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Bharti Airtel 3QFY14 results update

January 30, 2014, Thursday, 06:06 GMT | 02:06 EST | 11:36 IST | 14:06 SGT
Contributed by Nirmal Bang


Bharti Airtel’s (BAL) 3QFY14 revenue stood at Rs219.4bn, up 2.9% QoQ and 13.3% YoY, in line with our/Bloomberg consensus estimates. India mobile revenue rose 2.6% QoQ, slightly below our estimate; minutes of usage (MoU) rose 1.5% QoQ and blended revenue per minute (RPM) increased 1.1% QoQ, at 45.7 paise. Data revenue continued to be healthy (up 14.8% QoQ and 96.7% YoY). Africa revenue again surprised positively, up 4.1% QoQ at US$1,165mn (our estimate US$1,156mn), aided by good subscriber growth and higher average revenue per user (ARPU). EBITDA margin rose 28bps QoQ, aided by higher India EBITDA margin. Higher-than-expected tax outgo, owing to Rs2.2bn of onetime items relating to the settlement of disputed taxes led net profit to come in at Rs6.1bn, up 19.2% QoQ and 115.1% YoY (30.6%/41.5% below our/Bloomberg consensus estimates, respectively). Easing of regulatory headwinds, strong Africa revenue and continuous margin expansion in India in 3QFY14 are encouraging factors. We have retained our Buy rating on BAL with a target price of Rs427.
 
Africa drives revenue growth: BAL posted 3QFY14 revenue of Rs219.4bn, up 2.9% QoQ and 13.3% YoY, in line with our/Bloomberg consensus estimates. This is the highest YoY revenue growth since 2QFY13. Africa witnessed another good quarter of revenue growth (US$1,165mn, up 4.1% QoQ, above our estimate of US$1,156mn), led by subscriber growth (2.9% QoQ) and higher ARPU (1.4% QoQ). India mobile revenue rose 2.6% QoQ at Rs116.4bn (our estimate Rs116.7bn), led by a 1.5% QoQ MoU growth and a 1.1% QoQ rise in blended RPM. Voice RPM rose 0.2% QoQ, and data metrics continue to remain encouraging (data revenue up 14.8% QoQ and 96.7% YoY, data volume up 15.8% QoQ and 97% YoY). South Asia revenue was down 0.4% QoQ in US dollar terms, as MoU declined 1.5% QoQ.
 
India margins impress, net profit hit by higher tax: BAL’s 3QFY14 EBITDA margin rose 28bps QoQ at 32.2% (20bps below our estimate, 3bps below Bloomberg consensus estimates), led by higher India EBITDA margins (up 63bps QoQ). However, due to higher tax outgo owing to a Rs2.2bn one-time item related to settlement of disputed taxes in Africa among others, net profit stood at Rs6.1bn, up 19.2% QoQ and 115.1% YoY (30.6%/41.5% below our/Bloomberg consensus estimates, respectively). It should be noted that this is the first quarter of YoY net profit growth for BAL after 15 successive quarters of decline, dating back to 3QFY10.
 
Retain Buy on BAL, easing regulatory headwinds and strong data growth encouraging: Regulatory headwinds continue to stabilise and we expect the spectrum auction next week to see rational bidding, given the significant supply as well as greater choice in other bands going forward, such as 800MHz and 700MHz. Data revenue continues to impress and could be a key margin driver going forward. Africa again performed impressively and we expect the focus on higher network utilisation to drive margins in this segment. Continuous margin expansion in India is also a positive. We have retained Buy rating on BAL with a sum-of-the-parts (SOTP) target price of Rs427. Current valuation, at 4.8x FY15E EV-EBITDA is attractive and provides good downside protection.

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