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Bharti Airtel 3QFY2013 performance highlights and results update

Contributed by Angel Broking

For 3QFY2013, Bharti Airtel (Bharti)’s revenue as well as operating margins came in-line with our estimates, however its bottom-line disappointed because of higher interest charges, forex loss and higher tax. The company is now hopeful regarding its domestic operations as mobile operators have increased tariffs and cut freebies after a bruising three-year price war. Africa operations are expected to continue to weigh upon the company’s performance. The company’s board has elevated its international operations head Manoj Kohli to the post of managing director. We maintain our Neutral view on the stock.

Result highlights: For 3QFY2013, Bharti’s consolidated revenue stood at Rs.20,254cr, almost flat qoq. Earlier in 2QFY2013, Bharti had ~Rs.600cr of gain due to a favorable ruling by TDSAT. So adjusting to that, revenues would have grown by 3% qoq, largely in line with expectations. The consolidated EBITDA margin of Bharti declined by 78bp qoq to 30.5%. PAT came in at Rs.284cr, down 61% qoq, hit by higher interest costs, forex fluctuations (Rs.216cr forex loss) and higher tax expense with tax rate coming in at ~70%. The tax rate increased as one deferred tax asset in Africa had to be de-recognized.

Outlook and valuation: On the domestic business front, despite the festival season, telecom operators did not resort to discounts and promotions to drive subscriber additions. Recently, telecom operators have reduced discounts and promotional vouchers, which would lead to improvement in realized tariffs and in turn average revenue per minute (ARPM). The company has been consistently adding above 2.0mn subscribers plus per quarter in its Africa business. Traffic growth during the quarter was driven by implementing various minutes growth schemes across the continent. Going ahead elevated costs and pricing pressure in Africa might weigh upon Bharti’s performance. While operationally 3QFY2013 performance was in line on the revenue and operating front, regulatory issues persist. Apart from this, higher debt, interest costs and forex risks pose a risk to earnings. We expect Bharti to post revenue CAGR of 10.4% over FY2012-14E. We continue to remain Neutral on the stock.