Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bharti Airtel Limited Neutral
BRTI.BO, BHARTI IN
Read-across from MTN's annual results
We continue to like the strong elasticity Bharti Africa is seeing but we
highlight the increased competition in Q1 in Nigeria and potential for more in
Ghana with a new entrant. Today’s results from MTN (covered by Jean-
Charles Lemardeley) in our view highlight the muscle its competitors have
and the need for Bharti to invest in its Africa operations. A positive surprise
for Bharti’s Africa margins could come from outsourcing contracts if the
impact is concentrated in a quarter. Enclosed are detailed takeaways on the
Nigeria and Ghana markets from the MTN management call.
• Nigeria: on-net traffic high; margins improve: MTN reported a 3.7pp
increase in EBITDA margin to 63% helped by 83% (+4pp Y/Y) of traffic
being on-net and cost efficiencies. We believe MTN is making active efforts
to retain its sub base and its scale here (52% share) is helping both revenue
and margins. MTN highlighted that it saw aggressive competition
increasing in Q4 and continuing into early 2011. Bharti has seen good
elasticity across its Africa markets but we are cognizant of the increasing
competition.
• Focus on networks appears high: MTN has over 9K sites in Nigeria alone
vs. Bharti’s 11.3K across 16 countries. MTN stated that it is open to invest
further to maintain a market share and position – it has guided to a 66%
increase in Nigeria capex. We expect Bharti to need to invest further here to
see scale benefits and while we expect their recently concluded agreements
with equipment vendors to help, this is expected to take some time.
• Ghana: more competition? MTN’s capex increased 20% Y/Y due to
higher investments ahead of Glo’s entry. We can expect this market to get
more competitive. Furthermore, the regulator has put a floor on tariffs. From
Bharti’s respective, we read both these developments as negative for its
efforts to increase its low ~8% share here (MTN has 53% share).
• Other highlights: [1] Data remains a large opportunity [2] MTN is open to
passive network sharing on a case-by-case basis [3] Mobile money is
launched in 11 countries, MTN had 4.3m subs (1.84m in Ghana).
Nigeria highlights
• Strong growth in subs in 2010; some moderation in 2011: In 2010, MTN in
Nigeria increased its sub base by 25% to 38.7m. For 2011, MTN has guided to
net adds of 4.2m, implying an 11% increase in its sub base (to ~43m)
• More than 80% of traffic is on-net: The proportion of on-net traffic has
increase 4pp to 83%. It is actively offering its existing subscriber base
segmented value propositions to retain customers.
• Promotions having a positive impact on sub numbers: MTN captured 62% of
net adds and maintained its market share at 52%. It is offering attractive
segmented promotions to its customers and implementing effective churn
management. 34% of total base is registered as of January 31, 2011. ARPU
declined 10% in local currency as lower income areas were addressed.
• More on competition: Management highlighted that it saw aggressive
competition increasing in Q4 and continuing into Q1 2011. In September, MTN
revised tariffs for the first time in 3 years and in December competitors Glo and
Etisalat responded as did Bharti Airtel. Following that in February, MTNL
launched new value propositions for its subs.
• Nigeria’s mobile penetration is now 49% (+7pp Y/Y)
• Revenue growth and margin expansion: MTN Nigeria revenue grew 16% and
its EBITDA margin increased by 3.7 percentage points to 62.9%. This was due
to subscriber increase, lower interconnect costs (higher on-net traffic) and cost
efficiencies.
• Investment in network continues: Site roll-out only gained momentum in the
second half of the year as the company added 1,504 2G and 480 3G BTSs,
bringing the total BTS count to 9,110 at the year end. Network quality and
capacity remain a priority as competition intensifies. In addition to the increase
in BTS coverage, 4,800 existing BTS sites were upgraded. Nigeria also
continued to roll-out fibre across the country, completing a 696 km fibre ring.
Capex declined ~54% to ZAR 4.2bn (US$640m) from 10.2bn (US$1.23bn) in
2009. Nigeria reduced capex in 2010 on core network and site rollout were done.
2011 capex guidance is up 66% Y/Y to ZAR 7.8bn (US$1.05bn), Management
indicated that the bulk of this is for capacity enhancement to have headroom on
the network as net adds share has ramped very well
• Data revenue increased by 25% to ~ZAR 500m and contributed 8% to group
data revenue. In 2010, 150K dongles and 40k 3G handsets were sold.
Ghana highlights
• Market dynamics to get tougher? Ghana is already a competitive market with
4 players – MTN, Vodafone, Millicom and Bharti Airtel. The entry of Glo is
expected to increase competition and has prompted MTN to invest in its network
ahead of the event.
• MTN being pro-active: MTN has invested in its network in Ghana and also
introduced new price plans, launched loyalty programs and revised its MTN
Zone offering (It now allows subscribers to view discounts in terms of monetary
value rather than as discount percentages). Where MTN has capacity, it has cut
pricing to get the traffic on-board. Both Glo's entry and MTN's response are
negative for Bharti in our view.
• Sub base: In Ghana, MTN grew its sub base by 9% to 8.7m subs. The company
has guided to net adds of 390K in 2011 implying a 4% increase in sub base (to
over 9m). In 2010, MTN lost ~2pp of market share which was 53% at year-end.
SIM card registration had a negative impact on H2 2010 and as of Dec 31, MTN
had 70% of its base registered. Final deadline is June 2011
• Revenue: Local currency revenue grew 14% (ahead of sub base) due to higher
subscription revenue. Local currency ARPU was stable. Data revenue increased
by 87%. Bundled offerings and reduction of data pricing led to increased data
usage. 44K dongles and 166K 3G subscribers are on its network
• MTN Ghana’s EBITDA margin decreased slightly to 44.3% from 44.5% in
the prior period. This was mainly because of the increase in direct network
operating costs, specifically rent and utilities, and maintenance costs associated
with a price hike in May 2010 as well as a bigger network. Staff costs also
contributed to the decrease in margin as a result of improved retention
initiatives.
• Tower agreement to unlock value: In Ghana, MTN has entered into an
agreement with ATC (American Tower Company) to form a tower JV. This
includes sale of 1,876 towers for US$428.3m implying a value of
~US$230K/tower. This is in-line with our conversations in Nigeria last year. The
driver here was to unlock value in these assets according to management. We
believe MTN’s deal highlights that it is open to passive infrastructure sharing
but that it will consider this only on a case-by-case basis. Our own conversations
in Nigeria last year with MTN revealed that in key markets like Nigeria they
would be consider this on a barter system as long as they are made no worse off.
• Some capex rationalization expected in 2011: MTN Ghana rolled out 940
BTSs during the year, bringing the total number of BTSs to 4,033. Capex
increased to 55% of revenue from 46% as the roll-out gained momentum in H2
2010. A further 77 3G BTSs were added. Capex guidance is for ZAR 1.2bn
(US$165m) vs. ZAR 3.1bn in 2010 (ZAR 2.6bn in 2009). The decline is from a
high base in 2010 when investment was quite significant and saw some carry
over from 2009.
Valuation and rating analysis
Our December 2011 price target is INR 370. This is based on our sum-of-the-parts
valuation of each business segment for Bharti.
Risks to our view
We highlight the following risks to our rating and price target:
Upside risks: [1] A better-than-expected performance in Africa, especially in the near
term; [2] rational competition when MNP is introduced; [3] market consolidation;
and [4] 3G data take-up and pricing better than we forecast
Downside risks: [1] High-end competition impact on Bharti more than expected; [2]
regulatory environment being less benign than we think.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bharti Airtel Limited Neutral
BRTI.BO, BHARTI IN
Read-across from MTN's annual results
We continue to like the strong elasticity Bharti Africa is seeing but we
highlight the increased competition in Q1 in Nigeria and potential for more in
Ghana with a new entrant. Today’s results from MTN (covered by Jean-
Charles Lemardeley) in our view highlight the muscle its competitors have
and the need for Bharti to invest in its Africa operations. A positive surprise
for Bharti’s Africa margins could come from outsourcing contracts if the
impact is concentrated in a quarter. Enclosed are detailed takeaways on the
Nigeria and Ghana markets from the MTN management call.
• Nigeria: on-net traffic high; margins improve: MTN reported a 3.7pp
increase in EBITDA margin to 63% helped by 83% (+4pp Y/Y) of traffic
being on-net and cost efficiencies. We believe MTN is making active efforts
to retain its sub base and its scale here (52% share) is helping both revenue
and margins. MTN highlighted that it saw aggressive competition
increasing in Q4 and continuing into early 2011. Bharti has seen good
elasticity across its Africa markets but we are cognizant of the increasing
competition.
• Focus on networks appears high: MTN has over 9K sites in Nigeria alone
vs. Bharti’s 11.3K across 16 countries. MTN stated that it is open to invest
further to maintain a market share and position – it has guided to a 66%
increase in Nigeria capex. We expect Bharti to need to invest further here to
see scale benefits and while we expect their recently concluded agreements
with equipment vendors to help, this is expected to take some time.
• Ghana: more competition? MTN’s capex increased 20% Y/Y due to
higher investments ahead of Glo’s entry. We can expect this market to get
more competitive. Furthermore, the regulator has put a floor on tariffs. From
Bharti’s respective, we read both these developments as negative for its
efforts to increase its low ~8% share here (MTN has 53% share).
• Other highlights: [1] Data remains a large opportunity [2] MTN is open to
passive network sharing on a case-by-case basis [3] Mobile money is
launched in 11 countries, MTN had 4.3m subs (1.84m in Ghana).
Nigeria highlights
• Strong growth in subs in 2010; some moderation in 2011: In 2010, MTN in
Nigeria increased its sub base by 25% to 38.7m. For 2011, MTN has guided to
net adds of 4.2m, implying an 11% increase in its sub base (to ~43m)
• More than 80% of traffic is on-net: The proportion of on-net traffic has
increase 4pp to 83%. It is actively offering its existing subscriber base
segmented value propositions to retain customers.
• Promotions having a positive impact on sub numbers: MTN captured 62% of
net adds and maintained its market share at 52%. It is offering attractive
segmented promotions to its customers and implementing effective churn
management. 34% of total base is registered as of January 31, 2011. ARPU
declined 10% in local currency as lower income areas were addressed.
• More on competition: Management highlighted that it saw aggressive
competition increasing in Q4 and continuing into Q1 2011. In September, MTN
revised tariffs for the first time in 3 years and in December competitors Glo and
Etisalat responded as did Bharti Airtel. Following that in February, MTNL
launched new value propositions for its subs.
• Nigeria’s mobile penetration is now 49% (+7pp Y/Y)
• Revenue growth and margin expansion: MTN Nigeria revenue grew 16% and
its EBITDA margin increased by 3.7 percentage points to 62.9%. This was due
to subscriber increase, lower interconnect costs (higher on-net traffic) and cost
efficiencies.
• Investment in network continues: Site roll-out only gained momentum in the
second half of the year as the company added 1,504 2G and 480 3G BTSs,
bringing the total BTS count to 9,110 at the year end. Network quality and
capacity remain a priority as competition intensifies. In addition to the increase
in BTS coverage, 4,800 existing BTS sites were upgraded. Nigeria also
continued to roll-out fibre across the country, completing a 696 km fibre ring.
Capex declined ~54% to ZAR 4.2bn (US$640m) from 10.2bn (US$1.23bn) in
2009. Nigeria reduced capex in 2010 on core network and site rollout were done.
2011 capex guidance is up 66% Y/Y to ZAR 7.8bn (US$1.05bn), Management
indicated that the bulk of this is for capacity enhancement to have headroom on
the network as net adds share has ramped very well
• Data revenue increased by 25% to ~ZAR 500m and contributed 8% to group
data revenue. In 2010, 150K dongles and 40k 3G handsets were sold.
Ghana highlights
• Market dynamics to get tougher? Ghana is already a competitive market with
4 players – MTN, Vodafone, Millicom and Bharti Airtel. The entry of Glo is
expected to increase competition and has prompted MTN to invest in its network
ahead of the event.
• MTN being pro-active: MTN has invested in its network in Ghana and also
introduced new price plans, launched loyalty programs and revised its MTN
Zone offering (It now allows subscribers to view discounts in terms of monetary
value rather than as discount percentages). Where MTN has capacity, it has cut
pricing to get the traffic on-board. Both Glo's entry and MTN's response are
negative for Bharti in our view.
• Sub base: In Ghana, MTN grew its sub base by 9% to 8.7m subs. The company
has guided to net adds of 390K in 2011 implying a 4% increase in sub base (to
over 9m). In 2010, MTN lost ~2pp of market share which was 53% at year-end.
SIM card registration had a negative impact on H2 2010 and as of Dec 31, MTN
had 70% of its base registered. Final deadline is June 2011
• Revenue: Local currency revenue grew 14% (ahead of sub base) due to higher
subscription revenue. Local currency ARPU was stable. Data revenue increased
by 87%. Bundled offerings and reduction of data pricing led to increased data
usage. 44K dongles and 166K 3G subscribers are on its network
• MTN Ghana’s EBITDA margin decreased slightly to 44.3% from 44.5% in
the prior period. This was mainly because of the increase in direct network
operating costs, specifically rent and utilities, and maintenance costs associated
with a price hike in May 2010 as well as a bigger network. Staff costs also
contributed to the decrease in margin as a result of improved retention
initiatives.
• Tower agreement to unlock value: In Ghana, MTN has entered into an
agreement with ATC (American Tower Company) to form a tower JV. This
includes sale of 1,876 towers for US$428.3m implying a value of
~US$230K/tower. This is in-line with our conversations in Nigeria last year. The
driver here was to unlock value in these assets according to management. We
believe MTN’s deal highlights that it is open to passive infrastructure sharing
but that it will consider this only on a case-by-case basis. Our own conversations
in Nigeria last year with MTN revealed that in key markets like Nigeria they
would be consider this on a barter system as long as they are made no worse off.
• Some capex rationalization expected in 2011: MTN Ghana rolled out 940
BTSs during the year, bringing the total number of BTSs to 4,033. Capex
increased to 55% of revenue from 46% as the roll-out gained momentum in H2
2010. A further 77 3G BTSs were added. Capex guidance is for ZAR 1.2bn
(US$165m) vs. ZAR 3.1bn in 2010 (ZAR 2.6bn in 2009). The decline is from a
high base in 2010 when investment was quite significant and saw some carry
over from 2009.
Valuation and rating analysis
Our December 2011 price target is INR 370. This is based on our sum-of-the-parts
valuation of each business segment for Bharti.
Risks to our view
We highlight the following risks to our rating and price target:
Upside risks: [1] A better-than-expected performance in Africa, especially in the near
term; [2] rational competition when MNP is introduced; [3] market consolidation;
and [4] 3G data take-up and pricing better than we forecast
Downside risks: [1] High-end competition impact on Bharti more than expected; [2]
regulatory environment being less benign than we think.
No comments:
Post a Comment