Bharti Airtel (Maintain BUY) - 4QFY12 Result Update - May 2012 (IFIN)

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Regulatory uncertainties overshadow business fundamentals

4QFY12 results broadly in line: Bharti Airtel (Bharti) reported in-line revenue. However, net income came in lower, dragged by higher tax expenses. Consolidated revenue increased 1.2% QoQ to Rs 187.3 bn, mainly driven by higher wireless revenue in India. Benign operating margins across the wireless and Telemedia businesses (~76% of gross revenue together) boosted consolidated EBITDA margin (107 bps QoQ to 33.3%) in 4QFY12. Bharti’s reported net income was Rs 10.1 bn and EPS was Rs 2.7 in 4QFY12.

India and SA wireless segment boosts margins: India wireless operation, which constitutes 51% of gross revenue, increased 3.3% QoQ to Rs 105.1 bn, driven mainly by higher volume in 4QFY12. Nevertheless, this was partially offset by lower ARPM, which declined 1.8% QoQ to Rs 0.438. We believe the overcapacity scenario in the market has forced the company to take corrective measures on pricing during 4QFY12. Scalability owing to improved utilisation boosted EBITDA margin by 107 bps QoQ to 33.3% in 4QFY12.

Africa grows despite a tough business environment: Revenue increased 1.3% QoQ to US$1,071 mn in 4QFY12, despite a tough operating environment for Bharti in Africa. Although volume increased 3.4% QoQ, it was partially offset by 1.8% QoQ decline in realisation to US$0.056 in 4QFY12. On a constant currency basis, revenue grew 2.6% QoQ. EBITDA margin improved 115 bps to 27.8% in 4QFY12.

Telemedia and Passive Infra business boost margin:  Top line was stable for the Telemedia and Passive Infra businesses and EBITDA margin improved 218 bps and 130 bps QoQ in 4QFY12. Consolidated EBITDA margin increased 107 bps QoQ to 33.3% in 4QFY12.

Valuation: Regulatory uncertainty marred improvement in business fundamentals. We expect volume growth, coupled with stable realisation, to boost revenue going forward. Nevertheless, capex guidance of $3.2 bn (our previous estimate of US$2.1 bn) for FY13 has come as a surprise, impacting our estimates. We reduce our DCF-based target price to Rs 425 from Rs 458. This represents a potential upside of 34% from CMP. Maintain BUY.

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