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1QFY12 Results
Bharti’s 1QFY12 revenue rose 4% QoQ, just ahead of our expectation, led
by 10% QoQ growth in its Africa-network traffic, although revenue per
minute dropped in India and Africa. The negative surprise was the 13%
QoQ/28% YoY PAT decline after a sharp 25% QoQ jump in net-interest
burden, including derivative and exchange-fluctuation loss. Bharti’s
consolidated Ebitda margin was flat QoQ at 33.6% and margins for
African operations were at 26.7%. At 9x FY12CL EV/Ebitda, the stock
seems to be factoring in growth but is not recognising risks of US$5-6bn
in regulatory payments. Maintain Underperform.
Traffic growth in Africa. Bharti’s 1QFY12 consolidated revenue at Rs169.8bn was up
4% QoQ, marginally above our expectations. The only positive surprise was 10% QoQ
growth in Africa mobile traffic, while Indian total network minutes were up 5% QoQ (4QFY11
climbed 6.4 %QoQ). Bharti’s Africa MoU rose 5% QoQ to 121 minutes versus India’s 1% QoQ
drop to 445 minutes. Revenue per minute was down 1% QoQ in India at Rs0.428 and 3%
QoQ in Africa at US$0.6 (Rs2.7).
Margins flat, debt at US$14bn. Bharti’s consolidated Ebitda margin expansion was flat
QoQ (shrinking 329bps to 33.6% incl Africa and passive infrastructure business) and margins
for African operations were at 26.7%. Consolidated profit of Rs12.2bn fell 13% QoQ and 28%
YoY, significantly below our expectations, due to 25% higher net interest cost at Rs8.55bn
QoQ, which included Rs1.75bn of derivatives/ exchange-fluctuation loss. Bharti consolidated
debt remained stable at US$14bn with US$4.6bn being short term and at 3x net debt to
Ebitda. Quarterly capex was Rs43bn, including Africa, with FY12 capex guidance at US$2.9-
3.1bn. In 1QFY12, the passive infrastructure Ebitda margin was up 70bps QoQ with Bharti
Infratel having 32,942 towers at 1.77x tenancy and Indus 108,922 towers at 1.87x tenancy.
Limited upside of 2G rate hike. Bharti recently raised mobile tariffs in India by 20%
from Rs0.01/second to Rs0.012/second for calls on the same network, for “new” subscribers
in six of 22 circles, which management states is now expanding to 19 circles. Although rate
hikes are a positive, earnings impact will be limited for the next few quarters as they are only
applicable for new subscribers, which dropped 28% QoQ to seven million this quarter.
Meanwhile, although tariff forbearance exists, reports suggest that the telecom regulator has
asked operators to justify tariff hikes.
3G subscribers yet to ramp up. Bharti’s 3G is live in all 13 licence circles, however,
management has not yet revealed the 3G-subscriber ramp-up, which should help marketshare
gains and drive value-added services (VAS) however Bharti’s VAS revenue declined to
14.6% from 15% in the quarter. Our FY12-13CL estimates factor in 10-19m 3G subscribers,
against 169m current 2G subs in India with total subs across regions and services of 231 m.
Delay in deleveraging, low returns and high regulatory risks. Although
Bharti’s gearing is comfortable, consolidated net debt is high at US$14bn and deleveraging is
likely to be delayed, impacted by the risk of additional spectrum and licence renewal
payments. Bharti faces risks of Rs35.8bn (US$800m) additional one-time payment for 2G
spectrum beyond 6.2MHz plus a net present value (NPV) of Rs123.3bn (US$2.7bn) for
renewing 2G licences, besides refarming on the 900MHz spectrum - steps the industry
strongly opposes. Bharti will also need further investments to complete spectrum footprint in
3G (nine circles) and 4G (18 circles) causing ROCE of 8% to remain depressed. Meanwhile,
the stock’s valuation at 9x FY12CL EV/Ebitda leaves no room for negative surprises. Maintain
Underperform.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
1QFY12 Results
Bharti’s 1QFY12 revenue rose 4% QoQ, just ahead of our expectation, led
by 10% QoQ growth in its Africa-network traffic, although revenue per
minute dropped in India and Africa. The negative surprise was the 13%
QoQ/28% YoY PAT decline after a sharp 25% QoQ jump in net-interest
burden, including derivative and exchange-fluctuation loss. Bharti’s
consolidated Ebitda margin was flat QoQ at 33.6% and margins for
African operations were at 26.7%. At 9x FY12CL EV/Ebitda, the stock
seems to be factoring in growth but is not recognising risks of US$5-6bn
in regulatory payments. Maintain Underperform.
Traffic growth in Africa. Bharti’s 1QFY12 consolidated revenue at Rs169.8bn was up
4% QoQ, marginally above our expectations. The only positive surprise was 10% QoQ
growth in Africa mobile traffic, while Indian total network minutes were up 5% QoQ (4QFY11
climbed 6.4 %QoQ). Bharti’s Africa MoU rose 5% QoQ to 121 minutes versus India’s 1% QoQ
drop to 445 minutes. Revenue per minute was down 1% QoQ in India at Rs0.428 and 3%
QoQ in Africa at US$0.6 (Rs2.7).
Margins flat, debt at US$14bn. Bharti’s consolidated Ebitda margin expansion was flat
QoQ (shrinking 329bps to 33.6% incl Africa and passive infrastructure business) and margins
for African operations were at 26.7%. Consolidated profit of Rs12.2bn fell 13% QoQ and 28%
YoY, significantly below our expectations, due to 25% higher net interest cost at Rs8.55bn
QoQ, which included Rs1.75bn of derivatives/ exchange-fluctuation loss. Bharti consolidated
debt remained stable at US$14bn with US$4.6bn being short term and at 3x net debt to
Ebitda. Quarterly capex was Rs43bn, including Africa, with FY12 capex guidance at US$2.9-
3.1bn. In 1QFY12, the passive infrastructure Ebitda margin was up 70bps QoQ with Bharti
Infratel having 32,942 towers at 1.77x tenancy and Indus 108,922 towers at 1.87x tenancy.
Limited upside of 2G rate hike. Bharti recently raised mobile tariffs in India by 20%
from Rs0.01/second to Rs0.012/second for calls on the same network, for “new” subscribers
in six of 22 circles, which management states is now expanding to 19 circles. Although rate
hikes are a positive, earnings impact will be limited for the next few quarters as they are only
applicable for new subscribers, which dropped 28% QoQ to seven million this quarter.
Meanwhile, although tariff forbearance exists, reports suggest that the telecom regulator has
asked operators to justify tariff hikes.
3G subscribers yet to ramp up. Bharti’s 3G is live in all 13 licence circles, however,
management has not yet revealed the 3G-subscriber ramp-up, which should help marketshare
gains and drive value-added services (VAS) however Bharti’s VAS revenue declined to
14.6% from 15% in the quarter. Our FY12-13CL estimates factor in 10-19m 3G subscribers,
against 169m current 2G subs in India with total subs across regions and services of 231 m.
Delay in deleveraging, low returns and high regulatory risks. Although
Bharti’s gearing is comfortable, consolidated net debt is high at US$14bn and deleveraging is
likely to be delayed, impacted by the risk of additional spectrum and licence renewal
payments. Bharti faces risks of Rs35.8bn (US$800m) additional one-time payment for 2G
spectrum beyond 6.2MHz plus a net present value (NPV) of Rs123.3bn (US$2.7bn) for
renewing 2G licences, besides refarming on the 900MHz spectrum - steps the industry
strongly opposes. Bharti will also need further investments to complete spectrum footprint in
3G (nine circles) and 4G (18 circles) causing ROCE of 8% to remain depressed. Meanwhile,
the stock’s valuation at 9x FY12CL EV/Ebitda leaves no room for negative surprises. Maintain
Underperform.
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