Bharti Airtel - 2QFY2013 Result Update - Angel Broking

For 2QFY2013, Bharti Airtel's (Bharti) revenue as well as operating margins came in-line with our as well as the street's estimates, however its bottom-line disappointed because of higher tax paid. Telecom revenues in India have been depressed due to subdued subscriber addition and stable pricing. The EBITDA margin of Africa came in as a positive surprise, growing by137bp qoq. We maintain our Neutral view on the stock reiterating cautious stance on the telecom sector as the regulatory challenges such as one-time payout, re-farming of spectrum and upcoming 2G spectrum auction continue.

Result highlights: For 2QFY2013, Bharti's consolidated revenue stood at Rs.20,283cr, up 4.8% qoq. This was majorly on the back of one-time revenue flow of ~Rs.586cr because of a favorable judgment of TDSAT. Adjusting for this, revenues grew by merely 1.7% qoq, largely in line with expectations. The consolidated EBITDA margin of Bharti grew by 110bp qoq to 31.3%, however, excluding the one-off impact EBITDA came in at Rs.6,100cr, up 4.3% qoq. The PAT came in at Rs.721cr, down 8.9% qoq, hit by one time tax expense related to dividend distribution tax for Indus Towers.

Outlook and valuation: On the domestic business front, Bharti's management indicated that the business environment remains very challenging. We believe it is difficult to see any major improvement in Bharti's domestic business any time soon as a significant cut has been taken by telecom companies including Bharti on 3G tariffs, subscriber growth has become muted and lot of regulatory uncertainties continue to prevail. We believe sustained RPM improvement would be imperative for a turnaround in the India mobile business as mobile traffic growth is already subdued and data revenue is yet to contribute significantly. Bharti is on its way to turnaround its Africa business and the management indicated that they would we implementing various minutes growth schemes across the continent by December, 2012. This would continue to drive traffic growth in the coming quarter. Key downside risks such as 1) uncertainty in regulatory outcome; 2) pricing scenario in Africa operations; and 3) delay in return on investments made in 3G launches, still loom. The stock is currently trading at 5.3x FY2014E EV/EBITDA and 21.1x FY2014E EPS. We continue to remain Neutral on the stock.

Source : Equity Bulls

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