscernible]. Our growth was broad-based across our segments, Mobility, Homes and Airtel business. This underscores the simplicity and execution of our strategy, focus on quality customers, deliver digital at the core and strip out waste, more about this a little later.
Let me switch to a quick update on each of our segments. In the mobile business, we added 5.6 million 4G net adds. Postpaid this quarter saw a significant acceleration and contributed to almost 26% of the overall net adds for the quarter coming in at 833,000 net adds. The ARPU up to INR 200 versus INR 193 in quarter 4. This, as you know, is the first goal post we set for ourselves a few years ago. We are now looking at getting to the next goal post, which is a longer-term goal post of the target of INR 300 ARPU. The movement in ARPU, we've seen reflects the power of our premiumization approach that I talked about earlier. What is driving this premiumization Feature phone smartphones gives us an upgrade for feature phone to smartphone gives us an ARPU upside. The 5.6 million 4G net adds is a clear ARPU upside there. Prepaid to postpaid is one area where the ARPU pretty much doubles. The third area is really data monetization. This is really driven through a very, very strong mix of contextual targeting, sophisticated data science and simple digital journeys. Data consumption by itself gives us again a significant upside. And then there is international roaming, where we simplified our journeys dramatically simplified our pricing dramatically and we have doubled the penetration of international roaming on the prepaid side. So the combination of all of this every single lever adds up to this ARPU journey that we've been on. And of course, the last part is the movement that we made of the INR 99 to INR 155 price point, which has also given us a small upside.
Let me turn to broadband. We have continued momentum there with more than -- with about 413,000 net adds. We're now present in 1,225 cities, up from 983 last year. There's an intense focus on driving sales force productivity, which has improved significantly by almost 20% through a mix of digitization and execution rigor. In the DTH segment, we lost 28,000 customers largely due to seasonality, led by the pullback of cricket in the Hindi belt. If we de-average the performance, our core Southern markets continue to do well for us with positive net additions. We've put together a market-specific strategy to address this issue as well as stepped up focus on the convergence portfolio, which gives us an ARPU upside with increased customer stickiness and specifically referring to Airtel Black. Today, 25% of our DTH acquisitions are happening through the converged plans. At the same time, in the DTH segment, we did grow ARPU sequentially, aided by our price simplification and through or through from the market price increase in quarter 4. Airtel business has been a strong performance. We grew sequentially by 5.6%, and growth was broad-based across segments and products. So both the core as well as adjacencies. We are starting to see momentum in adjacencies. We won multiple deals during the quarter. In SD-WAN, we won 2 large multiyear deals from banking customers. In the cloud, we won a multiyear deal from state government for supply, installation and commissioning exadata servers and migration of existing applications with data. CPS continues to look strong and data centers continue to fill out fast even as we ramp up the build-out of fresh data centers.
On the payments bank, for the first time, the bank reached a quarterly revenue rate of INR 400 crores. Deposit growth remains robust at 48% over last year. Annualized revenue run rate now stands at over INR 1,600 crores versus just about INR 1,500 crores in quarter 4. On the digital businesses, we are now tracking well with an annualized revenue run rate of about INR 1,200 crores versus INR 1,000 crores in FY '23. Market tailwinds continue across focus areas. These are CPaaS or financial services, and I will talk a little bit about this in a moment. security, particularly cybersecurity, which is a growing threat as you know, and cloud. Now let me down a little bit and underscore what I've said in the past on the future of Airtel. If I look at Airtel today as a company, we're already generating an annualized run rate of almost INR 19,000 crores of operating free cash flow despite a front-loaded and elevated CapEx. Going forward, we expect this to improve given ARPU growth, organic customer adds, premiumization, portfolio resilience, our focus on cost and CapEx moderation after the elevated front-loading we have today.
And this underlying future is really based on 5 fundamental stress and I do want to again underscore these trends. The first is our portfolio resilience. Africa, today accounts for 30% of our business. India mobile is about 54% and the underlying performance of both continued to be strong and has significant upside. The homes and enterprise business constituted a balance, whose contribution has been increasing steadily over the years with the tailwinds that we have in those markets. Both these businesses have tremendous market momentum. Our investments will be channeled to where the growth is, making the portfolio even stronger and even more resilient. The second strength that I want to talk about is our brutal focus on quality customers. And like I mentioned last quarter, we see this through the lens of 2 big geography opportunities, clear segments. One is rural and the other is the top 150 cities. Let me start with rural. As you know, we identified 160,000 high potential villages for expanding our network to win our fair share of 4G net additions. This expansion continues to be in line and is delivering as per expectation. In fact, it's delivering modestly ahead of expectations, both on the revenue per site as well as lower on the operating cost per site. And the reason that it is really driven by digital tools and data science to plan the network in a precise optimal manner. This, coupled with our execution rigor is giving us results. Let me now turn to the top 150 cities, which is the second lens through which we look at the quality customer opportunity. In the top 150 cities, more than 80% of the postpaid broadband convert homes and in fact, 100% of the B2B opportunity is concentrated. Our focus is to win these cities by bringing the full power of the Airtel network, our channels and all powered using digital tools --
-- for the top 150 cities, let me provide more color around each of our segments. Let me start with postpaid. We double our ARPU every time a customer moves from prepaid to postpaid. And we have multiple levers that we look at. One is the proposition lever, which is the family plan, almost 65% to 70% of our users now are on family plans with very low shots. 5G is a very strong pivot to actually entice the customer and come the -- make them come on to our network. And the third part is really a quiet rollout of more stores -- of our own stores into neighborhood cash meds, which is where the opportunity is all of these 3 levers are continuing to kick in strongly. The second area in the 150 segment,-- in the 150 city opportunities homes. The rollout share continue, and today, they're at 25.6 million homepasses. Our one Airtel transport planning is the focus for rolling out fiber year. We are leveraging data science to estimate demand across all our businesses, our Homes business, our mobility business and our B2B businesses and rolling out in a much more coherent way. This will ensure that there is very, very minimal customer leakage of a situation where there is no network available or no fiber available. In addition to that, it shows very efficient economics. Second part is the convergence continues to be the proposition around which more than 1/3 of our high-value homes today, which are on Airtel Black already. And as I mentioned, the family plan continues to grow. With increased fiber capacity and therefore, our focus is now on really sales force productivity. The third area of the 150 cities is B2B. We're doing 2 things here. First, we are really setting the go-to-market right for our top accounts. As I mentioned before, the top 500 accounts contribute to a majority of the industry's growth. And we've really strengthening the go-to-market by allocating our top account managers to these accounts, upskilling them strongly engaging with customers leaders to understand their needs better and solving for it. The second part is that in a competitive market, experience is a key differentiator. And therefore, we are investing behind building and upgrading to things like flapless networks, which have very, very high-quality, low-latency networks that are enterprise-grade in key pockets. We're also simplifying and digitizing our processes as well as shoring up our capability of our teams on the ground.
The third strength that I want to talk about, [ PAML and Telit ] is our obsession with delivering a brilliant experience. As you know, quality customers want a quality experience. And so one of the things we've done is we've changed the metric of measurement to interactions because any interaction, whether it's happening on social media, on the web, on the app, in the call center on e-mail or in our store, is a signal for us for a potential fault and this has infused fresh energy with the new leadership that we announced in the experience set. The focus here is on structural solutions on the network at an architecture level end-to-end simplification and digitization of processes for more proactive solutions as well as more transparent communication in the channels that matter and the time that matters and in the language that matters to our customers. To enable this, we continue to build and deliver on 4 key platforms: buy, build, pay and serve. Each of these platforms is exposed in an omni-channel manner across our channels and is powered by our underlying foundational data layer. Initial results are encouraging, with mobility interactions having reduced by 14% over the last 2 quarters. And by the way, this also lowers the cost to serve. Broadband and DTH numbers are also tracking well and the learning from mobility is going to accelerate the rate of decline in these businesses.
The fourth strength I want to talk about is digital, which is now deeply embedded across Airtel. As I mentioned, we see Airtel in 3 parts. The underlying foundational layer is what we call the digital infrastructure layer, which is really the network that we have. But even more importantly, the data infrastructure that we have where we've invested from the last 5 years. The second part of our stack is digital experience, which is a buy, build, pay, serve journeys. And the third part of our stack is our digital services. All our digital services right on the 2 lower parts of our stack, the digital infrastructure and experience, and I've talked about this in my earlier comments on this call. These digital services now that are built on top of these 2 layers, span ads, Airtel ad, CPaaS, ArgeliQ, IoT, cloud and now SD-WAN as well. But in addition to this, we've just recently launched in the last few months, lending in the form of Airtel finance. Let me try and give some color to this business, which I'm quite excited about. Airtel Finance is just about begun testing waters in the marketplace in the last few months. The interesting thing is that this whole opportunity is only predicated on our underlying data infrastructure. So we're not carrying any balance sheet risk. It's just predicated on the underlying data infrastructure. And we've developed 3 capabilities: 1 is a proprietary lending model. We're reaching out to the right user with the right user -- typically are reaching out to the right user and the right offer is a challenge that most NBFCs and banks alike or [indiscernible]. What we've done is created an AI and ML model that deciphers over 2,000 patterns to help our partners improve their underwriting and fraud detection capability. Additionally, this also helps identify a customer's propensity of taking a credit product. We've built a recommendation engine that uses state-of-the-art models to recommend the best offer to the user in real time. Over the last few months, our models have been tested by various banks and NBFCs and have shown good results. As a consequence, our partner banks and NBFCs have started leveraging our models to reduce their portfolio risk.
The second part of this capability is a digital lending platform. Extensive and elaborate processes along with heavy documentation, makes the lending process extremely cumbersome for users. Along with these challenges such as lack of privacy, lack of trust, a fragmented experience. All of this acts are a detterent for customers to access credit products. To solve for this, what we're doing is digitally owning the entire customer life cycle, starting from discovery to post-purchase loan management and repeat purchase. This platform can quickly onboard multiple partners and product lines. The digital onboarding for consumers and post-purchase journeys are bid on the platform, which utilizes our data capabilities in real time to always bring the best experience to customers. And the post purchase journey on tanks app means that once the customer has taken a financial product, he or she can manage their credit product on tanks app instead of downloading the bank or NBFC application. This post purchase journey also helps in driving cross-sell and upsell to existing customers.
The third part of this is our collections platform. We're also handling collections. Given utilized features like a precall an announcement. So just before the call is getting connected, there's a reminder, but those not paying EMI on time, along with leveraging data for early warning signals to decided collection strategies. Collections done by us for our loans, originating through our platform provides a consistent experience to our customers. And our performance on first bucket telecalling directions is more than 96%. Using this in literally the last few months, Airtel Finance is disbursing loans at a run rate of INR 450 crores per quarter. This is literally in the last 3 months. And we believe this has enormous potential for growth since we exposed our offer to a near 5% of our total user base. We are also distributing credit cards in the platform and are already at a run rate of 260,000 cards per year, but we haven't scaled this yet, given some teething problems around experience, particularly on fulfillment, and we hope that these will be fixed soon. The notable thing about this is that all this generates a net profit of almost INR 75 crores annualized since it involves just 35 engineers working on the data model. So they're just one example of how the data infrastructure comes alive in the form of digital services. On B2B, our ongoing investments in cloud CPaaS, undersea cable room expansion through partnerships is a testament to our confidence in the growth opportunity. The additional stake purchase of 20.6% in Lavelle networks will strengthen our presence in SD-WAN market with accelerated growth in the medium term.
The fourth area I want to talk about is modern waste. This is now deeply embedded into the company, and we take pride in our frugal culture, but thoughtfully done. To attack key areas of waste. I've already talked about the network takeout where we've been able to reduce our OpEx per site by 7% in the last few months. The second area is our CapEx prudence. The way we roll out a new site or indeed a 5G site is based on a very granular understanding and data science using multiple data sets. As an example, we're already seeing 30% offload of data on to 5G networks as devices come in. We hope the device fixed towards 5G changes rapidly to increase this offload. As a consequence, our capacity investments into 4G are now down to 0.
The last and perhaps most important strength that we depend on is our culture. And if I were to sum up the culture of Airtel in just 1 word, it is this ownership. Our people behave like owners. It is their company and their money. This is a priceless aspect of the agile culture, which makes us unique and very, very difficult to replicate. In sum, I would say the company is set up for good momentum. We've delivered yet another quarter of sustained solid growth and competitive performance. The company has already started hitting strong cash flows, and we see this improving going forward. We believe we are setting ourselves up for success. A future-proof data with a resilient portfolio and a clear strategy of being focused on quality customers, delivering a great experience, putting digital at the core stripping out waste and all of it back by a culture of ownership. With that, let me hand over back to the moderator for questions.
Thank you, Mr. Vittal. We will now begin the Q&A interactive session for all participants. Please note that the Q&A issue will be restricted to analysts and investor community. Due to time constraints, we would request typical could limit the number of questions to 2 per participant to enable more participation. [Operator Instructions] The first question comes from Mr. Kunal Vora. Mr. Vora. You may please unmute your side, introduce yourself and ask your question now.
This is Kunal Vora from BNP Paribas. First question is on how do you see the impact of Jio Bharat on the feature phone market? Would you look at use a similar device? And if you can share your experience with the device offered in the past like you had one with Carbon few years back?
I would say that it's early days. I think that even when it was launched last time, we did see an impact. At that point in time, the feature phone market was much larger than what it is today. Today, the feature phone segment accounts for about 18% of our overall revenues. And more importantly, it's only once in 4 years that a customer chooses to replace the future phone. The pricing of this device is slightly higher than the cheapest feature phones, which is competitive. So it's early days. I would say that our agenda is straightforward. We continue to focus on our upgradation from feature phones to smartphones. That's where we are doubling down, actually doing a lot of bundling, doing some modest cash backs in the form of loans to customers with a lock device. Because we believe that ultimately, these feature phone users must upgrade the smartphone. So that's really where our focus is. So we would not be launching any such device. I think our feature phone users is on a 2G network, and our focus really will be on upgrading them to a smartphone.
Like why would you not do it? I mean what do you see a reason to not go for a device like this?
Because largely, these devices are only used for calling, and you're already -- you don't need to get into this device segment that's already there in the form of a feature phone. If we didn't have a 2G network, then that user will be excluded, then we would look at it, but we have a 2G network. And we have feature phones in the open market, which even today are getting shipped up.
Second and last question, if you can share your thoughts on 5G monetization. And if you can provide any data on how many users, what kind of usage, what proportion of volumes are on the 5G network now?
Like I mentioned, I think, Kunal, we are seeing about 30% of offload in a site where there is both 4G and 5G. Depending on the devices and depending on what the traffic is, we see up to a 30% offload of the traffic from 4G networks to 5G networks. It's still early days because the overall installed base is still low. It's 14%, 15%, it's not grown at the rate that we were expecting it to grow. Even today, shipments of smartphone 5G shipments are only about 48% of the total shipments. So it's still moving slowly, and it will take time for the full upgradation to happen. The way I think about monetization, as I mentioned, is at an aggregate ARPU level. So for us, the monetization levers is feature phone to smartphone, prepaid to postpaid data monetization. And finally, of course, if there's a tarif increase, and that gives you a monetization as well. The CapEx that we're putting in is largely on 5G. We are not putting any 4G capacity CapEx other than the rollout of rural sites, which is really a coverage related CapEx. So the way we look at monetization is that the CapEx that's growing, of course, at this point is elevated CapEx because of the front-loading that we've done in the first quarter and perhaps in the second quarter. But if you look at it from a more medium-term perspective, given the CapEx will sort of even itself out, the percentage of CapEx that's going in as a part of revenue needs to be at the level which can be sustainable and which leads to the monetization and an aggregate ARPU level. .
The next question comes from Mr. Piyush Choudhary. Mr. Choudhary you may please unmute your side, introduce yourself and ask a question now.
This Piyush from HSBC. Two questions. In the postpaid segment, could you help us understand what factors are driving subscriber addition? Is it new proteins only or your own prepaid subscribers are also migrating to postpaid and then outlook for postpaid additions going forward? Second question is on your rural expansion program. Can you give us a progress and how has been the response as you roll out new sites there?
So as I've already mentioned in my opening comments, I think postpaid -- we believe, is a big opportunity. Today, about 6% of our users are on postpaid. If I look at markets like Thailand, that number is well past the teens, I look at markets like Brazil, it's almost 40% to 50%. So the upside opportunity in postpaid is clearly high. And I think India on a period of time will start moving more and more towards postpaid that has to happen. The levers of growth for us are: number one, of course, is prepaid to postpaid. That's one lever of growth, where we see an increase in ARPU. The second lever of growth is switching the user from a competition to us. And I think 5G tends to play a role where the early adopters of smartphones, we're looking for a 5G network want to prefer us. So that's -- I think there's an opportunity here because one of the players has not launched 5G. So that's clearly an opportunity. And the third opportunity is really around what we saw with Verizon almost over a decade ago. which is a great success that they had in those years of the family plan. And I think over the last 6 years, 7 years, we've been quietly working on the family plan, which really helps because once the main member of the family is there. The child or the teenager in the home comes on to the same plan. And invariably, that customer may not be an Airtel customer. It could be from anyone. And the last part is the goto market where really we are -- as I said, spreading our stores closer to the point of consumption, closer to the catchment and that helps us actually get more access and as a consequence, increased postpaid penetration. In the rural area, I think we are kind of 60% through our rollout now. This has gone very, very well, actually. The revenue per site, the action standards we have set for ourselves we've been able to marginally beat it. And the cost per site also is lower than what we thought it would be. Again, this is through the ingenuity that we -- there are teams that displayed on the ground, combination of solar solutions, better batteries, no diesel, diesel completely eliminated, zero in many places. And across the country, we see the traction being strong. And as a consequence, I think we will control the rollout perhaps by around November or December.
Got it. If I may ask on the postpaid, is it possible to split, let's say, not in this quarter only, but last 3 quarters or 4 quarters, what is the potent's contribution?
We don't provide that information. I think -- so we will not -- we don't look at it like that because sometimes whether it's supported or whether it's a new customer or whether it's a new addition, it really doesn't matter as long as they become -- it becomes the primary SIM where a lot of consumption is happening, and they are pleased with the experience.
The next question comes from Mr. Sanjesh Jain. Mr. Jain you may please unmute your side, introduce yourself and ask your question now.
First on the 5G side, 1 of your peers has said that through with the 65% of the rollout. And it appears that in the first stage, they will be doing 175,000 towers. Where are we in comparison as far as the 5G rollout goes? That's number one. And associated question is on each side, when we deploy the 5G, what is the kind of data capacity upgrade we do?
Yes. So I think that the second question, I don't have the precise numbers. I think Soumen may have the number of the radar capacity upgrade. It's a very substantial increase that happens. Almost about 5 to 7x, but I think Soumen will probably be able to give you a better answer on that. On the first part of your question, Sanjesh, we are not in any race here, right? I think I've mentioned before that the nonstand-alone technology allows us to get a 30% improvement in coverage. So today, we are pretty much in all across urban India. We're also going into rural. But at the same time, we are also very carefully watching with some concern that the impact of 5G is not necessarily moving the experience needle at all because it's not that people even realize that they're getting speeds of 200 and 300 MBPS given the fact that the applications that they use on this little device that we carry in our pockets is really messaging or some video or some browsing. And as a consequence, 4 to 6 MBPS is more than adequate and is at a point of indifference beyond that. So if you get more than 4 MBPS, you're at a point of indifference, unless you're downloading a heavy file of playing a downloading a heavy game or something like that. So I think we are in the game fully. And the way we look at the deployment is really to make sure that we are giving a seamless experience regardless of the technology, a great data experience right across the city, a great voice experience right across the city and continue to offload 4G capacity investments into 5G so that we don't spend a single dollar on 4G anymore, and all our investments are geared towards 5G. That is really how we approach the stage.
Yes. Soumen, any comment on the capacity?
Yes, yes. So it would be in the range of about 4x to 5x for similar bandwidth in 4G.
Do you mean if we deploy all the spectrum that we have bought or the same block that we have put in 4G?
So for the same block of spectrum, whatever is the capacity of 4G, 5Gwould have a capacity, which is roughly between 4x to 5x.
So let me try and explain this in a different way, Sanjesh. On an average, we have about 50 to 60 megahertz of spectrum across the country deployed on 4G. And you know the petabytes that we have on our network, right? You also know that we're still not a congested network. We still have headroom for further capacity even on a 4G network. So let's assume that the capacity utilization is 60%, 65%, which means and based on the petabytes that we are pumping out, you can see what is the upside on that same tranche of 50 to 60 megahertz. Here, we've got 100 megahertz spectrum. So number 1 is a double of the spectrum. So you can straight away double that, right? Number 2 is it's more spectrally efficient. So you get another 50% to 60% increase in that. So therefore, I think there is a long, long runway for 5G to start filling up. It's a very empty network, and it will remain so for some time to come.
Is it then fair to assume that once we have enough capacity in the urban area, our capacity intensity will significantly reduce and we may reach the global level of 18%, 19%. Is that a fair assumption in the medium term, not immediately.
I don't want to give you a guidance on the CapEx intensity over the medium term, we would love to get to those levels that you mentioned. But the fact is that capacity investments once you pull out a 5G radio will be very, very good. The only requirement will be over time, as more and more applications come out. So remember, this is a game application. It's not a game of 5G radios. Because if you have the same video applications, the same browsing a chat applications, you don't need 5G, 4G suffices. But those applications need to come in. And as applications come in, you will have more densification of the networks. I think less capacity investments for the -- medium term. In the long term, you may have capacity investments coming from millimeter wave, for example. So that's still many years because that ecosystem has not even begun to me.
Thanks, just continuing on the millimeter side. Reliance, you have said that they are looking at 4G slicing as a tool which is allowed in the assay, and they want to deploy FWA and they want to accelerate their growth in the fixed broadband. And considering that we are on a non-stand-alone, Will that limit our capability to...
No, Sanjesh. Firstly, let me disabuse you of that notion. I think there are 2 parts to the question. one is FW itself and the other is slicing. I think nonstand-alone also allows you to do slicing. The 3GPP standards are clear about this. There have been experiments that we have already carried out it does allow you to do splicing. So if those applications, you need 15 different slides at some point in time, yes, you need stand-alone. When that's nowhere in the horizon. At best, you will have 1 slice on FWA or 2 slices -- these kind of slices are totally possible in an NSA network. Second, remember the spectrum is unutilized. It's a network that is empty. So even if you slice it, what is the value? Because it's an empty network. So whether if you give a small slice, so you give a whole slice it doesn't really matter. So I would say that, that is still pass in the distant future as the networks fill out that you need the slides and so on and so forth. But technically, you can slice even on an NSA network.
Second part of your question is FWA. As I mentioned before, the economics of FWA are still not attractive because the cost of the CPE, see, you need 2 things. You need the router in the home, which you need for whether it's fixed or its FWA. Then you need a CPE in the case of FWA. In the case of fixed you hit fiber [indiscernible]. If you see the cost for connected home pass in our network today, but it's about $90. The cost of a fixed wireless access CP is about $160. It's almost double of that, which means that it's economically unattractive to go FWA at this point in time now. Can on the price of FWA come down? Yes, possible. But the real game there is the cost of the chipset, which is the 1 that's really, really very high right now.
The third point I want to make is that we are ready with WA, we are doing our trials. We've ordered FWA boxes. And we have, in fact, already launched -- we've just announced actually yesterday or today. that we are piloting this in 2 cities to start with to assess the opportunity.
Clear group that was clear. Last question. I know it's the third one. Apologies for that. On the network OpEx, one of the reasons why our network OpEx on an overall basis is low that we are still not charging for the 5G cost, whether it's a power cost or a rental cost. Is that the fair assumption? And once those costs start showing up in the P&L, what kind of...
IT costs not the 5G costs. Soumen, you want to talk for that?
Yes. So Sanjesh, we have started. As the rollout is happening, progressively more and more circles will come and get charged out. The process has already started from this quarter. And because it is an NSA, it is put on the same infrastructure. The incremental costs are very low, started already from this quarter.
Soumen, just to clarify what you're telling is that some of the 5G-related OpEx cost has already been booked in the P&L in this quarter?
Yes. We will go by circle as we roll out but it has already started coming in this quarter.
As well as amortization and interest costs?
Well, yes, as I said, progressively, they will come, but some of it has started coming in this quarter.
That's fair.
Basically, just to clarify, we have a policy of -- as we reach a certain metro rollout, we start putting it all in the P&L a few circles have already reached that level, and more and more, we'll keep eating that level.
The next question comes from Mr. Vivekanand Subbaraman. Mr. Subbaraman may please unmute your side, introduce yourself and ask your question now.
I have 2 questions. So the first 1 is on the mobile operations. So despite churn declining steadily on a quarter-on-quarter basis for the last several periods, we are seeing that the SG&A cost remains by seems to have spiked up in the current quarter. So one, an explanation for that. Second key question is on the balance sheet priorities and potential uses for the uncalled rights money given that now you are generating ample amount of free cash flow. And in this answer, if you could also discuss about the targets in terms of balance sheet leverage that you would like to maintain, that will be helpful. Thank you.
Soumen, do you want to take it?
Yes, Gopal. So SG&A, we have, especially around B2B business, there is a seasonality involved in Q1. If you look at trends, you will see that season Q1 typically spikes. You will see a normalization of this in Q2, Q3, Q4. Nothing new in this year. It will keep on happening. But one of the major reasons is certain things which happen in the B2B business. On the rights call bit, I think we are currently adequately sufficient in terms of cash requirement. As a matter of fact, as Gopal mentioned in his opening call, we would be generally -- we have already cumulated about INR 4,500 crores of operating cash flow -- operating free cash flow. Harjeet, if you would like to add on the leverage with.
Thank you, Soumen. We've become, I think, leverage wise, we are about 2.6%, 2.7% as Gopal and Soumen mentioned on the consolidated basis. We've actually now this time, given also the segmental leverage, if you see performance at it lands. You will see console and also in the ads. In the shorter term, I think clearly, the leverage in India is above 3%. Overall leverage is 2.6%. India is generating free cash flow. Gopal mentioned about the last few quarters. But at the same time, if you see last year, we did spend about INR 43,000 crores in buying spectrum for 5G and some certification. So I think cash flow should go to reduce leverage. Historically, we have stayed conservative on leverage. It demanded us to go where we were about for a few quarters and now materially coming down. I think our target is not very hard core, but still are closer to 200 on an overall consolidated basis, not closer to [ 300 ]. So in the short to medium term, the use of cash is essentially to delever, also create granularity of sources of financing and reduce the cost of financing. It's not a very hard quarter target. The direction is clear, use cash to delever materially some bit of returns are there in the market to dividend. In the shorter term, there is no necessity to call for rights residual monies, but that's a very fabulous available line of equity that is available to us.
Just 1 follow-up on the first answer. So Soumen, the SG&A cost for the mobility business, are you saying that it would have moderated in the current quarter despite the India SG&A cost rising sequentially. Is that what you are saying?
Yes, it would have been almost at same levels sequentially.
The next question comes from Mr. Aditya Suresh. Mr. Suresh, you may please unmute your side, introduce yourself and ask your question now.
This is [ Rajid Mahkwary ]. Gopal has strong execution and follow-through on your clearly articulated strategy. My first question actually is a fairly basic one. As you follow through on your premiumization part, I'm keen to understand how you think about your ARPU trajectory going forward? Do you see more like a steady compounding profile? I appreciate you may be able to give specific numbers, but any qualitative comments on the profile would be great.
Yes. I think it's a good question. A big increase in ARPU can only happen with the reset of the tariff table. And as you know, we are at the lowest levels of the order, both in terms of rate per GB on data as well as average revenue per user. On both, if you were to plot it rate for GPO data on the x-axis and average revenue per user on the y-axis, India will be at the bottom left-hand corner, related to all the other markets in the world, including markets in South Asia, sub-Saharan Africa or anywhere in the world. So the big increases will really come from a tariff reset. But within the confines of the challenges that we operate with in a competitive market, we have 7 levers, like I mentioned, I think prepaid a feature phone to smartphone. You get an ARPU upside the entry-level feature phone price plan is at 155%. The entry-level smartphone pricing where you offer meaningful amounts of data is 239. So you do see a almost a 50% jump as people move from a feature phone to a smartphone. And that is a function of how many users moved in certain quarters, so you could do the math and arrive at what ARPU you can get. The second source of growth is prepaid to postpaid. And there, again, you see almost a 50% to 60% jump in ARPU -- actually, more than that, probably 75% job. And if we can drive the postpaid net additions up from the 830,000 numbers that we've done this quarter to even higher than that, then again, you see a shift in ARPU. The third source of ARPU is data monetization. And I did mention this in the past, where the moment the data allowance runs out on an impulse basis, we offer 1GB of data, 2GB data, 5GB of data at multiple price points. So just imagine that 10:00 on the night or 6 in the evening, you run out of data, you got a message right there at 558 knowing that you want to run other data to buy a pack on impulse. This has become a very meaningful source of ARPU increase for us. So that's the third lever. The fourth lever is international roaming as we drive the penetration of prepaid, particularly because postpaid international roaming penetration is high, prepaid was very low penetration. In the last 3 months, we've doubled it. There's a tremendous emphasis and focus on this to simplify journey, simplify pricing. We have 1 plan basically 1 price plan across the world, it's called 1 world plan. It is blended across different countries because we have bilateral deals with these operators around the world, but we plan it to arrive at simplified pricing with the use of a lot of digital channels, digital mediums, including our app, WhatsApp and all of that to offer messages on a very customized basis at the point when the customer lands in the airport to actually buy that particular plan and so on and so forth. So all of these levers really are being driven. And on postpaid, like I said, once you get a family on then you get sometimes users coming from competition as well. Again, there's ARPU upside. So all of these levers actually help us get some organic movement in ARPU. I think this quarter has been good. at INR 7, of course, there was a day extra, which is about INR 1.5. But even organically, we did see a significant amount of ARPU upside on account of all of these levers that we're playing out.
That's clear. So there's a steady increase in each quarter, every quarter as these levers clear the background that there being step changes which generate headlines. So that's clear. The second question, Gopal, is on operating leverage. Now with your comments around your focus on network operating expenses and your comments now on that steady increases going forward. Should we expect a higher state of incremental EBITDA margins over the next couple of years? And maybe as a supplement and this ties back to your comments on free cash flow as well, which I agree with. Any comments on what this means for your return on invested capital?
Well, I think this business is largely a fixed cost business. So we love to see the operating leverage kick through. At this point in time, I think our cost program will continue very aggressively. We still have a way to go and room for stripping out further costs in the INR 75,000 to INR 1 lakh category of size, OpEx per site per month. So we are looking at some of that. The -- if there is a tariff increase, of course, almost all of it close to outside of taxes into the bottom line. Barring some of the capacity investments that get made, there's the strong operating leverage, particularly in the case of where you have an unutilized network. The rural expansion, you have cost because you're rolling out sites, you're also getting revenues. So to that extent, I wouldn't think that it would be EBITDA accretive. But the operating leverage as the whole business must kick in. I can't give you a number. I can't give you a guidance because we don't do that. But I would say that we would be doing a job that we would not be satisfied with if we don't get operating leverage from the incremental revenue that we generate. That's a target that we look at very, very closely.
Next question comes from Mr. Yung Jeon Gyou. Mr. Yung you may please unmute your side, introduce yourself and ask your question now.
This is Yung Jeon from Air Capital. Just curious on the ARPU. Could you give us a little bit more color on the median...
Please mute introduce yourself and ask your question now. .
Yes. Am I audible?
Yes. Yes.
Can you give us a bit more color on the medium-term targets for your ARPU? You mentioned 300 being a longer-term plan. And excluding the tariff hike in all the numbers you described...
We're not able to hear you please on...
I can
We are able to hear well, let him continue.
Yes. No problem. Just curious if you can give us a bit more color on the medium-term outlook for ARPU. 300 million, obviously, is the longer-term plan now it's 200 million. And with all the levers that you've described with postpaid and what you've just said, how should we think of the next few quarters in terms of ARPU uplift?
I'm afraid I won't be able to give you a number there. But I think that, like I said, suffice it to say that we would be disappointed in ourselves if we don't see some improvement in ARPU, equating for days and all of that on an organic basis. every few months. So I'll just leave it at that.
Right. And in terms of the postpaid subscriber adds, the 800,000 this quarter. That's higher than the last 2. I think it was [ 100,000 ] last 2. Is that a new level that we can expect or we feel that, that actually can increase quarter-on-quarter?
I think that this has been the highest postpaid net additions that we have done ever. I would say July has begun strongly. So I hope that we continue to keep this going.
With this, I now hand over the proceedings to Mr. Gopal Vittal for closing remarks.
Again, thank you very much for the engaging questions. I think as I mentioned, I think it's been a good competitive performance this quarter. and I look forward to seeing you in the coming quarter. Thank you very much.
Thank you, everyone, for joining us today. The recording of this webinar will also be available on our website for your reference.