Bharti Airtel ‘s Q3FY09 results were broadly in line with expectations with revenues growing by 6.8% QoQ to Rs96.3bn (v/s estimate of Rs96bn) led by healthy 9% growth in mobile business revenues and help by ~2% drop in ARPU. Operating profits increased by 6.6% QoQ to Rs39.4bn with margins remaining flat at 41%.
Margins expanded by 120bps and 220bps in mobile and carrier businesses respectively and absorbed Rs1bn EBIDTA loss from DTH business thus resulting in overall margins remaining flat. MOU’s declined by 4% accompanied by a 2% increase in RPM and 120bps up tick in mobile margins. Profits grew 5.5% QoQ to 21.6bn (v/s estimate of Rs22bn).
Checkout: Best stocks to buy in Indian telecom sector
Focused on sustainable model
During the investor call co management clearly stated that it would not react to competitive pricing adopted by RCOM and Idea towards pre-paid schemes as it expects them to be short term schemes and expects them to be withdrawn soon. While we believe that such low entry cost schemes without tariff cuts (as in case of RCOM) are aimed at gaining market share and additional spectrum and may not have material financial benefit for RCOM, we are more concerned about the tariff cuts (local call at Rs0.60 v/s competition at Rs1 undertaken by Idea.
Other key highlights:
(1) Bharti received additional spectrum in four more circles in Q309 and has applications pending for 8 more circles. The receipt of additional spectrum is also resulting in reduced site additions QoQ
(2) Effective 1st Jan-09, Indus towers would begin its accounting and hence 42% of it would be consolidated with Bharti Infratel.
(3) Its recent service launch in Srilanka at tariffs lower than market has received overwhelming response and co would report progress in Srilanka from Q4FY09 onwards.
Also Read: Bharti Airtel - Best stock in telecom for definite returns
Passive infrastructure – Tenancy growth healthy
Passive infrastructure revenues increased by 6% QoQ and EBIDTA grew by 6.7% QoQ.
The tenancy increase from 1.26x to 1.34x on QoQ basis led to 20bps increase in EBIDTA
margins. However the revenue per tower per month declined by 2% QoQ due to the
benefits being passed on to the operators on increase in tenancy. EBIT declined by 63% QoQ due to higher depreciation and share of losses in JV.
DTH business insignificant as of now
During Q309 Bharti launched its DTH services in 65 cities and is currently adding 100,000 subscribers per month. The company has not separately disclosed the details on DTH business as the numbers and impact are insignificant. We note that, the DTH launch has resulted in EBIDTA loss of Rs1bn, as classified among others segment.
Important Statistics
Shareholding Pattern (%)
(As on 31st Dec.’08)
Promoters: 67.2
FII/NRI: 22.6
Institutions: 6.5
Private Corp.: 2.6
Public: 1.2
Mkt Cap: 126,393.75
P/E: 16.94
Div: 0.00
EPS (TTM): 39.31
B/V: 106.32
Mkt Lot: 1.00
FV: 10.00
Maintain BUY with price target Rs1,025
We maintain our earning estimates of Rs44.3 and Rs56.3 for FY09E and FY10E respectively. Maintain BUY rating with a price target of Rs1025 Near term regulatory risks like
(1) reduction in IUC
(2) increase in spectrum usage charge
(3) 3G auction pricing
(4) MNP implementation pose threat to our earnings estimate.
Download Detailed Reference Stock Research Report PDF
Read: Stock Market in 2009 - Stocks to Buy
