For whatever it is worth, and it may not be worth much given that full impact of Jio launch would be felt from Q3FY17 onwards, Bharti reported a solid, ahead-of-expectations, earnings print for Q2FY17 with 15% consolidated and 19% India wireless y-o-y Ebitda growth. In a surprising development, the company’s Board has authorised a committee of Directors to evaluate options for a significant stake sale in Bharti Infratel. We shall update our earnings post the earnings conference call.
Q2FY17 earnings print–fine on most counts
Headline consolidated financials: Consolidated revenues of R246.5 bn (+3.4% y-o-y) were 1.7% ahead of our estimates while consolidated Ebitda at R94.4 billion (+14.6% y-o-y) came in 4.6% ahead. The outperformance in Ebitda was driven by better-than-expected Ebitda print across all business segments, especially India wireless and Africa. Recurring net income of R13.7 bn (+79% y-o-y) was materially ahead of our estimate of R9.52 bn.
India wireless financials: India wireless revenues grew 7.9% y-o-y to R147.4 bn, 0.6% ahead of our estimate; India wireless Ebitda growth of 19% y-o-y to R62.5 bn reflected sharp control on costs, which grew only 1% y-o-y in absolute terms, driving a 390 bps y-o-y Ebitda margin expansion. India wireless Ebit grew 8% y-o-y (after a few quarters of subdued growth or decline) as the impact of higher spectrum amortisation expenses starts to fade. Revenue split–voice (70% of revenues) revenues saw a 3.6% q-o-q decline and grew 3.8% y-o-y while data revenues (25% of total) grew a subdued 1.4% q-o-q and 24% y-o-y.
India wireless KPIs: Bharti delivered an impressive voice traffic growth of 11% y-o-y even as the same came at the expense of voice RPM (down 3.2% q-o-q and 6.2% y-o-y to 32.4 paise/min; still below Idea’s 33.1 paise/min for Q2FY17). Voice ARPU fell to an all-time-low of R132/sub/month. Data performance was similar to Idea’s – strong 13% q-o-q and 55% y-o-y volume growth (to 178 bn MB) coupled with a sharp 10% q-o-q and 20% y-o-y dip in realisation to 20.1 paise/MB; net result—a subdued 1.4% q-o-q growth in data revenues.
Other key highlights
India wireless Ebitda grew a strong 19% y-o-y as the company expanded margins by 390 bps y-o-y to 42.4% (flat q-o-q; healthy in a seasonally weak quarter), (ii) South Asia business reported positive Ebitda versus our expectation of a marginal loss, (iii) Africa Ebitda of R12.2 bn was 13% ahead of our estimate on the back of better-than-expected margin delivery; revenues were marginally below our expectations, and (iv) non-wireless India businesses continued their strong momentum with home broadband (Ebitda up 28% y-o-y) and DTH (Ebitda up 29% y-o-y) doing particularly well.
Data ARPU was stable at R200/sub/month. Active 3G/4G subs base at end-Q2 stood at 41.3m, +4.7m q-o-q. Consolidated capex for the quarter was R53 bn, taking H1FY17 capex to R102 bn – broadly in line with the company’s overall guidance for FY2017e, while recurring net income of R13.7 bn (+79% y-o-y) was materially ahead of our estimate of R9.52 bn.
Net debt at end-Q2FY17 stood at R815 bn, down marginally from R835 bn at end-Q1FY17. Adjusted for October auction payouts, net debt would be around R958 bn, for a net debt/Q2 annualised Ebitda of 2.54X, fairly comfortable in our view.
Africa wireless performance, especially on the margin front, was a positive surprise. We note that the company has shown good performance on the margins front in Africa in the past four quarters; however, revenue growth still remains subdued.