Bharti Airtel- Africa tariff cuts, subdued India volumes: Anand Rathi

Visit http://indiaer.blogspot.com/ for complete details �� ��


Bharti Airtel
Africa tariff cuts, subdued India volumes drive 2QFY11 miss

 Results belie expectations. Bharti’s 2QFY11 revenue marginally belied
(0.7%) our estimate, due to weak wireless-traffic growth in India. EBITDA
was 6.1% below our estimate mainly owing to a sharp decline in EBITDA
margin in Africa. PAT was 18% below estimate largely due to EBITDA
miss, as higher forex gains offset the impact of sharply higher African taxes.


 Letdown in wireless volumes mars otherwise strong India show.
Bharti’s qoq wireless traffic growth of 0.2% was below that of leading GSM
peers, Vodafone (1.6%) and Idea (3%). Management attributed this to its
deliberate focus on ARPM, down by only 1% qoq (vs. 2.4% each for Idea/
Vodafone), vs. 6-9% in each of previous three quarters. Passive Infra
EBITDA/EBITDA margin increased 8.5%/170bp qoq, helped by higher
tenancy for Indus and sharing revenue per tenant per month for Infratel.
Enterprise and Telemedia segments, too, reported robust EBITDA margins.
Overall EBITDA margin was down 320bp qoq to 33.7%, though the ex-
Africa margin was resilient at 37.3% (down only 45bp qoq).

 Africa margin dip highlights limitations of tariff-induced volume
growth, especially in markets where Bharti is not dominant. Management
said that Bharti undertook tariff ‘intervention’ in 10 of 16 African countries
(ARPM was down 8% qoq). While this helped to drive 10%/9%/15% qoq
increase in sub base/MOU/traffic, EBITDA margins dipped 360bp due to
higher interconnect costs (increase in off-net traffic) and SG&A expenses
(subscriber acquisition costs). Management said the Airtel brand would be
launched in a few weeks. The company expects capex to pick up in 2HFY11
(1H capex was US$170m vs. FY11 guidance of US$0.8bn)

 Our view. Bharti’s India wireless business is on the recovery path as
evident in moderation in ARPM decline and robust volume growth since
3QFY10 (though 2Q was weak due to seasonal factors). However, we
expect moderate cut in our/consensus estimates due to weak 2Q for
African operations. We are fundamentally positive on Bharti but, after the
subdued 2Q results, do not see near-term catalyst for the stock.