● Bharti reported strong Jun-13 quarter numbers with 2% beat each
on revenues/EBITDA, and 11% adj. PBT beat. Higher taxes and
one-time non-cash costs led to reported profit miss of 14%.
Adjusted for exceptionals, profits came in-line. Full report.
● The results show that the business momentum in India has
definitely turned – with RPM increasing 4% QoQ without any loss
of minutes. The pricing improvement flowed through into
profitability with a 180 bp margins increase (QoQ). Management
comments and our channel checks indicate such pricing
improvement could continue in coming quarters.
● Cash flow is growing, with the company generating $470 mn in
free cash in Jun-13, compared to $750 mn in the whole of FY13.
RoCE – which has been falling ever since the Africa acquisition,
bottomed out and improved for the first time.
● Our estimates go down 1-4% on building the quarter's
exceptionals and higher taxes. We expect consensus upgrades to
Bharti in the near future, and retain our OUTPERFORM rating
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on revenues/EBITDA, and 11% adj. PBT beat. Higher taxes and
one-time non-cash costs led to reported profit miss of 14%.
Adjusted for exceptionals, profits came in-line. Full report.
● The results show that the business momentum in India has
definitely turned – with RPM increasing 4% QoQ without any loss
of minutes. The pricing improvement flowed through into
profitability with a 180 bp margins increase (QoQ). Management
comments and our channel checks indicate such pricing
improvement could continue in coming quarters.
● Cash flow is growing, with the company generating $470 mn in
free cash in Jun-13, compared to $750 mn in the whole of FY13.
RoCE – which has been falling ever since the Africa acquisition,
bottomed out and improved for the first time.
● Our estimates go down 1-4% on building the quarter's
exceptionals and higher taxes. We expect consensus upgrades to
Bharti in the near future, and retain our OUTPERFORM rating
EBITDA growth rebounds after 5 quarters
Bharti reported strong set of Jun-13 numbers, with revenues/EBITDA
beating estimates by 1.6%/2.4% respectively. In spite of higher forex
losses, profits pre-exceptionals came in-line (we note that our
numbers were 18% higher than consensus for the quarter). One time
exceptional items (primarily non-cash) and higher tax rate (one-time in
Africa) led to reported profits miss of 14%.
It is heartening to see the company return to strong growth trajectory,
with a 19% YoY EBITDA growth for the quarter – after having grown
5% in FY13.
Pricing improvement in India
For the past 7-8 months we have been highlighting the subtle but
steady changes to tariffs that have been taking place in India mobile
space, and we have seen the eventual RPM flow through for the first
time in the Jun-13 quarter for Bharti (and Vodafone earlier).
Importantly, the 4% QoQ RPM uplift was accompanied with a 2%
volume increase (indicating negligible elasticity impact). We continue
to build full-year RPM uplift of 6%/3% for FY14/FY15 respectively, and
believe these are conservative.
RPM increased flowed through to margins, leading to 180 bp mobile
margin increase (QoQ). Data revenues continue to grow strongly
(20% QoQ, 90% YoY) and could become a meaningful revenue driver
soon.
Africa steady: As against the low expectations set by management on
Africa, results showed that the operations appear to be stabilising –
with flat EBITDA QoQ.
Reiterate OUTPERFORM
Post the results we adjust out model for new accounting – which by
itself leaves no impact on earnings. However, building in the quarterly
exceptionals and higher taxes, our EPS estimates go down 1-4%. We
believe that Bharti stock is attractive at 5.1x FY15 EV/EBITDA for 18%
EBITDA CAGR. Reiterate OUTPERFORM.
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