Bharti Airtel (Q4 FY12)

CMP Rs318, Target Rs409, Upside 28.6% 

• Revenue growth of 1.2% qoq in line while EBIDTA prints above estimate; PAT at Rs10.1bn misses forecast again on higher than expected tax rate and interest expense
  
• Domestic traffic growth rebounds, up 5% qoq on 1.8% fall in rev/min, drives 3.3% increase in India & S Asia wireless revenues
  
• Africa US$ revenue growth at 1.3% qoq driven by 3.4% total MOU rise; rev/min declines 2% on sequential basis
  
• Blended EBIDTA margin up 107bps while PAT missed our estimate on higher tax rate and interest expenses
  
• Based on full year FY12 results, we revise lower our  FY13/14  EPS estimates but believe company remains best bet to navigate choppy regulatory waters; retain BUY for 9-mth target price of Rs409, valuing the stock at 7.5x FY13EV/EBIDTA

Revenues in line, EBIDTA exceed estimates; PAT impacted by higher tax rate, FX loss

Bharti reported Q4 revenue growth of 1.2% qoq, in line with our estimate of Rs187.3bn. EBIDTA margin at 33.3% exceeded our estimate of 32.5%; higher then expected tax rate (~41% vs 35% in Q3 due to Rs1.9bn tax provision) and 9% qoq rise in interest expense led to 0.5% drop in PAT to ~Rs10.1bn vs forecast of Rs10.8bn. Reported PAT included Rs1.8bn of FX/derivative related loss.

Domestic volume growth rebounds on tariff cut

Bharti reported a healthy 5.1% (twice of our 2.5% estimate though less than the stellar 9% posted by Idea) rise in total MOUs after an anemic Q3 which saw <1% increase despite strong seasonality tailwind. Traffic growth would have been undoubtedly helped by the 1.8% qoq decline in rev/min (vs flat expectation) to 44p. MOU/sub too rose 2.9% qoq, a first rise since Q1 FY11.

A 5% volume growth resulted in a 3.3% qoq rise in India & S Asia wireless revenues surpassing our estimate for a 1.4% qoq rise.  However the RPM decline meant wireless revenues growth of 3.3% trailed Q3 figure of +4%. In its earnings call Bharti mgmt maintained that focus indeed remains on recapturing RMS lost in recent quarters though it did not specify a firm timeline. It expects rev/min to remain broadly at current levels implying volume would be the key driver of wireless revenues. Non voice revenue share increased slightly to 14.4% while churn too moved upward to 8.8%-mgmt pointed out it operates at very low levels of churn compared to the industry and even then would look to control the same. 

Non-voice: enterprise revs decline 5.7% qoq, Telemedia flat

Non voice revenues performance remained mixed with Telemedia revenues flat qoq but enterprise business declining 5.7% qoq. We had expected a 1% rise in revenues budgeting some softness in enterprise business after 2 successive quarters of above 6% growth. Although Telemedia revenues were flat, EBIDTA margin improved to 41%, up 218bps and on road towards the more usual 44-45% range seen in earlier quarters. Passive infra revenues declined 0.9% qoq (vs est +3% qoq) which was attributed to revenue write off related to the exit of STel.  

Africa US$ revenues in line; EBIDTA margin up 115bps qoq

Africa reported revenues of US$1.1bn, up 1.3% qoq and in line with estimate. However INR appreciation of 5.6% in Q4 implied a slower 0.6% qoq revenue rise. Traffic growth improved 3.4% qoq, slightly below our expectation of 3.8% while rev/min declined an inline 2% qoq. EBIDTA margin increased 115bps to 27.8% (vs estimated 27%) on the back of lower SG&A and access charges. Africa Q4 net loss widened to Rs3.4bn from Rs2.6bn in the previous quarter.  

Balance sheet strength lends comfort in uncertain times: retain BUY

The recent TRAI recos on spectrum auctions include steep price for 1800MHz and proposals for refarming of 900MHz. However, Bharti’s robust balance sheet acts as a bulwark to unfolding regulatory scenario. We have revised lower our FY13/14 EPS estimates based on full year FY12 results primarily due to higher interest expense and 200bps rise in tax rate. We continue to value Bharti at 7.5x FY13 EV/EBIDTA and retain our 9-mth TP of Rs409.