Operationally in line, PAT higher due to exceptions • Airtel :: ICICI Securities, PDF link

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Operationally in line, PAT higher due to exceptions
• Airtel reported revenues of | 22861.7 crore this quarter, up 7.1%
YoY, slightly lower than our expectation of | 23154.1 crore. Revenue
growth could have been higher but for the higher seasonality, which
led to a 2.6% decline in India voice minutes to 26.3 billion minutes.
However, the impact was partially set off by the 23.2% QoQ growth
in data volume. African operations continued to be subdued, with
topline declining by 1.9% QoQ to $1140.5 million.
• The EBITDA came in at | 7705.3 crore, up 12.8% YoY but declined
0.2% QoQ. The QoQ decline was on account of the quarter being a
seasonally weaker one
• PAT came in at | 1383.2 crore (vs. expectation of | 1296.3 crore), up
24.8% QoQ due to lower depreciation, which was as a result of an
accounting adjustment with respect to the assets held for sale.
Pricing power seen in recent performance…
The telecom sector saw two to three years of cut-throat competition and
rock-bottom voice tariffs. Airtel had a 1.1% reduction in voice ARPMs
over FY11-13 to 35 paisa. However, with consolidation in the sector as the
licenses were quashed and smaller operators scaled down or exited the
business we can see pricing discipline coming back in the sector. Airtel
has raised voice ARPM by about 3 paisa from 35.3 in FY13 to 38.1 in
Q1FY15. Incremental realisations have had a magnified impact on
operating margins, which increased from 30.1% to 36.9% over the same
period. This quarter voice ARPM has expanded 2.7% QoQ to 38.1 paisa
(highest level in past three years) from 37.1 paisa. We expect voice
realisations & total voice traffic to reach 38.3 paisa & 1135 billion minutes
by FY16E from 36.8 paisa & 1029 billion minutes in FY14, respectively.
Data to be volume game but tariffs to decline
Data contribution to revenue has increased from 4.1% in Q4FY12 to
14.5% in Q2FY15, indicating expansion in data segment. Overall data
consumption increased from 10000 million MB to over 67000 MB over the
same period. However, ARMBs continues to decline from 40.9 paisa to
26.7 paisa in Q2FY15 as the data penetration increases. Even in the
coming years we expect ARMBs to further decline. Bharti has a data
spectrum portfolio with a 3G, LTS capability in 20, 22 circles, respectively.
We expect data to grow at a 51.9% FY14-16E CAGR to | 10059.3 crore
forming 17.8% of the data revenue by FY16E.
Africa remains below par
The African business continues to remain below par with EBITDA margins
contraction to 23.7% from 24.3% in last quarter. Margins have hovered
around the 25-28% mark ever since acquisition, far behind the target of
40%. They may continue to remain subdued in the near future as the
company faces intense competition in Africa. We expect EBITDA margins
to remain around 25% in FY16E. The company sold 3100 towers in four
African countries to Helios Towers Africa, which would help it pare down
its debt levels. The company would lease the same towers, which would
impact the margins. However, with subsequent saving on employee cost
and depreciation, the cumulative impact on net income would be positive.
Maintain BUY - belief in sustainable growth story- target price of | 480
Considering the ability to deliver superior data services with a rich
spectrum portfolio, we believe Airtel will grow its revenue and PAT at
7.8% and 39.2% CAGR (FY14-16E), respectively. We maintain BUY
recommendation with a target price of | 480.

LINK
http://content.icicidirect.com/mailimages/IDirect_BhartiAirtel_Q2FY15.pdf