Neutral on Bharti Airtel - 4QFY2012 Result Update - Angel Broking

Bharti Airtel (Bharti) reported a mixed performance for 4QFY2012. During the quarter, the company reported above-expectation operating margin, while its profitability was hit due to higher-than-expected forex losses and interest expenditure. The company continued to maintain its leadership position with an increasing subscriber base. However, regulatory uncertainty remains an overhang on the stock price, as the telecom industry is currently going through various operational and policy uncertainties. We remain Neutral on the stock.

Result highlights: For 4QFY2012, Bharti's consolidated revenue stood at Rs.18,739cr, up 1.4% qoq. Revenue from mobile services for India came in at Rs.10,510cr, up 3.3% qoq on the back of 5.1% qoq growth in overall network traffic and a 2.8% qoq increase in minutes of usage (MOU) to 431min. Zain Africa's revenue stood at Rs.5,308cr, down 0.9% qoq due to MOU as well as ARPU declining sequentially by 2.1% and ~4.1% to 122min and US$6.8/month, respectively. Consolidated EBITDA margin of the company grew by 101bp qoq to 33.3%. PAT came in at Rs.1,006cr, down 0.5% qoq, negatively impacted by higher interest cost of Rs.1,057cr in 4QFY2012 (due to forex fluctuations) vs. Rs.788cr in 3QFY2012 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 and has been consistently adding 2.0mn+ subscribers per quarter in Africa. In 4QFY2012, due to a nine-day strike in Nigeria, KPIs of Africa business witnessed a decline. Despite this, the company managed to increase the EBITDA margin of its Africa business by 114bp qoq. We expect the combination of stable KPIs and cost efficiencies to drive EBITDA margin of Africa business to 27.0% in FY2013. We expect Bharti's Indian and African mobile subscriber base to post a CAGR of 6.3% and 13.1%, respectively, over FY2012-14E. However, key downside risks such as uncertainty in regulatory outcome, pricing scenario in Africa operations and delay in return on investments made in 3G launches, still loom. We maintain our Neutral rating on the stock.

Source : Equity Bulls

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