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UBS Investment Research
Bharti Airtel Ltd.
R ealizations per minute stabilises
Event: 1QFY12 Revenues & EBITDA marginally ahead; Net income miss
Bharti 1QFY12 consolidated revenue and EBITDA came in at Rs169.7b (UBS-e
Rs167.8b) and Rs57.1b (UBS-e Rs56.3b) resp. However net income at Rs12.2b
came in below UBS-e (Rs15.4b) primarily due to higher than expected tax and 3G
related expenses (interest and amortization). Minutes growth was strong for
India/SA at 4.6% qoq. In Africa, minutes on the network grew by 9.5% in 1QFY12
vs. 0.1% growth in 4QFY11 while voice rev/min declined by 4.5% (US¢ 5.5).
Impact: Estimates under review
Similar to Idea, Bharti also showed stabilisation in declining trend of voice rev/min
and improvement in mobile margins. However, tax rate for India operations
increased to 25% vs. 15% in 4QFY11 as tax holiday in few service areas expired.
Given, improving realizations & margins we are currently reviewing our estimates.
Action: Reiterate Buy with a PT of Rs500
We believe India mobile sector is going through a paradigm shift with leading
players increasing tariffs. We believe that improving pricing environment and
regulatory outlook will lead to re-rating of the sector. Given its dominant position,
we expect Bharti to be one of the key beneficiaries of the improving business
environment in Indian mobile sector.
Valuation: Our PT is SoTP based
We value India/SA operations at Rs406, tower at Rs97, Africa operations at Rs10.
We also incorporate a charge of Rs13 on account of one-time excess spectrum
payment fees.
Bharti Airtel Ltd.
With a pan-India presence, Bharti Airtel is the largest mobile operator in the
country and recorded a revenue market share of 31.5% in Q4 FY10. The
broadband and telephone group provides services in 100 cities, while the
enterprise services group has two sub-units: carriers (long-distance services) and
corporate services. All services are provided under the Airtel brand. Singapore
Telecom owns a 32.04% stake. Bharti Airtel acquired an 80% stake in Zain
Africa in 2010 at an EV of US$10.7bn.
Statement of Risk
Irrational competition among the operators, the shortage of frequency spectrum
and over-bidding during the 3G spectrum auction are the key risks facing all the
operators at the industry level.
We believe Bharti faces execution risk in light of the rapid growth of India’s
mobile subscriber base. The company recently announced a shift in strategy and
will focus on overseas acquisitions as another means of creating shareholder
value. While Bharti’s management has historically had good discipline when it
comes to investing capital, we believe there is a risk of Bharti overpaying for
acquisitions, given that there are typically multiple bidders in most transactions
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Bharti Airtel Ltd.
R ealizations per minute stabilises
Event: 1QFY12 Revenues & EBITDA marginally ahead; Net income miss
Bharti 1QFY12 consolidated revenue and EBITDA came in at Rs169.7b (UBS-e
Rs167.8b) and Rs57.1b (UBS-e Rs56.3b) resp. However net income at Rs12.2b
came in below UBS-e (Rs15.4b) primarily due to higher than expected tax and 3G
related expenses (interest and amortization). Minutes growth was strong for
India/SA at 4.6% qoq. In Africa, minutes on the network grew by 9.5% in 1QFY12
vs. 0.1% growth in 4QFY11 while voice rev/min declined by 4.5% (US¢ 5.5).
Impact: Estimates under review
Similar to Idea, Bharti also showed stabilisation in declining trend of voice rev/min
and improvement in mobile margins. However, tax rate for India operations
increased to 25% vs. 15% in 4QFY11 as tax holiday in few service areas expired.
Given, improving realizations & margins we are currently reviewing our estimates.
Action: Reiterate Buy with a PT of Rs500
We believe India mobile sector is going through a paradigm shift with leading
players increasing tariffs. We believe that improving pricing environment and
regulatory outlook will lead to re-rating of the sector. Given its dominant position,
we expect Bharti to be one of the key beneficiaries of the improving business
environment in Indian mobile sector.
Valuation: Our PT is SoTP based
We value India/SA operations at Rs406, tower at Rs97, Africa operations at Rs10.
We also incorporate a charge of Rs13 on account of one-time excess spectrum
payment fees.
Bharti Airtel Ltd.
With a pan-India presence, Bharti Airtel is the largest mobile operator in the
country and recorded a revenue market share of 31.5% in Q4 FY10. The
broadband and telephone group provides services in 100 cities, while the
enterprise services group has two sub-units: carriers (long-distance services) and
corporate services. All services are provided under the Airtel brand. Singapore
Telecom owns a 32.04% stake. Bharti Airtel acquired an 80% stake in Zain
Africa in 2010 at an EV of US$10.7bn.
Statement of Risk
Irrational competition among the operators, the shortage of frequency spectrum
and over-bidding during the 3G spectrum auction are the key risks facing all the
operators at the industry level.
We believe Bharti faces execution risk in light of the rapid growth of India’s
mobile subscriber base. The company recently announced a shift in strategy and
will focus on overseas acquisitions as another means of creating shareholder
value. While Bharti’s management has historically had good discipline when it
comes to investing capital, we believe there is a risk of Bharti overpaying for
acquisitions, given that there are typically multiple bidders in most transactions
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