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Bharti Airtel’s wireless trends decent with 3% revenue growth, says Nomura

In Africa, Bharti Airtel added 2 million subscribers to a total of 64 million implying growing revenues from abroad, over and above the healthy profits from Indian operations, says Nomura

Bharti Airtel’s fourth quarter performance was somewhat of a relief in that regard where revenues, EBITDA and adjusted NPAT are not too far from consensus and estimates (within 2%-10% range). These observations were made by Nomura Equity Research in its Quick Note on the company’s performance.

 

The company registered net profit after tax (NPAT) of Rs5.1 billion. Consensus was expecting Rs7.6 billion and the brokerage was expecting Rs8.1bn. There is Rs2 billion as forex losses and Rs1.2 billion in higher taxes relating to Indus dividends and surcharges as per 2013 Finance Bill.

 

Adjusting for these, the underlying NPAT is around Rs8.3 billion. However, it is not clear if these taxes will be recurring and what is the appropriate tax adjustment on forex losses (which the brokerage has currently excludes). Even otherwise, the underlying tax rate remains high at 51%.

 

According to Nomura, Bharti Airtel’s total revenues increased 1% q-o-q to Rs204 billion, EBITDA rose 5% to Rs65 billion with 120bps margin improvement to 31.7%. For domestic business, total expenses fell 1%, which was driven by a 6% drop in access charges and a 10% drop in SG&A.

 

Nomura states that Bharti Airtel’s Indian & South Asian wireless trends are decent with 3% revenue growth, and 7% EBITDA growth (100bps margin improvement). This is driven by stable blended RPM at 42p (similar to Idea), 5% volume growth and churn down to 3%. The brokerage estimates that ex- Sri-Lanka and Bangladesh, the Indian only wireless revenue growth is around 5% q-o-q (Idea was 9%). Enterprise EBITDA was strong too with 28% q-o-q growth despite an 8% drop in revenues.

 

Total SG&A was down 10%, perhaps a reflection of pull back in promotional activity. Data is now 17% of mobile revenues and ARPU also rose 17% to Rs55, says Nomura.

 

With a 1% drop in revenues in dollar terms (the first ever since the acquisition) and a 5% drop in EBITDA to $285 million (25.4% margin). African volumes were down 11% and pricing up 12%. For FY13, total revenues were $4.4 billion with $1.2 billion in EBITDA.

 

Given rising data usage (average usage is now 187Mb per subscriber per month), Nomura believes capex risks remain to the upside.

 

Bharti Airtel’s total gross debt level is flat at $13 billion with implied net debt to EBITDA of 2.8x. The brokerage estimates ROIC improved marginally to 3.1%.

 

Based on this result and some of the underlying trends, Nomura does not expect significant changes to Airtel’s domestic operational forecasts but African margins perhaps need to be scaled back further. Below the EBITDA line, the brokerage does expect more downgrades due to tax and interest, but hopefully the stock has reached the end of a long three-year downgrade cycle. Nomura maintains ‘Neutral’ on the stock.

 


Key financials of the Bharti Airtel Group: Fourth quarter total revenues rose 1% q-o-q and 9% y-o-y to Rs204 billion, while EBITDA grew 5% q-o-q and 4% y-o-y to Rs65 billion with 31.7% margin, up 110 bps sequentially. On segment margins, only African business saw decline of 1pp; rest of the segment were either flat to up. Reported NPAT is up 78% q-o-q to Rs5.1 billion. For FY13, total profit is Rs23 billion or EPS of Rs6.

 

Wireless trends: The wireless segment reported a 3% q-o-q rise in revenue to Rs113 billion, compared to Idea’s 9% q-o-q growth. On EBITDA, Bharti’s reported a 7% increase compared to 14% for Idea. Bharti’s EBITDA margins rose 1pp to 31.3%, similar to Idea’s 120bps.

 

Wireless RPMs of 42p were broadly flat q-o-q for Bharti, within which voice RPM declined 1% q-o-q. This trend is in-line with IDEA’s. Total minutes of 253 billion rose 5% q-o-q, and implied additional 12bn minutes. Idea’s minutes growth was 8%, and it added 11 billion minutes. Non voice as a percentage of sales is flat at 17%. Bharti now has 6.4 million 3G data users (Idea has 5 million).

 

Bharti added 6.3 million customers in 4Q against 7.7 million by Idea. Churn rate dropped from 5.9% to 3.2%; versus Idea’s 4.3%.

 

In Africa, Bharti added 2 million subscribers to a total of 64 million. ARPU of $5.9 was down 5% q-o-q (sharpest in past several quarters). Minute fell11% q-o-q, while pricing rose 12% to 4.8 cents. EBITDA fell 5% q-o-q; which was also a function of 29% in COGS and 6% increase in SG&A.

 

Other segments: Telemedia revenues grew 1% sequentially at Rs9.6 billion with EBITDA of Rs0.2 billion—this led to broadly flat with margins of 43.6%. ARPU of Rs978 was up 1% q-o-q. Enterprise revenues fell 8% q-o-q but EBITDA rose 28% q-o-q. This resulted in a 6 pp improvement in margins to 22.5%. Digital TV revenue was up 3% q-o-q. ARPU now stands at Rs184.

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