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Interplay of tariff and usage
MTN, Bharti’s closest competitor in Africa, announced 1H11 results which
reveal that revenue growth in Nigeria has slowed 60%. Nigeria is c.30%
of Bharti’s Africa revenue. MTN capex guidance for the country is US$1bn
versus US$1-1.2bn for Bharti in 16 countries. In India, a mobile-tariff
hike could see a 4% increase in revenue per minute (RPM), but falling
usage will blunt the net impact. Even if 100% of subscribers face a hike,
but MoU drops just 5% (versus 7% in last 12 months), then upside to our
earnings assumptions is negligible. Meanwhile, the valuation at 7x
FY13CL EV/Ebitda leaves no room for negative surprises. Maintain UPF.
Slower growth in Nigeria, Bharti largest Africa market.
Even though Bharti does not break down its 16 country operations in Africa, the
recent 1H11 results of MTN (closest competitor with overlap in five countries)
reveal that subscriber additions in Nigeria have slowed to 4.8% HoH (versus
average 12% in the previous 18 months). Also, with Arpu falling, MTN’s revenue
growth in the country has decelerated to 3.3% HoH (versus average 8% over 18
months). Nigeria accounts for c.30% of Bharti’s Africa revenue, which is in turn
25% of consolidated revenue: slower growth here will impact region performance.
Further, MTN leads in Nigeria with a 49% market share, but has maintained capex
guidance at US$1bn for Nigeria alone versus Bharti’s US$1-1.2bn for all 16 African
country operations.
Outsourcing efforts: will not lower access and licence charges.
MTN financials reveal that, although margins in Nigeria were down 120bps, they
are still high at 63.3%, and consolidated margins were 44% - both significantly
ahead of Bharti’s 27% in Africa. A further comparison reveals that Bharti has
interconnect/access and licence charges 13ppts higher than MTN: it can lower
these primarily with growth in traffic/interconnect renegotiations and not
outsourcing efforts. Other cost savings for Bharti will be underway from the key
outsourcing deals with Ericsson and Huawei (network deployment and
maintenance) and IBM (end-user services). In its recent 1QFY12 results, Bharti’s
Africa margins improved 40bps QoQ to 26.7%, and for FY12-13CL we factor in a
5ppt improvement to 32% and 4% QoQ growth in Ebitda.
In India, interplay of tariff hike and usage limit upside.
Meanwhile in its India operations, though it is positive that Bharti raised mobile
tariffs for local calls by 20% from Rs0.01 to Rs0.012/second, these are for calls
on the same network, for ‘new’ subscribers and in 13 of 22 circles across India.
Existing subscribers have tariff validity for six months to a year, which implies the
full impact will spill over to FY13. Here our analysis reveals that, although the rate
hike could result in a 4% increase in revenue per minute (RPM), the earnings
impact is limited due to dropping usage/MoU. Even if 100% of subscribers face a
hike, but MoU drops just 5% (versus 7% in last 12 months and 17% in 12
quarters), then upside to our earnings assumptions is negligible. Our current
assumptions are flat RPM and a 4% increase in MoU. Meanwhile, our key concern
for Bharti remains regulatory uncertainty: a year after the 2G scam there is no
resolution, while NTP 11, expected in October 2011, will have significant
implications (sector consolidation, spectrum distribution and spectrum charges)
and will likely disappoint. We maintain our Underperform rating.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Interplay of tariff and usage
MTN, Bharti’s closest competitor in Africa, announced 1H11 results which
reveal that revenue growth in Nigeria has slowed 60%. Nigeria is c.30%
of Bharti’s Africa revenue. MTN capex guidance for the country is US$1bn
versus US$1-1.2bn for Bharti in 16 countries. In India, a mobile-tariff
hike could see a 4% increase in revenue per minute (RPM), but falling
usage will blunt the net impact. Even if 100% of subscribers face a hike,
but MoU drops just 5% (versus 7% in last 12 months), then upside to our
earnings assumptions is negligible. Meanwhile, the valuation at 7x
FY13CL EV/Ebitda leaves no room for negative surprises. Maintain UPF.
Slower growth in Nigeria, Bharti largest Africa market.
Even though Bharti does not break down its 16 country operations in Africa, the
recent 1H11 results of MTN (closest competitor with overlap in five countries)
reveal that subscriber additions in Nigeria have slowed to 4.8% HoH (versus
average 12% in the previous 18 months). Also, with Arpu falling, MTN’s revenue
growth in the country has decelerated to 3.3% HoH (versus average 8% over 18
months). Nigeria accounts for c.30% of Bharti’s Africa revenue, which is in turn
25% of consolidated revenue: slower growth here will impact region performance.
Further, MTN leads in Nigeria with a 49% market share, but has maintained capex
guidance at US$1bn for Nigeria alone versus Bharti’s US$1-1.2bn for all 16 African
country operations.
Outsourcing efforts: will not lower access and licence charges.
MTN financials reveal that, although margins in Nigeria were down 120bps, they
are still high at 63.3%, and consolidated margins were 44% - both significantly
ahead of Bharti’s 27% in Africa. A further comparison reveals that Bharti has
interconnect/access and licence charges 13ppts higher than MTN: it can lower
these primarily with growth in traffic/interconnect renegotiations and not
outsourcing efforts. Other cost savings for Bharti will be underway from the key
outsourcing deals with Ericsson and Huawei (network deployment and
maintenance) and IBM (end-user services). In its recent 1QFY12 results, Bharti’s
Africa margins improved 40bps QoQ to 26.7%, and for FY12-13CL we factor in a
5ppt improvement to 32% and 4% QoQ growth in Ebitda.
In India, interplay of tariff hike and usage limit upside.
Meanwhile in its India operations, though it is positive that Bharti raised mobile
tariffs for local calls by 20% from Rs0.01 to Rs0.012/second, these are for calls
on the same network, for ‘new’ subscribers and in 13 of 22 circles across India.
Existing subscribers have tariff validity for six months to a year, which implies the
full impact will spill over to FY13. Here our analysis reveals that, although the rate
hike could result in a 4% increase in revenue per minute (RPM), the earnings
impact is limited due to dropping usage/MoU. Even if 100% of subscribers face a
hike, but MoU drops just 5% (versus 7% in last 12 months and 17% in 12
quarters), then upside to our earnings assumptions is negligible. Our current
assumptions are flat RPM and a 4% increase in MoU. Meanwhile, our key concern
for Bharti remains regulatory uncertainty: a year after the 2G scam there is no
resolution, while NTP 11, expected in October 2011, will have significant
implications (sector consolidation, spectrum distribution and spectrum charges)
and will likely disappoint. We maintain our Underperform rating.
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