Bharti Airtel share price rating 'Hold', spectrum auction key, says Deutsche

Feb 03 2014, 15:16 IST
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Bharti Airtel 3G tariffs: Management believes that 3G pricing is already at a low level in India. (PTI) Bharti Airtel 3G tariffs: Management believes that 3G pricing is already at a low level in India. (PTI)
SummaryBharti Airtel share price gets reassuring rating from Deutsche, but Africa warning flag raised.

Bharti Airtel share price gets a conditional boost. In line operating results; spectrum auction outcome is the key catalyst: Bharti Airtel Q3FY14 results reflect the reassuring trend of improvement in Indian mobile business. However, Africa remains challenging as Ebitda has stagnated at a level of $300m for the past eight quarters. Overall, Ebitda was in line with expectations but consolidated PAT was lower than our estimate due to a one-time tax settlement. Bharti is well positioned to defend its position during the upcoming auction. However, the Indian telecom sector could witness rising competitive intensity and increased capex spends in the medium term, underlining our muted view of the sector. Maintain Hold (target price Rs 340).

Q3FY14: Overall, revenue at Rs 219 bn (8.4% y-o-y) and Ebitda at Rs 70.7 bn (+15% y-o-y) were in line with expectations but consolidated PAT (Rs 5.4bn) was 40% lower than our estimate primarily due to a Rs 2.6 bn one-time tax-settlement. India voice revenue growth of 12% y-o-y was led by 5.6% growth in voice RPM (revenue per minute) and a 6% growth in usage. Non-voice revenues (17.2% of mobile) grew 8% y-o-y as the strong uptick in data (+100% y-o-y) was offset by slowdown in other non-data VAS (value added services) revenues (-30% y-o-y). The wireless Ebitda margin has improved 60bps q-o-q to 34.1%. Africa revenue at $1.2bn (+3% y-o-y) was driven by a 5% fall in RPM and 8% growth in usage. Ebitda at $300m has been range bound for the last eight quarters.

Key takeaways from the results India voice tariffs: Bharti believes there is still room for reduction of discounted minutes. The gap between rack rates and realised rates is still at 30-40%.

India margin expansion: The company has been focusing on (a) better quality customer acquisition, (b) reducing channel commissions, (c) improving customer care, (d) driving increase in data adoption, and (e) better capital productivity to improve revenue growth and profitability.

3G tariffs: Management believes that 3G pricing is already at a low level in India and hence they would try to hold it at current levels.

Capex: Guided for $2bn each in FY14e and FY15e.

Africa tariffs: Management indicated that usage elasticity is low in Africa and hence they would not cut tariffs to drive growth. The focus remains on data usage and “Airtel Money”.

India mobile business: margin has improved by 500bps over last four quarters: India voice revenue growth

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