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Bharti Airtel (BHARTI)
Telecom
Disappointing 2QFY12 but it’s more about FY2013E and regulations for now.
Solid Africa performance prevented Bharti’s 2QFY12 from being an all-round
disappointment. Revenues, EBITDA, and net income (adjusted for forex) all fell short of
our expectations. Nonetheless, even as the disappointment drives cuts in our
EBITDA/EPS forecasts, we remain positive on two counts – (1) likely strong improvement
in India wireless performance ahead, and (2) defensive positioning of the stock. Retain
ADD with a revised end-FY2013E DCF-based TP of Rs445/share (Rs460 earlier).
Optimistic view on the stock sustained but will demand estimate meet/ beat soon
Before we delve into discussion on Bharti’s 2QFY12 financials, we note the factors that are
keeping us (and will likely continue to keep the Street) positive on the stock – (1) expectation of
pricing power in the India wireless market sustaining; this demands competitive environment to
remain benign (irrespective of what happens on the regulatory front), (2) potential for upside
surprise on Africa EBITDA performance – ours and Street’s FY2013E Africa EBITDA estimates
remain substantially below the management’s guidance of US$2 bn, (3) India data story – wait for
the inflection point continues (see a dampener of sorts in Exhibit 3), and (4) sustenance of low
risk appetite in the market, that could sustain rich relative valuations of defensives.
Different sections of the Street could be positive on one or more of the above-mentioned factors.
Our constructive view stems from a positive stance on factors (1) and (4) above. We do not see
meaningful upside risk on factors (2) and (3) versus what is already built into our estimates. We do
note that these factors have been aiding Bharti’s stock performance over the past several months,
despite the company’s underperformance on Street’s estimates for several quarters (see Exhibit 1)
and negative regulatory news flow. It is difficult to predict the extent of time the Street is willing to
accord Bharti to deliver on expectations; however, we would be concerned if the company does
not start meeting or beating expectations over the next couple of quarters. Essentially, we believe
rich valuations would soon demand performance-led and not news flow-led upgrades.
2QFY12 results – disappointing, barring strong performance in Africa
We found Bharti’s 2QFY12 results disappointing, on balance. The company missed our estimates
on consolidated revenue, EBITDA, as well as adjusted-for-forex net income. Weak India/SA
business performance drove the miss, even as Africa performance surprised on the upside at both
revenue as well as EBITDA level. India wireless performance was particularly disappointing on both
financial as well as operating metrics – revenues as well as EBITDA declined qoq; operationally,
minutes declined 2% qoq (in line with Idea) while underlying (excluding 3G roaming revenues)
RPM was flat qoq. We discuss the results in more detail later in the note.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bharti Airtel (BHARTI)
Telecom
Disappointing 2QFY12 but it’s more about FY2013E and regulations for now.
Solid Africa performance prevented Bharti’s 2QFY12 from being an all-round
disappointment. Revenues, EBITDA, and net income (adjusted for forex) all fell short of
our expectations. Nonetheless, even as the disappointment drives cuts in our
EBITDA/EPS forecasts, we remain positive on two counts – (1) likely strong improvement
in India wireless performance ahead, and (2) defensive positioning of the stock. Retain
ADD with a revised end-FY2013E DCF-based TP of Rs445/share (Rs460 earlier).
Optimistic view on the stock sustained but will demand estimate meet/ beat soon
Before we delve into discussion on Bharti’s 2QFY12 financials, we note the factors that are
keeping us (and will likely continue to keep the Street) positive on the stock – (1) expectation of
pricing power in the India wireless market sustaining; this demands competitive environment to
remain benign (irrespective of what happens on the regulatory front), (2) potential for upside
surprise on Africa EBITDA performance – ours and Street’s FY2013E Africa EBITDA estimates
remain substantially below the management’s guidance of US$2 bn, (3) India data story – wait for
the inflection point continues (see a dampener of sorts in Exhibit 3), and (4) sustenance of low
risk appetite in the market, that could sustain rich relative valuations of defensives.
Different sections of the Street could be positive on one or more of the above-mentioned factors.
Our constructive view stems from a positive stance on factors (1) and (4) above. We do not see
meaningful upside risk on factors (2) and (3) versus what is already built into our estimates. We do
note that these factors have been aiding Bharti’s stock performance over the past several months,
despite the company’s underperformance on Street’s estimates for several quarters (see Exhibit 1)
and negative regulatory news flow. It is difficult to predict the extent of time the Street is willing to
accord Bharti to deliver on expectations; however, we would be concerned if the company does
not start meeting or beating expectations over the next couple of quarters. Essentially, we believe
rich valuations would soon demand performance-led and not news flow-led upgrades.
2QFY12 results – disappointing, barring strong performance in Africa
We found Bharti’s 2QFY12 results disappointing, on balance. The company missed our estimates
on consolidated revenue, EBITDA, as well as adjusted-for-forex net income. Weak India/SA
business performance drove the miss, even as Africa performance surprised on the upside at both
revenue as well as EBITDA level. India wireless performance was particularly disappointing on both
financial as well as operating metrics – revenues as well as EBITDA declined qoq; operationally,
minutes declined 2% qoq (in line with Idea) while underlying (excluding 3G roaming revenues)
RPM was flat qoq. We discuss the results in more detail later in the note.
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