Analyst Research Report Snapshot

Title:

Bharti Airtel Ltd. - Q2FY14 Result Update - "ACCUMULATE"

Price:

$58.00

Provider:

Kisan Ratilal Choksey Shares and Securities Private Limited

Date:

01 Nov 2013

Pages:

6

Type:

AcrobatPDF

Companies referenced:

BRTI.NS

Available for Immediate Download
Summary:

Bharti Airtel Ltd. - Q2FY14 Result Update CMP: Rs 364 Target Price: Rs 390 Recommendation: ACCUMULATE “Forex loss dented net profit…” Bharti’s Q2FY14 result was in line with our expectation on sales and EBITDA front however net profit was below expectation on account of forex loss. Net sales increased by 9.9% YoY to Rs 21324crs primarily driven by increase in subscriber base by 4% YoY to 193.4mn subscribers while ARPU increased by 8% YoY to Rs 192. EBITDA increased by 15.1% over Q2FY13 to Rs 6832crs. Lower license fees and spectrum charges led to improvement in EBITDA margin by 140bps YoY to 32%.EBITDA margins for Africa business declined by 30bps YoY to 26.9%. Net profit declined by 29% YoY to Rs 512crs on account of higher depreciation and amortization, increase in interest expenses. The company reported forex and derivative loss of Rs 342crs. Net profitability declined by 130bps to 2.4%. Bharti’s Q2FY14 result showed healthy performance in spite of seasonally weak quarter. Subscriber base in Africa continued to grow at a healthy rate however ARPU disappointed. Blended margins improved led by cost rationalization. We believe competitive intensity in voice segment has lessened which will drive healthy growth in ARPM in future. Strong growth in data revenue and further improvement in ARPU will drive healthy growth for India operations. Continued cost rationalization at operational front will boost operating margins. Maintain ACCUMULATE. Strong India operations led by improved KPIs; Africa business disappointed Net sales increased by 9.9% YoY to Rs 21324crs primarily driven by increase in subscriber base and growth in ARPU. India voice segment increased by 6% YoY to Rs 14079crs. Net subscriber base increased by 4% over Q2FY13 to 193.4mn subscribers while ARPU increased by 8% YoY to Rs 192. Growth in ARPU was driven by both increase in MoUs and higher ARPM. MoUs increased by 5% over Q2FY13 to 437mins and ARPM was higher by 4% Rs 0.36. Data revenue increased by robust 62%YoY to Rs 70. Data subscriber base showed upward trend and grew by 25% YoY to 50.6mn subscribers. Africa business reported marginal revenue growth of 2% YoY to US $ 1119mn. However 13% growth in subscriber base was off set by 10% decline in ARPU leading marginal revenue growth. Total subscriber base at the end of Q2FY14 stood at 66.3mn and ARPU for the quarter was US $ 5.7. Another quarter of margin disappointment for Africa business EBITDA increased by 15.1% over Q2FY13 to Rs 6832crs.Lower network operating cost led to EBITDA margin improvement of 140bps YoY to 32%. Africa segment reported EBITDA decline of 30bps over Q2FY13 to 26.9%. Net profit declined by 29% YoY to Rs 512crs on account of higher depreciation and amortization and increase in interest expenses. Net profitability declined by 130bps to 2.4%. Valuation Bharti’s voice segment reported healthy growth in revenues led by increase in subscriber base and improvement in ARPM. Operating margin improved led by cost rationalization. Data services have shown robust growth on both subscriber base and data ARPU front. We believe improvement in KPIs to continue supporting healthy revenue growth in domestic market in future. Gradual increase in ARPU in Africa market will boost revenues going forward. At current price, the stock is trading at 6.6x EV/EBITDA to FY15E earnings. We recommend ACCUMULATE on the stock with a price target of Rs 390.

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