Religare Research | Bharti Airtel : Solid India performance; Africa remains a drag – Hold

Solid India performance; Africa remains a drag – Hold
Bharti reported a strong Q1 as India ARPM increased by a sharp 4% QoQ,
shoring up wireless margins by 185bps QoQ. Africa remained sluggish (-5%
QoQ), impacted by lower interconnect even as margins rose 130bps QoQ.
While we already build in a margin recovery in FY14, Bharti’s ability to take
more price hikes without hurting volumes remains the key to further
upgrades. Growth in Africa remains below-par, with the underperformance
weighing on EBITDA upgrades. We adjust our estimates to factor in a better
India wireless performance and raise our TP to Rs 370 (from Rs 320). HOLD

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 Pricing drives India beat: Adj.revenues stood at Rs 141bn (+5.7% QoQ), ahead of
estimates, while India wireless revenues grew 5% to Rs 116bn led by a 4% QoQ
increase in ARPM.However, flat MOUs QoQ despite sharp tariff hikessurprised us
negatively. Data growth was strong (+20% QoQ). Consol. PAT came in at Rs 6.9bn
(-10% YoY), ahead of our estimate (Rs 5bn) but in line with the street (Rs 7bn).
 Margins improve;further expansion questionable: India margins increased 100bps
QoQ to 34.9%, beating estimates, and wireless margins 185bps QoQ to 32.4%.
While margin improvements were driven by price hikes, Bharti’s ability to take
more hikes without a volume hit remains to be seen. In the concall, management
did caution against expectations of runaway hikes amid high consumer inflation.
 Africa – still sluggish: Core growth in Africa remains a worry (flat YoY) though lower
interconnect helped margins (+130bps QoQ). Weak Africa performance remains a
drag on broader growth and limits overall EBITDA upgrades.
 Estimate changes: Bharti has changed the accounting method for Indus Towers
(now equity-based), and business lines now include respective corporate
overheads. This has led to a downward restatement of wireless EBITDA. New
EBITDA estimates are ex-Indus and we factor in 110/340bps higher FY15 margins
for India/Africa. We raise our SOTP TP to Rs 370 to factor in better India business.