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

May 05 2014, 14:27 IST
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SummaryBharti Airtel’s Q4FY14 consolidated earnings report was broadly in line with expectations.

Bharti Airtel’sQ4FY14 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: Bharti’s 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 wireless–marginally 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.

Bharti’s volume growth, both in absolute and percentage terms, was weaker than Idea’s. 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 wireless–weakness 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 Bharti’s Africa Ebitda has stayed in the $275-300m range for the past eight quarters–this is despite gains from favourable interconnect rate cuts in several markets. A larger issue is the lack of consistency in Bharti’s 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 company’s 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

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