Bharti Airtel

Bharti Airtel, India's largest telecom service company recorded revenues of Rs 18507.8 crore, a growth of 7% q-o-q during the quarter ended December 2011. Revenues from mobile services (India, south Asia and Africa) represented 76% of the total revenues during the quarter. India & South Asia grew 4% q-o-q and 11% y-o-y to Rs 10176.4 crore

against 1% de growth in Q2FY12, 11.9% growth in Q1FY12, 12.7% in Q4FY11, 13.7% in Q3 FY11 and 9.2% in Q2 FY11. African revenues came at $1057 million, (Q2 FY12: $1030 million, Q1 FY12: $ 979 million, Q4 FY11: $ 924 million), grew 3% q-o-q. (up 14% q-o-q to Rs 5357.7 crore in rupee terms)

Non-voice revenue contribution declined to 15.2% of the total revenues during the quarter from 16.2% q-o-q.

The overall OPM was down by 150bps sequentially to 32.2% due to increase in sales & marketing and access and interconnection charges. The resultant operating profit grew 2% q-o-q to Rs 5958.4 crore. Interest expenses corrected by 30% to Rs 787.7 crore but depreciation charges increased by 13% to Rs 3584.5 crore due to 3G license fee amortization of Rs 164 crore and PBT thus grew by 5% to Rs 1586.2 crore. The effective tax rate shot up by 282bps to 35.21%. Consequently, after taking into account minority interest and share in loss of associates, net income de-grew by 2% to Rs 1011.3 crore.

Total minutes on network for the quarter was 252.97 billion, up 1% (by 2.47 billion) q-o-q.

As on December 31, 2011, the company had an aggregate of 243.3 million customers (up 3% q-o-q and 17% y-o-y) consisting of 233 million mobile (up 3% q-o-q) (India& Asia: 182 million, up 2% q-o-q and Africa: 51 million, up 5% q-o-q), 3.3 million Telemedia of which 1.4 million or 42.42% subscribed to broadband / internet services (flat q-o-q) and 7.1 million Digital TV customers (up 7% q-o-q).

India has over 176 million mobile customers in India as on December 31, 2011, which makes Airtel the largest wireless operator in India both in terms of customers and revenues. Airtel Sri Lanka has 1.5 million customers, Airtel Bangladesh has 4.8 million customers and Airtel Africa has over 50.9 million customers (2.5 million customers added) across the 16 countries.

The Consolidated Operating Free Cash Flow in the nine months at Rs 6279 crore was lifted by a strong performance in India; Africa reported positive operating cash flow for the first time in Q3. The Net Debt - Equity ratio is 1.38 (Q2 FY12: 1.33) and Net Debt - EBITDA ratio has improved to 2.56 (Q2 FY12: 2.59).

During the quarter, the company incurred capital expenditure of Rs 2123.3 crore.

Consolidated Quarterly performance (IFRS)

During Q3 FY12, Bharti Airtel reported 7% sequential growth in consolidated revenues to Rs 18507.8 crore (up 17% y-o-y). Africa revenues came in at $ 1030 million, 5% growth q-o-q (up 14% q-o-q to Rs 5357.7 crore in rupee terms). India & South Asia grew 4% q-o-q and 11% y-o-y to Rs 10176.4 crore against 1% de-growth in Q2FY12, 11.9% in Q1FY12, 12.7% in Q4FY11, 13.7% in Q3 FY11 and 9.2% in Q2FY11.

The overall OPM was down 150bps sequentially to 32.2% due to rise in sales & marketing (79bps to 10.41% of sales), access and interconnection charges (68bps to 14.17% of sales) as well as admin expenses (47bps to 8.22% of sales). Africa margins have shown a healthy improvement to 26.7% against 26.2% q-o-q and 19.1% y-o-y. The resultant operating profit grew 2% to Rs 5958.4 crore. The rollout of 3G has resulted in higher amortization costs (impact of Rs 164 crore) and increased net interest costs (higher by Rs 116 crore). Interest expenses declined by 30% to Rs 787.7 crore but depreciation charges increased by 13% to Rs 3584.5 crore due to 3G license fee amortization, due to this, PBT grew by 5% to Rs 1586.2 crore.

The effective tax rate shot up by 282bps to 35.21%. The negative impact on account of minority interest of Rs 10.8 crore against benefit of Rs 4.4 crore and share in loss of Associates of Rs 5.6 crore against nil led net income de-growth by 2% to Rs 1011.3 crore.

Nine month performance

During the nine months ended December 2011, revenues were by 22% to Rs 52767 crore.

OPM was down 80bps to 33.1% and resultant operating profits grew 19% to Rs 15479.4 crore. Net income of Rs 3523.5 crore was down by 30% due to substantial increase in interest costs (84% increase to Rs 2761.3 crore), depreciation charges (37% increase to Rs 9899.8 crore) as well as tax rate (1057bps increase to 32.43%).

Consolidated FY11 performance (IFRS)

For the year ended March 2011, the revenue of the company grew 42% to Rs 59601.8 crore. OPM crashed by 640bps to 33.8% on the back of higher sales & marketing expenses (up 416bps to 10.78% of net revenue) and 183bps higher access & interconnection charges at 12.54% which was partly offset by 94bps drop in license fees & spectrum charges at 8.83% of revenues. The operating profit for the year stood 20% higher at Rs 20170 crore.

The period saw Net Interest outgo at Rs 2181.3 crore against Net interest expense of Rs 17.8 crore and depreciation charges higher by 62% to Rs 10206.6 crore.

The net income at Rs 6046.7 crore declined by 33% from Rs 8976.8 crore in the previous year due to increase in net interest outgo (Rs 1,480 crore), forex restatement losses (Rs 683 crore), re-branding expenses (Rs 340 crore) and increase in spectrum charges in India (Rs 265 crore). EO which includes acquisition related cost notched up by 1% to Rs 98.2 crore

There was some benefit on account of minority interest which restricted the PAT fall to 33% at Rs 6046.7 crore.

The Consolidated Operating Free Cash Flow for the full year was healthy at Rs 5704 crore ($ 1.3 billion). The Net Debt - Equity ratio as at March 31, 2011 stands at 1.23 and Net Debt - EBITDA ratio is 2.83.

Segmental quarterly performance

Mobile Services India & South Asia

As at the end of the quarter the company had 175.7 million GSM mobile customers on its network. The average monthly churn for the quarter ended December 31, 2011 was 7.9%.

During the quarter blended ARPU was Rs 187 (US$ 3.7) per month as compared to Rs 183 (US$ 4.0) per month in the quarter ended September 30, 2011. The blended monthly usage per customer, during the quarter was at 419 minutes. The Average rate per minute during the quarter was 44.6 paisa. Non voice revenue, which includes Voice Mail

Service, Call Management, Airtel Talkies and other value added services like Hello Tunes, Music on Demand and Airtel Live contributed to approximately 14.3% of the total revenues of the segment.

The revenues for the quarter ended December 31, 2011 for mobile services stood at Rs 10176.4 crore, a growth of 11.1% over the corresponding quarter last year. The revenue from this segment contributed to 77.3% of the total revenues of India & South Asia. The EBITDA during the quarter ended December 31, 2011 was Rs 3443.1 crore representing a growth of 7.9% over the quarter ended December 31, 2010. The EBITDA margin for the quarter ended December 31, 2011 was 33.8%. The EBIT for the quarter ended December 31, 2011 was Rs 2017.6 crore as compared to Rs 2147.2 crore for the quarter ended December 31, 2010, a decline of 6.0%.

Mobile Service Africa

At the end of the quarter the company had 50.9 million GSM mobile customers on its network. During the quarter, the company added 2.5 million customers. The ARPU for the quarter was US$ 7.1 per month. The blended monthly usage per customer, during the quarter was at 125 minutes. Non voice revenue, which includes Voice Mail Service, Call

Management, Airtel Talkies and other value added services like Hello Tunes, Music on Demand and Airtel Live contributed to approximately 8.0% of the total revenues of the segment.

During the quarter, the revenue for Africa's Operation's was US$ 1,057 million, a growth of 16.1% over the corresponding quarter last year. EBITDA was US$ 282 million (EBITDA margin 26.7%), a growth of 62.3% over the corresponding quarter last year. The EBIT for the quarter ended December 31, 2011 was US$ 58 million representing a growth of 923.3% over the corresponding quarter last year.

Telemedia Services (Broadband & Telephone Services)

At the end of the quarter ended December 31, 2011, the company had its Telemedia operations in 87 cities. The number of customers stood at 3.3 million customers as on

December 31, 2011. The company had approximately 1.4 million broadband (DSL) customers. The ARPU for the quarter was Rs 916 (US$ 18.1) per month.

For the quarter ended December 31, 2011, the revenues from Telemedia operations of Rs 912.8 crore, represented a growth of 0.7% over the corresponding quarter last year.

The EBITDA for the quarter was Rs 354.2 crore compared to Rs 408.5 crore in the corresponding prior year quarter, a decrease of 13.3%. The EBITDA margin for this segment was 38.8% for the quarter ended December 31, 2011. The EBIT for the quarter ended December 31, 2011 was Rs 1,287 million.

Digital TV Services

At the end of the quarter ended December 31, 2011, the company had its Digital TV operations in 587 districts. The number of customers stood at 7.1 million customers as on

December 31, 2011. The ARPU for the quarter was Rs 160 (US$ 3.2) per month.

For the quarter ended December 31, 2011, the revenues from Digital TV operations of Rs 332.7 crore, represented a growth of 55.9% over the corresponding quarter last year.

The EBITDA for the quarter was Rs 9 crore representing a growth of 160.2% over the corresponding quarter last year. The EBITDA margin for this segment was 2.7% for the quarter ended December 31, 2011.

Enterprise Services

The revenues for the quarter ended December 31, 2011 for Enterprise services stood at Rs 11,881 million, a growth of 12.7% over the corresponding quarter last year. The revenue from this segment contributed to 9.0% of the total revenues of India & South Asia. The EBITDA during the quarter ended December 31, 2011 was Rs 200.8 crore, a decline of 13.0% over the corresponding quarter last year. The EBITDA margin for the quarter ended December 31, 2011 was 16.9%. The EBIT for the quarter ended December

31, 2011 was Rs 71.3 crore as compared to Rs 117.8 crore for the quarter ended December 31, 2010, a decline of 39.4%.

Passive Infrastructure Services

The revenues for the quarter ended December 31, 2011 for its Passive Infrastructure Services were Rs 2439.3 crore a growth of 11.0% over the corresponding quarter last year. The EBITDA during the quarter ended December 31, 2011 was Rs 911 crore representing a growth of 7.3% over the quarter ended December 31, 2010. The EBITDA margin for the quarter ended December 31, 2011 was 37.3%. The EBIT for the quarter ended December 31, 2011 was Rs 375.8 crore as compared to Rs 355.8 crore for the quarter ended December 31, 2010, a growth of 5.6%.

Towers and Sharing Operators - Bharti Infratel

As at the end of the quarter, the company had 33,203 towers. Tenancy ratio for the quarter ended December 31, 2011 was 1.81 times.

Towers and Sharing Operators - Indus Towers

As at the end of the quarter, the company had 109,101 towers. Tenancy ratio for the quarter ended December 31, 2011 was 1.91 times.

Management Comment

Sunil Bharti Mittal, Chairman and MD, Bharti Airtel, said

I am pleased that investments in branding and networks continue to be our focus in India, as we

enhance customer experience for voice quality and cater to the ever increasing demand for data. These investments are resulting in healthy growth of Mobile revenues. In Africa, we have crossed the 50 million customer milestone and are now one of the fastest growing telecom companies in the continent.

Promoters Holding

As of December 31, 2011, promoters hold 68.5% (68.33% at end of sequential quarter). The promoters have not pledged any share as on 31^st December 2011.

Valuation

The shares of Bharti Airtel were trading at around Rs 360 on 8^th February 2012 on BSE, at 33.8 times annualized Q3 FY12 consolidated EPS of Rs 10.7.

Bharti Airtel: Consolidated Results (IFRS)

Bharti Airtel: Consolidated Segment Results (FRS)