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Bharti Airtel Ltd. -------------------------------------------------------------- Maintain OUTPERFORM
New report: Surprising Africa performance; India lacklustre
● Bharti’s Dec-10 revenue was in line with our estimate. While
EBITDA was in line on a like-for-like basis, one-time costs led to
EBITDA coming in 6% below our estimate and profit 24% below.
● India numbers were unexciting, with revenue 1% below estimates
and 30 bp like-for-like margin decline. MoU declined 1% while
RPM was flattish. RPM numbers clearly indicate that Indian
competition has eased and hence margins could improve.
● Africa numbers showed significant positive surprise, with a
revenue growth of 8% QoQ (US$ terms) and margin improvement
of 120 bp (before one-offs). Start of margin recovery in Africa
earlier than management guidance could be seen positively.
● We revise our estimates to adjust for one-offs and bring forward
3G launch expectations. As a result, our FY11 EPS estimate
declines, while FY12/FY13 estimates are largely unchanged.
● Business performance is improving, although regulatory issues
have led to the recent weakness. The stock is attractively priced
at 6.6x FY12E EV/EBITDA; hence, we maintain our
OUTPERFORM rating and target price of Rs415.
Consolidated operating results in line
Bharti’s December 2010 quarter consolidated revenue was in line with
our expectations, growing 3.6% QoQ. Adjusted for one-time costs, its
EBITDA margin grew 10 bp QoQ, in line with our estimates. However,
one-time rebranding costs (which we had expected to be amortised
over two years) caused the reported EBITDA margin to decline 210 bp
QoQ. These one-time costs along with higher forex losses led to net
profit coming in 24% lower than our estimate.
India performance lacklustre …
India mobile business revenue was 1% below our expectation with
margin falling 30 bp QoQ on a like-for-like basis (we expected an
increase). MoU decline of 1% QoQ was disappointing in light of the
seasonally favourable QoQ comparison and 2% QoQ growth shown
by Idea. However, RPM remaining flattish was a positive and
indicative of stabilising competitive environment.
… but Africa shines
Africa revenue growth of 8% QoQ in US$ terms (4% in rupee terms)
was 3% ahead of our estimate. High elasticity was evident for the
second consecutive quarter (7.4% RPM decline offset by an MoU
increase of similar magnitude). Strong growth helped improve margin
by 120 bp to 25.1% (before rebranding costs). As against
management’s earlier indication of weak margins until the March
2011 quarter, we believe that visibility into margin improvements in
December 2010 could be seen positively.
Retain OUTPERFORM
Post results, we make the following revisions: 1) While we continue to
believe that stable pricing environment should allow Bharti to increase
margins, we push back the commencement of margin improvement by
a couple of quarters to June 2011. 2) We adjust for December 2010
quarter’s one-offs (rebranding and forex losses). 3) We build partial
impact of 3G interest cost in the March 2011 quarter. With these
revisions, our FY11/FY12/FY13E EPS fall around 14%/3%/3%.
On the other hand regulatory uncertainty has increased, leading to the
recent weakness in the share prices. We believe that this uncertainty
could reduce after the budget session of the Indian parliament (i.e.,
post May) and hence provide an attractive entry point. We maintain
our OUTPERFORM rating and target price of Rs415.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bharti Airtel Ltd. -------------------------------------------------------------- Maintain OUTPERFORM
New report: Surprising Africa performance; India lacklustre
● Bharti’s Dec-10 revenue was in line with our estimate. While
EBITDA was in line on a like-for-like basis, one-time costs led to
EBITDA coming in 6% below our estimate and profit 24% below.
● India numbers were unexciting, with revenue 1% below estimates
and 30 bp like-for-like margin decline. MoU declined 1% while
RPM was flattish. RPM numbers clearly indicate that Indian
competition has eased and hence margins could improve.
● Africa numbers showed significant positive surprise, with a
revenue growth of 8% QoQ (US$ terms) and margin improvement
of 120 bp (before one-offs). Start of margin recovery in Africa
earlier than management guidance could be seen positively.
● We revise our estimates to adjust for one-offs and bring forward
3G launch expectations. As a result, our FY11 EPS estimate
declines, while FY12/FY13 estimates are largely unchanged.
● Business performance is improving, although regulatory issues
have led to the recent weakness. The stock is attractively priced
at 6.6x FY12E EV/EBITDA; hence, we maintain our
OUTPERFORM rating and target price of Rs415.
Consolidated operating results in line
Bharti’s December 2010 quarter consolidated revenue was in line with
our expectations, growing 3.6% QoQ. Adjusted for one-time costs, its
EBITDA margin grew 10 bp QoQ, in line with our estimates. However,
one-time rebranding costs (which we had expected to be amortised
over two years) caused the reported EBITDA margin to decline 210 bp
QoQ. These one-time costs along with higher forex losses led to net
profit coming in 24% lower than our estimate.
India performance lacklustre …
India mobile business revenue was 1% below our expectation with
margin falling 30 bp QoQ on a like-for-like basis (we expected an
increase). MoU decline of 1% QoQ was disappointing in light of the
seasonally favourable QoQ comparison and 2% QoQ growth shown
by Idea. However, RPM remaining flattish was a positive and
indicative of stabilising competitive environment.
… but Africa shines
Africa revenue growth of 8% QoQ in US$ terms (4% in rupee terms)
was 3% ahead of our estimate. High elasticity was evident for the
second consecutive quarter (7.4% RPM decline offset by an MoU
increase of similar magnitude). Strong growth helped improve margin
by 120 bp to 25.1% (before rebranding costs). As against
management’s earlier indication of weak margins until the March
2011 quarter, we believe that visibility into margin improvements in
December 2010 could be seen positively.
Retain OUTPERFORM
Post results, we make the following revisions: 1) While we continue to
believe that stable pricing environment should allow Bharti to increase
margins, we push back the commencement of margin improvement by
a couple of quarters to June 2011. 2) We adjust for December 2010
quarter’s one-offs (rebranding and forex losses). 3) We build partial
impact of 3G interest cost in the March 2011 quarter. With these
revisions, our FY11/FY12/FY13E EPS fall around 14%/3%/3%.
On the other hand regulatory uncertainty has increased, leading to the
recent weakness in the share prices. We believe that this uncertainty
could reduce after the budget session of the Indian parliament (i.e.,
post May) and hence provide an attractive entry point. We maintain
our OUTPERFORM rating and target price of Rs415.
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