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Bharti Airtel (BHARTI)
Telecom
Subdued operational performance; forex losses take a toll on PAT. Bharti
reported a weak 1QFY12 missing our estimates on EBITDA as well as net income. Even
as the 1Q miss leads to a cut in FY2012E estimates, positive recent developments on
wireless voice tariffs drive meaningful upgrades in FY2013E/14E estimates. We raise our
TP to Rs390/share (from Rs345) and upgrade the rating a notch to REDUCE from SELL.
Stock appears fully valued, even on revised higher earnings estimates.
1QFY12 – subdued on most fronts
Bharti reported a weak earnings report for 1QFY12. Net income for the quarter declined 13% qoq
and 28% yoy to Rs12.2 bn, 23% lower than our estimate. PAT miss was driven by (1) lower-thanexpected
EBITDA, (2) substantial forex losses, and (3) higher-than-expected ETR. EBITDA of Rs57
bn (+4.7% qoq) missed our expectation by 3%, even as revenues of Rs170 bn were broadly in line.
EBITDA miss was driven by (1) lower-than-expected operating margins in Africa wireless and long
distance segment, and (2) sharp increase of Rs507 mn in EBITDA losses in the ‘others’ (DTH +
corporate overheads) segment. From an operational perspective, minutes growth in the India
wireless segment (+4.6% qoq, 200-250 bps lower than Vodafone and Idea) disappointed in
particular – trend of volume market share loss for Bharti to peer incumbents continued.
Competitive and regulatory developments to remain key stock drivers
The recent positive development in the form of wireless voice tariff hike announcements by
incumbents (and in select circles by challengers) is likely to keep the Indian wireless stocks
including Bharti buoyant in the near term despite the poor 1QFY12 earnings report from Bharti.
Expectations of further tariff hikes are running high, and not unwarranted. Nevertheless, even as
we build in such a possibility in our revised RPM estimates, we continue to believe that the overcapacity
situation in the industry could keep the pricing environment fluid and a one-way (i.e.
upwards) expectation on wireless voice pricing is fraught with risk. It is also critical to watch out
for any volume impact (in the form of lower industry volume growth or market share loss) of price
hikes. Regulatory developments, especially on spectrum pricing-related issues, pose a potential
negative. Timing of these developments is uncertain and hence, we do not build in any impact in
our numbers.
Estimate revision – downgrade FY2012E, upgrade FY2013/14E earnings
As discussed above, we build in moderate and gradual pricing improvement in our revised
estimates. Our FY2012E estimate still get revised downwards – EBITDA by 1.5% to Rs253 bn, and
EPS by 9% to Rs17.9/share. RPM increase does drive a +5/8% revision in our FY2013/14E EBITDA
estimates and +10.5/18.7% revision in EPS estimates to Rs27.1/33.3, respectively. We revise our
end-FY2013E TP on the stock to Rs390/share and upgrade the stock a notch to REDUCE from SELL.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� �
Bharti Airtel (BHARTI)
Telecom
Subdued operational performance; forex losses take a toll on PAT. Bharti
reported a weak 1QFY12 missing our estimates on EBITDA as well as net income. Even
as the 1Q miss leads to a cut in FY2012E estimates, positive recent developments on
wireless voice tariffs drive meaningful upgrades in FY2013E/14E estimates. We raise our
TP to Rs390/share (from Rs345) and upgrade the rating a notch to REDUCE from SELL.
Stock appears fully valued, even on revised higher earnings estimates.
1QFY12 – subdued on most fronts
Bharti reported a weak earnings report for 1QFY12. Net income for the quarter declined 13% qoq
and 28% yoy to Rs12.2 bn, 23% lower than our estimate. PAT miss was driven by (1) lower-thanexpected
EBITDA, (2) substantial forex losses, and (3) higher-than-expected ETR. EBITDA of Rs57
bn (+4.7% qoq) missed our expectation by 3%, even as revenues of Rs170 bn were broadly in line.
EBITDA miss was driven by (1) lower-than-expected operating margins in Africa wireless and long
distance segment, and (2) sharp increase of Rs507 mn in EBITDA losses in the ‘others’ (DTH +
corporate overheads) segment. From an operational perspective, minutes growth in the India
wireless segment (+4.6% qoq, 200-250 bps lower than Vodafone and Idea) disappointed in
particular – trend of volume market share loss for Bharti to peer incumbents continued.
Competitive and regulatory developments to remain key stock drivers
The recent positive development in the form of wireless voice tariff hike announcements by
incumbents (and in select circles by challengers) is likely to keep the Indian wireless stocks
including Bharti buoyant in the near term despite the poor 1QFY12 earnings report from Bharti.
Expectations of further tariff hikes are running high, and not unwarranted. Nevertheless, even as
we build in such a possibility in our revised RPM estimates, we continue to believe that the overcapacity
situation in the industry could keep the pricing environment fluid and a one-way (i.e.
upwards) expectation on wireless voice pricing is fraught with risk. It is also critical to watch out
for any volume impact (in the form of lower industry volume growth or market share loss) of price
hikes. Regulatory developments, especially on spectrum pricing-related issues, pose a potential
negative. Timing of these developments is uncertain and hence, we do not build in any impact in
our numbers.
Estimate revision – downgrade FY2012E, upgrade FY2013/14E earnings
As discussed above, we build in moderate and gradual pricing improvement in our revised
estimates. Our FY2012E estimate still get revised downwards – EBITDA by 1.5% to Rs253 bn, and
EPS by 9% to Rs17.9/share. RPM increase does drive a +5/8% revision in our FY2013/14E EBITDA
estimates and +10.5/18.7% revision in EPS estimates to Rs27.1/33.3, respectively. We revise our
end-FY2013E TP on the stock to Rs390/share and upgrade the stock a notch to REDUCE from SELL.
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