Analyst Research Report Snapshot

Title:

MOSL: BHARTI AIRTEL (Buy) - Continued improvement in India mobile - Africa margins disappoint

Price:

$104.00

Provider:

Motilal Oswal Securities Ltd.

Date:

31 Jan 2014

Pages:

12

Type:

AcrobatPDF

Companies referenced:

BRTI.NS

Available for Immediate Download
Summary:

Bharti Airtel (BHARTI IN, Mkt Cap USD19.3b, CMP INR302, Buy) Shobhit Khare (Shobhit.Khare@MotilalOswal.com) Bhartis 3QFY14 EBITDA grew 3.8% QoQ and 22.8% YoY to INR 70.9b (est INR70.6b) driven by better-than-expected performance in India mobile and enterprise segments. Proforma PAT increased 193% YoY and 52% QoQ to INR8.3b. Reported PAT of INR6.1b included INR2.2b net loss largely related to tax provision on account of settlement of various disputes. Consolidated revenue grew 13.3% YoY and 2.9% QoQ to INR 219.4b (vs est INR219.8b) driven by QoQ growth across all segments except enterprise and passive infrastructure. India mobile revenue grew 8.8% YoY and 2.6% QoQ to INR116.4b. EBITDA grew 27.3% YoY and 4.5% QoQ to INR39.7b (vs est of INR39.4b). India mobile traffic grew 1.5% QoQ (vs est of 3%); mobile RPM increased 1.8% QoQ to 44.8p (vs est of 44.4p). Voice RPM increased 1% QoQ to 37.1p. Monthly churn declined to 2.7%. Africa EBIDTA remained flat QoQ at USD300m (vs est USD308m) despite 4.1% QoQ revenue growth (1.5% QoQ traffic increase; 2.5% RPM increase). EBITDA margin declined ~110bp QoQ to 25.8% due to increase in SGA, network and access charges. Consolidated net debt declined 6% QoQ to INR576.4b. 3QFY14 capex stood at INR28.2b. Capex guidance for FY14 is USD2b including Indus while FY15 capex guidance is USD2b excluding Indus. While RPM/Profitability improvement thesis for India mobile business is playing out, upcoming spectrum auction would be the key event to watch-out given 1) Participation of Reliance JIO, and 2) Expected crystallization of spectrum payments for Bharti. Our EBITDA estimates are largely unchanged but PAT is downgraded by 17% for FY14 (due to one-offs) and 6-7% for FY15/16 (higher tax rate assumption). We expect 12% consolidated EBITDA CAGR over FY14-16E. At CMP of INR302, the stock trades at proportionate EV/EBITDA of 5.7x FY15E and 4.9x FY16E. Maintain Buy with a revised target price of INR430.

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