Bharti Airtel - Subdued quarter, Retain ACCUMULATE - Emkay

- Results below expectation on EBITDA level. Q3FY12 revenue at Rs185.1bn up 7.1% qoq. EBITDA at Rs59.6bn, up 2.5% qoq. PAT at Rs10.3bn declined 1.5% QoQ.

- Seasonally strong quarter was unable to boost traffic on network, indicating –ve elasticity led by tariff hike. Higher SG&A cost & access charge led to EBITDA margin decline of 147bps qoq to 32.2%

- Impact of tariff hike in ARPU (+ve) and MoU (-ve) would continue in Q4FY12E also, till price hikes get absorbed. We expect traffic on network to start gaining traction by Q1FY13

- We expect EBITDA margin to improve from hereon, however we cut our EPS est. by 17.6% & 20.4% for FY12E/13E. We Maintain ACCUMULATE with revised TP of Rs412

Revenue in-line but margins take a hit

Bharti reported consolidated revenues of Rs185.1bn improving 7.1%, a tad below our estimate. India & SA mobile revenue for the quarter improved 4.0% sequentially, led by improvement of 3.2% in ARPU. EBITDA stood at Rs59.6bn below our estimate of Rs63.4bn, EBITDA margin declined 147bps QoQ to 33.7%. Decline is attributed to high SG&A and access charge. PAT of Rs10.3bn was below our estimate of Rs13.9bn, on account of 1) higher tax rate and 2) lower than expected EBITDA and 3) higher than expected depreciation (on account of one-off item). For Q3FY12 company reported forex gain of Rs70mn v/s Rs2.5bn of forex loss in Q2FY12.

KPI's – traffic growth disappoints

Despite seasonally strong quarter, minutes on network at 219bn remained subdued with 0.8% QoQ growth. Slower growth is attributed to –ve elasticity due to tariff hike initiated in July, 2011. ARPU during the quarter stood at Rs187 was up 2.2% qoq. MoU declined 1.0% qoq to 419, subsequently ARPM improved 3.2% QoQ to Rs0.45. Q3FY12 registered net adds of 2.9mn v/s 3.6mn in last quarter. VAS revenue stood at 14.3% v/s 14.5% in Q2FY11, attributed to decline in SMS revenue to 9.0% v/s 9.5% in Q2FY12.

African safari – Weak KPI's

Africa revenue reported growth of 13.9% qoq to Rs53.6bn, aided by impact of rupee depreciation. Subscriber growth at 5.2% QoQ remained strong but other KPI's saw weakness. MoU declined 2.5% qoq to 125 fro 128 in Q2FY12, ARPU declined 2.3% QoQ. We expect MoU decline to continue in Q4FY12E, led by strike in Nigeria in Jan'2012. Africa operations turned FCF +ve on account of lower capex during Q3FY12, however management has maintained its capex guidance for FY12E. EBITDA stood at Rs14.3bn with EBITDA margin of 26.8% v/s 26.4% in Q2FY12.

Valuation at 7.9x/ 6.4x EV/EBITDA on FY12E/13E– Maintain ACCUMULATE

Bharti reported lower than expected traffic on network, indicating –ve elasticity led by tariff hike. Disappointing EBITDA led by higher SG&A and access charge dented the overall performance. We have incorporated higher SG&A and re-aligned our Africa estimate factoring lower ARPU and MoU. Key risks that prevail for the company are: 1) slower off-take in 3G, and 2) Slower than anticipated revenue and EBITDA growth from African operations. We retain ACCUMULATE rating on the stock with revised TP Rs412 (from Rs464). At CMP of Rs354, stock trades at 7.9x /6.4x EV/EBITDA for FY12E/13E.

Source : Equity Bulls

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