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Bharti Airtel — Strong margins to overshadow
LT concerns
Country Overview
Limited valuation upside vs short-term good news; Neutral
Despite strong earnings growth & potential stock inclusion in the MSCI index we
are Neutral on Bharti due to already significant valuation premium vs GEM telcos.
Our outlook is also dampened by regulatory overhang & absence of structural
changes in the industry; we think recent tariff hikes will not sustain beyond 2-3
qtrs. Post 1Q, our consolidated FY12-13 EBITDA f’casts are largely unchanged
but EPS stands cut by 18-20% due to higher taxes & 3G-related interest.
Strong ST margin uplift in India on anvil; usage - a LT worry
We see room for sharp margin improvement in the India operations over next 1-2
qtrs led by 3 key factors: 1) recent tariff hikes across bulk of their footprint, 2)
lower selling expenses due to a combination of cutback in dealer commissions &
lower subscriber churn, and 3) pot’l cost savings from recent organizational
restructuring. Slowing 2G traffic growth and weak 3G uptake are long-term
worries but will likely be over-shadowed by higher margins in the short-term.
Building revenue momentum in Africa; capex risks remain
We have hiked revenue and capex assumptions for Africa by 7-20% to reflect
mgt. focus on rebuilding network quality and coverage. Our revised EBITDA
forecast (US$1.4bn; 28.6% margin) for FY13 is still 30% below mgt. target but
drives the 3% uptick in PO to Rs450/sh. Risk to Africa margins is likely on the
downside if capex (and hence network cost) overshoots expectations.
Weak headline profit but strong underlying margin trends
Bharti’s headline 1Q FY12 net profit at Rs12.15bn (-13% QoQ) was below
consensus and our expectations due to higher taxes in India and forex
fluctuations in Africa. Revenue and EBITDA performance in 1Q was in-line and
wireless margin trends were strong in both India and Africa.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bharti Airtel — Strong margins to overshadow
LT concerns
Country Overview
Limited valuation upside vs short-term good news; Neutral
Despite strong earnings growth & potential stock inclusion in the MSCI index we
are Neutral on Bharti due to already significant valuation premium vs GEM telcos.
Our outlook is also dampened by regulatory overhang & absence of structural
changes in the industry; we think recent tariff hikes will not sustain beyond 2-3
qtrs. Post 1Q, our consolidated FY12-13 EBITDA f’casts are largely unchanged
but EPS stands cut by 18-20% due to higher taxes & 3G-related interest.
Strong ST margin uplift in India on anvil; usage - a LT worry
We see room for sharp margin improvement in the India operations over next 1-2
qtrs led by 3 key factors: 1) recent tariff hikes across bulk of their footprint, 2)
lower selling expenses due to a combination of cutback in dealer commissions &
lower subscriber churn, and 3) pot’l cost savings from recent organizational
restructuring. Slowing 2G traffic growth and weak 3G uptake are long-term
worries but will likely be over-shadowed by higher margins in the short-term.
Building revenue momentum in Africa; capex risks remain
We have hiked revenue and capex assumptions for Africa by 7-20% to reflect
mgt. focus on rebuilding network quality and coverage. Our revised EBITDA
forecast (US$1.4bn; 28.6% margin) for FY13 is still 30% below mgt. target but
drives the 3% uptick in PO to Rs450/sh. Risk to Africa margins is likely on the
downside if capex (and hence network cost) overshoots expectations.
Weak headline profit but strong underlying margin trends
Bharti’s headline 1Q FY12 net profit at Rs12.15bn (-13% QoQ) was below
consensus and our expectations due to higher taxes in India and forex
fluctuations in Africa. Revenue and EBITDA performance in 1Q was in-line and
wireless margin trends were strong in both India and Africa.
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