Bharti Airtel coverage view 'attractive' on strong earnings trajectory: Kotak

Updated: May 5 2014, 19:57pm hrs
Bharti AirtelsQ4FY14 consolidated earnings report was broadly in line with our expectations India business threw a modest positive surprise on profitability while Africa disappointed both on revenues and margins.

Consolidated results: Bhartis consolidated revenues and Ebitda were in line with our estimates at R222 bn (+1.3% quarter-on-quarter, +13.5% year-on-year and R73 bn (+3% q-o-q, +21% y-o-y), respectively. Adjusted profit after tax of R12 bn was up 44% q-o-q and 135% y-o-y. Net income beat was driven by lower-than expected depreciation and tax provisions. For FY14, adjusted net income was R33.3 bn, implying an EPS of R8.3, up 70% y-o-y. Ebitda for FY14 was R278 bn, up 21% y-o-y on the back of 12.4% y-o-y revenue growth. Consolidated Ebitda margins expanded 230 bps y-o-y to 32.4%.

India wirelessmarginally weaker: India wireless revenues and Ebitda missed our expectations by around 1% each, primarily on account of lower-than-expected voice RPM (revenue per minute) for the quarter.

Bhartis volume growth, both in absolute and percentage terms, was weaker than Ideas. Revenue miss, despite the modest volume beat, was on account of a 1.2% miss on overall RPM, which stood at 44.9 paise/min, flat q-o-q and up 5.8% y-o-y. Voice RPM was flat q-o-q.

Africa wirelessweakness persists: Bharti Africa had another weak quarter with a sequential decline in constant-currency revenues and another 50 bps q-o-q dip in Ebitda margin. Absolute Ebitda declined around 3% q-o-q to $290m. We note that Bhartis Africa Ebitda has stayed in the $275-300m range for the past eight quartersthis is despite gains from favourable interconnect rate cuts in several markets. A larger issue is the lack of consistency in Bhartis revenue growth/margin balance in Africa. Ideally, one would like to see both.

Other key highlights

* Highest India business EPS since Sep 2010 quarter. A steady, solid growth in Ebitda over the past few quarters has helped mitigate the below-Ebitda impact of 3G/BWA spectrum investments and increase in ETR (effective tax rate). We do believe the companys India business is past its worst.

* Reported net debt at end-March 2014 stood at R605 bn, up from R576 bn in Q3FY14 on account of upfront payout related to recently concluded spectrum auctions. The reported number does not include the deferred payouts related to this spectrum purchase. Including the same, net debt at end-FY14 stood at R740 bn, a net debt to annualised Q4FY14 Ebitda of 2.53x, in a comfortable zone, especially in light of Bhartis spectrum renewal schedule ahead.

* India data KPIs (key performance indicators)Bharti added 3.6 data subs (subscribers) to its base and ended FY14 with a data subs base of 58.1m (28% of total subs). Data volume growth was a healthy 20% q-o-q and 95% y-o-y to 46.7m MB (megabyte). Data revenues grew 12.3% q-o-q and nearly 90% y-o-y to R13.2 bn, in line with our expectations. Data now forms 11.2% of Bhartis India wireless revenues. Usage per sub improved further to 277 MB/sub/month while data realisations fell 6% q-o-q to 28.4 paise/MB.

* Consolidated capital expenditure for the quarter was R33 bn taking FY14 capex to R106 bn, around 13% of sales. India wireless capex for FY14 wasR42 bn, around 9% of sales. Africa wireless capex for FY14 at $635m was broadly in line with the management's guidance of $600m.

- Kotak Institutional Equities