Bharti reported a 5/8% beat on Ebitda/adjusted net profits, respectively, for the Sep-17 quarter. 60% of Ebitda beat came from Africa (17% higher than estimates), while India mobile Ebitda was 4% ahead. Being able to maintain margins in India mobile in a seasonally weak quarter with 5% revenue decline is commendable. We would look to understand the sustainability of these cost-cutting measures on the call. The trends in Africa are puzzling with company appearing to completely cut down on capex, network sites being shut down and employee count falling. While these are helping shore up profitability, we are surprised at the extent of ‘inefficiencies’ being found (seven years after buying Africa from Zain). Our EPS numbers go up 5-6% as we factor in better Africa margins. Along with roll forward, our TP goes up to Rs 430 (from Rs 400). We retain Neutral rating on the stock.
Other key takeaways
Consol capex of $2.2 bn in 1H is two-thirds of full-year capex guidance — and almost all of this is going in India. The $50 m quarterly capex run-rate in Africa is one-third of what MTN spends just in Nigeria. We expect an increase to capex guidance. Capex flowing through cashflow statement/net debt calculations is lower than the above amount by $600 m. In spite of this, net debt is inching up towards $15 bn (3.02x annualised Ebitda). The company added 6 mn 3G/4G subs in India in Q2 (flat q-o-q) — most of which appear to be upgrades of 2G subs. This trails Jio adding ~5 mn 4G data subs every month. Data usage crossed 4GB/month: this is suppressed by 2G subs in the base – actual 4G usage could be closer to Jio’s 10GB. In our Apr-17 report, we had concluded that using all its liberalised spectrum on all its tenancies, Bharti can support 4.9GB/month across its customer base. These rising data usage trends should keep capex elevated.
Bharti announced getting interest from global investors for a controlling stake in BHIN.