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Bharti Airtel 3QFY2012 performance highlights and results update

Contributed by Angel Broking

Bharti Airtel (Bharti) reported a mixed performance for 3QFY2012, with revenue coming in-line with our as well as street expectations. The company, however, disappointed on the operating and profitability fronts due to higher depreciation and amortization expenses. Also, minutes of usage (MOU) of mobile – India as well as Africa business declined by 1.0% and 2.5% qoq to 419min and 125min, respectively. We maintain our Neutral view on the stock.

Result highlights: For 3QFY2012, Bharti’s consolidated revenue stood at Rs.18,477cr, up 6.9% qoq. Revenue from mobile services for India came in at Rs.10,176cr, up 4.0% qoq on the back of a 3.2% qoq increase in average revenue per minute (ARPM) to Rs.0.45/min. However, MOU declined by 1.0% qoq due to slow traffic growth. Zain Africa’s contribution to revenue stood at Rs.5,358cr, up by whopping 16.7% qoq, aided by INR depreciation and 2.5mn net subscriber additions. EBITDA margin of mobile India as well as Africa business increased by 0.18bp and 0.47bp qoq to 33.8% and 26.7%, respectively. However, EBITDA margin of all the other business segments declined sharply, which led to a 141bp qoq decline in Bharti’s consolidated EBITDA margin to 32.2%. PAT came in at Rs.1,011cr, down 1.5% qoq, negatively impacted by higher depreciation costs of Rs.3,585cr in 3QFY2012 vs. Rs.3,184cr in 2QFY2012 and higher tax rates.

Outlook and valuation: Bharti is on its way to turnaround its Africa business by bringing down its network operating expenditure by outsourcing various network-related developments. Thus, we expect the combination of stable KPIs and cost efficiencies to drive the EBITDA margin for the Africa business to 26.6% and 27.0% by FY2012 and FY2013, respectively. We expect Bharti’s Indian and African mobile subscriber base to post a CAGR of 8.2% and 17.4% over FY2011–13E to 189.9mn and 60.9mn subscribers, respectively. However, key downside risks such as 1) uncertainty in regulatory outcome; 2) pricing scenario in Africa operations; and 3) delay in return on investments made in 3G launches, still loom. We maintain our Neutral rating on the stock.