Bharti Airtel - 1QFY2013 Result Update - Angel Broking

Bharti Airtel (Bharti) reported a disappointing performance for 1QFY2013, with net profit declining for the fifth straight quarter due to higher operating costs. Telecom revenues in India have been depressed due to hyper-competition and recent regulatory and tax developments while the African business got hit due to adverse macro factors. A decline in the operating margin was the key disappointing factor. We believe that regulatory uncertainties as well as muted margin outlook for the near-term would continue to remain an overhang on the stock. We maintain our Neutral rating on the stock.

Result highlights: For 1QFY2013, Bharti's consolidated revenue stood at Rs.19,362cr, up 3.3% qoq. The revenue from Mobile-India and South Asia grew merely by 1.7% qoq which the company attributed to two significant changes, viz change in TRAI guidelines with regards processing fees and hike in service tax from 10.3% to 12.36%. The EBITDA margin of Bharti's India and Africa mobile businesses was lower than estimated at 30.3% (34.0% in 4QFY2012) and 25.8% (27.8% in 4QFY2012) due to high network operating and selling, general and administrative (SG&A) expenses. The consolidated EBITDA margin of the company declined by 305bp qoq to 30.2%. The PAT came in much lower than expected at Rs.776cr, down 22.8% qoq.

Outlook and valuation: On the domestic business front, Bharti's management indicated that the business environment remains very challenging and the company will remain committed to its strategy of protecting revenue market share. The management also opined that the factors adversely affecting the margin are likely to continue in the short term but would reverse in the medium to long term. The company has been consistently adding above 2.0mn subscribers plus per quarter in its Africa business. But the EBITDA margin of Africa operations scaling down substantially during 1QFY2013 was a big negative surprise. The management indicted that going ahead the company will strive to improve its EBITDA margin substantially. We expect Bharti's Indian and African mobile subscriber base to post a CAGR of 11.9% and 13.6% over FY2012-14E to 226.9mn and 68.6mn subscribers respectively. We continue to remain Neutral on the stock.

Source : Equity Bulls

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