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Bharti Airtel - Consolidated Q3 FY2014 Results - First Cut - Microsec
Posted On : 2014-02-23 19:42:03( TIMEZONE : IST )
Bharti Airtel Ltd (Bharti) announced its consolidated Q3 FY2014 results on 29 January 2014. While the company's top line remained in line with our as well as Bloomberg Consensus Estimates, its bottom line lagged expectations.
While Bharti's top line increased 2.9% sequentially to Rs. 21,960.7 Crores its bottom line expanded notable 19.2% q-o-q to Rs. 610.2 Crores in Q3 FY2014. Growth in the company's top line was led by a healthy performance across Mobile Services India and Mobile Services Africa businesses. While performance in Africa remained upbeat with 4.1% sequential expansion in $ terms, or 2.9% in Rs. terms, revenues, Mobile Services India sales increased 2.6% q-o-q to Rs. 11,644.6 Crores in q3 FY2014. Growth in both these geographies was led by a combination of continued expansion in user base as well as slight improvement in Average Revenue Per User (ARPU). Bharti reported 2.6% sequential increase in its Indian user base whereas its African subscriber base expanded q-o-q by 2.9% in Q3 FY2014. In addition, the company reported over 1.5% increment, each, in India and Africa ARPUs to Rs. 195 (versus Rs. 192 in Q2 FY2014) and $5.8 (compared with $5.7 a quarter earlier), respectively. However, Bharti's Indian ARPU remained below our estimates and was the primary reason of the top line remaining slightly below our estimates.
Added to that, Bharti continued to do well on data front with 8% sequential increase in total Data Users to 54.43 Mn. The company's 3G user base expanded even faster by 18% q-o-q to 9.49 Mn in Q3 FY2014. Furthermore, led by 8% increase in data usage per customer, Bharti reported over 7% increase in Data ARPU to Rs. 75 per user despite a slight reduction in data realization per MB to 30.14p, during the quarter, compared with 30.26p in Q2 FY2014.
On Earnings before Interest Depreciation Tax and Amortization (EBIDTA) front, Bharti reported a 29 basis points (bps) sequential improvement in the margins driven by lower employee cost and License & Spectrum charges. Although the EBIDTA, in absolute terms, came tad below our expectations due to lag at revenues front, the margins were in line with our as well as Bloomberg consensus estimates. The below expected performance in revenues was trickled down in Bharti's bottom line as well, which remained significantly below our estimates. However, the company booked for net one time expenditure of Rs. 221.3 Crores pertaining to settlement of various disputes and exceptional gain, which also affected its net profits performance. Barring the same, the bottom line performance was better than reported numbers.
Although the net profits expansion remained noteworthy in Q3 FY2014, the same remained below our estimates due to below expected revenue performance. Nevertheless, the company's operating free cash flows continued to remain strong at Rs. 4,271.5 Crores, which helped it to reduce its net debt to Rs. 57,643 Crores during the quarter. With this, and increase in EBIDTA, Bharti's Net Debt to EBIDTA ratio also improved to 2.06x in Q3 FY2014 vis-Ã -vis 2.20x, a quarter earlier. In addition, the company remained positive on outlook in Africa with return of growth in Nigeria, which is its largest African market. Moreover, Bharti's plans to monetize its tower assets may bode well for the company in the medium term. In our view, with recent fund raising through Euro Bonds and healthy operating cash flows, Bharti's liquidity position remains strong. Consequently, the company is likely to remain an active and strategic bidder in 900 MHz band. We expect the company to bag the superior spectrum in all the three metros, where it is offered. Furthermore, reduction in Spectrum Usage Charges is anticipated to be positive for the company in long run. As a result, despite a below par performance on bottom line front in Q3 FY2014 and due to shift of our investment time horizon to FY2015E, we may raise our target price for the company in our upcoming update report. With this, we continue to rate the stock a STRONG BUY at current juncture.
