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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.
After raising nerves with its cautious statement on the policy eve, the RBI on Friday cut repo rate by 25 bps leaving CRR unchanged again. However, constrained by liquidity, banks would find it difficult to reduce lending rates for home or auto loans
The Reserve Bank of India (RBI) in its policy review on Friday cut the repo rate by 25 basis points (bps) to 7.25% but kept the cash reserve ratio (CRR) unchanged at 4%. The cut in the repo rate for the third time in 2013 is seen as an attempt to spur growth. However, the 25bps cut in repo rate may not result in lower interest rates on home and auto loans.
Speaking with reporters, Pratip Chaudhuri, chairman of State Bank of India (SBI), the country’s largest lender and Chanda Kochhar, managing director and chief executive of ICICI Bank, the largest private sector lender in India, ruled out immediate cut in lending rates. According to the bankers, funding cost has remained high that is hurting the lender’s ability to reduce lending rates.
Just yesterday in its report, the RBI took a hawkish tone as it continues to see "very limited" room for rate cuts due to risks from inflation and a current account deficit that remain above threshold/sustainable levels amid slow growth.
“Lack of liquidity enhancing measures (by the RBI) such as a cut in CRR, indications of open market operations (OMO) was surprising given that liquidity deficit hasn’t softened as expected in April 2013. This indicates that liquidity gap might be structural and not just contingent upon the seasonal factors such as government cash balances and credit demand. Constrained by liquidity, banks would find it difficult to pass on the rate cut to lending rates,” said Motilal Oswal, chairman and managing director of Motilal Oswal Financial Services.
One important element in the monetary policy is the attempt by the RBI to contain gold imports, effectively trying to address the issue of high CAD. "In this context, the imports by banks on consignment basis will no longer be available, except for export purposes. With this route of imports almost equivalent to 90% of total imports of gold into the economy, this measure raises the possibility of contracting volumes imports to a great extent. However, given the current domestic price point of gold, it remains to be seen how effective this policy could be in containing gold imports," said Indranil Pan, chief economist of Kotak Mahindra Bank.
In a statement, Dr D Subbarao, governor, RBI said, “Today’s decision to further cut the repo rate carries forward the measures put in place since January last year towards supporting growth in the face of gradual moderation of headline inflation. Nevertheless, it is important to note that recent monetary policy action, by itself, cannot revive growth. It needs to be supplemented by efforts towards easing the supply bottlenecks, improving governance and stepping up public investment, alongside continuing commitment to fiscal consolidation.”
The RBI said it expects a modest recovery in India and has projected real gross domestic product (GDP) growth at 5.7% in FY14 from a decade-low 5% in FY13. The RBI expects a slight moderation in WPI inflation in April-September (first half of FY14) but inflation to pick-up after. On the whole, the central bank expects WPI inflation to remain around 5.5% in FY14 from 6.0% currently.
Even as the RBI cut rates today, its forward guidance has come out as relatively hawkish. It said that the balance of risks “yields little space for further monetary easing”. It mentioned that upside risks to inflation were still significant in the near term, and monetary policy could not afford to lower its guard against the possibility of a resurgence of inflation pressures. The RBI remains concerned about the current account deficit, and noted that risks on that account “could warrant a swift reversal of the policy stance”.
“The forward guidance, along with the hawkish language in the annual report released yesterday, suggests to us that the RBI is unlikely to cut again in its 17th June policy meeting. We also think that the probability of a cut in the 30th July meeting is also only slightly higher than 50%, given the RBI expects inflation to be softer over the next few months. The RBI has put the ball in the government’s court to boost growth,” said Tushar Poddar, managing director and chief India economist, Goldman Sachs in a statement.
The RBI announced its growth and inflation projections for FY14. On GDP growth, it was very circumspect, stating that it expects a pickup only in the second half of the year. Its baseline GDP forecast is at 5.7%.
Dr Subbarao said, “Upside risks to inflation in the near term are still significant in view of sectoral demand supply imbalances, the ongoing correction in administered prices and pressures stemming from increases in minimum support prices. In view of this, monetary policy cannot afford to lower its guard against the possibility of resurgence of inflation pressures. Monetary policy will also have to remain alert to the risks on account of the current account deficit (CAD) and its financing, which could warrant a swift reversal of the policy stance.”
According to Nomura, given the recent fall in commodity prices and the slow rate-cutting cycle, upside risks to inflation are likely to remain contained against a backdrop of weak growth, creating more space for future rate cuts.
Indian Inc, however is feeling that the 25 bps cut in repo rate is not adequate and it should have been accompanied by a cut in CRR which would have facilitated effective monetary transmission at a time when liquidity conditions are tight.
Chandrajit Banerjee, director general of Confederation of Indian Industries (CII), said, “An aggressive monetary policy stance, at the present juncture should not be perceived as overly accommodative, especially when growth is touching new lows. Past experience also shows that the economy has responded favourably to cuts in policy rates”.