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We expect muted revenue growth in 2QFY12 due to seasonally weak quarter. Forex losses
to depress profits. We believe any weakness in stocks owing to seasonal specific muted 2Q
performance would be an opportunity to Buy Bharti and Idea, due to likely structural
improvement in sector driven by pricing power.
Muted growth in 2Q due to seasonality; growth trajectory to improve in 2HFY12
We expect muted revenue growth of 0.4% for Idea and 1.8% for Bharti India because of
seasonal factors (monsoons and no festivals). We expect minute growth of 0.4%-3% and
stable pricing qoq for our coverage universe during 2QFY12. We expect revenue growth
trajectory to improve in 2HFY12 due to improvement in tariffs and robust minute growth.
RCom’s revenue should grow 6.5% qoq in 2Q led by (a) 3% qoq growth in wireless revenue;
and (b) higher contribution of global and broadband segment in 2Q FY12. Global and
broadband segment revenue declined 12.6% qoq during 1QFY12.
EBITDA margin to be under pressure due to muted revenue growth & cost pressures
Bharti’s consolidated EBITDA margin is expected to increase 32bps qoq to 33.9% during
2QFY12. This is led by expected expansion of Bharti’s Africa EBITDA margin to 26.0% in
2Q. We expect Idea’s EBITDA margin to decline by 240bps qoq to 24.0% on the back of
higher network cost (+7.3% qoq) and wage inflation. RCom’s EBITDA margin is likely to
remain flat qoq at 32.5% during 2QFY12, primarily due to higher network cost.
Reported profit to be depressed owing to forex loss (extraordinary in nature)
We have not captured the impact of foreign currency loss in 2Q net profit estimates owing to
rupee depreciation of 9.6% qoq during 2QFY12 as it is extraordinary in nature. However, we
would like to emphasize the forex loss could be material to the tune of Rs4-5bn for Bharti leading
to drop in profits. RCom is also likely to be impacted by forex loss owing to forex currency loans
of Rs270.5bn as of FY11.
Structural improvement continues. Bharti is top pick and maintain Buy on Idea
Though we expect 2QFY12 results to be weak due to muted minute growth and cost pressures,
we think the growth trajectory will improve in 2HFY12 led by improvement in the pricing
environment and robust minute growth in 2H. We expect the valuation multiple to expand led by
profitable growth, rising ROEs and de-leveraging. Reiterate Buy on Bharti and Idea, maintain
Hold on RCom.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We expect muted revenue growth in 2QFY12 due to seasonally weak quarter. Forex losses
to depress profits. We believe any weakness in stocks owing to seasonal specific muted 2Q
performance would be an opportunity to Buy Bharti and Idea, due to likely structural
improvement in sector driven by pricing power.
Muted growth in 2Q due to seasonality; growth trajectory to improve in 2HFY12
We expect muted revenue growth of 0.4% for Idea and 1.8% for Bharti India because of
seasonal factors (monsoons and no festivals). We expect minute growth of 0.4%-3% and
stable pricing qoq for our coverage universe during 2QFY12. We expect revenue growth
trajectory to improve in 2HFY12 due to improvement in tariffs and robust minute growth.
RCom’s revenue should grow 6.5% qoq in 2Q led by (a) 3% qoq growth in wireless revenue;
and (b) higher contribution of global and broadband segment in 2Q FY12. Global and
broadband segment revenue declined 12.6% qoq during 1QFY12.
EBITDA margin to be under pressure due to muted revenue growth & cost pressures
Bharti’s consolidated EBITDA margin is expected to increase 32bps qoq to 33.9% during
2QFY12. This is led by expected expansion of Bharti’s Africa EBITDA margin to 26.0% in
2Q. We expect Idea’s EBITDA margin to decline by 240bps qoq to 24.0% on the back of
higher network cost (+7.3% qoq) and wage inflation. RCom’s EBITDA margin is likely to
remain flat qoq at 32.5% during 2QFY12, primarily due to higher network cost.
Reported profit to be depressed owing to forex loss (extraordinary in nature)
We have not captured the impact of foreign currency loss in 2Q net profit estimates owing to
rupee depreciation of 9.6% qoq during 2QFY12 as it is extraordinary in nature. However, we
would like to emphasize the forex loss could be material to the tune of Rs4-5bn for Bharti leading
to drop in profits. RCom is also likely to be impacted by forex loss owing to forex currency loans
of Rs270.5bn as of FY11.
Structural improvement continues. Bharti is top pick and maintain Buy on Idea
Though we expect 2QFY12 results to be weak due to muted minute growth and cost pressures,
we think the growth trajectory will improve in 2HFY12 led by improvement in the pricing
environment and robust minute growth in 2H. We expect the valuation multiple to expand led by
profitable growth, rising ROEs and de-leveraging. Reiterate Buy on Bharti and Idea, maintain
Hold on RCom.
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