Bharti Airtel (Q1 FY15)

Bharti Airtel’s Q1 result was a tale of two halves as India wireless business continues to gain momentum while Africa EBIDTA remains stuck in a range.

Aug 02, 2014 07:08 IST India Infoline News Service

CMP Rs373, Target Rs400, Upside 7.2% 

  • Bharti Q1 revenue/EBIDTA growth of 3.3%/5.7% beat our estimate on robust domestic wireless performance

  • Wireless margins up ~200bps qoq on robust pricing (+2.5% qoq) and volumes +2.3% qoq; consol margin expands on operating leverage tailwind

  • Mobile data total vols up 17% qoq while pricing declines 2% qoq as per revised data reporting norms; non voice share at 18.2%

  • Africa EBIDTA margin lower than expected even as absolute EBIDTA remains in the sub-US$300mn range; constant currency revenue growth of 3.1% qoq vs reported +1.7% qoq

  • Adjusted for Rs2.5bn in net exceptional loss, reported PAT better than expected and comes after a string of profit miss in the previous quarters

  • Company upped capex guidance to US$2.2-2.4bn; we revise upwards or FY15/16 EPS estimates and would accumulate stock for revised 9-12mth target of Rs400

Result table
(Rs m) Q1 FY15 Q4 FY14 % qoq Q1 FY14 % yoy
Net sales 230,055 222,605 3.3 202,995 13.3
Access and IUC (27,889) (28,732) (2.9) (26,961) 3.4
Network opex (51,236) (50,219) 2.0 (46,700) 9.7
License fees (22,003) (19,951) 10.3 (18,219) 20.8
Staff (11,680) (11,517) 1.4 (10,926) 6.9
S G & A (40,047) (39,120) 2.4 (34,740) 15.3
Operating profit 77,200 73,066 5.7 65,449 18.0
OPM (%) 33.6 32.8 73 bps 32.2 132 bps
Depreciation (40,365) (39,444) 2.3 (38,470) 4.9
Interest (9,565) (8,394) 14.0 (11,676) (18.1)
PBT 27,270 25,228 8.1 15,303 78.2
Tax (15,326) (13,562) 13.0 (9,684) 58.3
Effective tax rate (%) 60.2 61.3 (103) bps 55.2 506 bps
Minority & Associate 961 1,036 (7.2) (982) -
Exceptional items (1,820) (3,086) (41.0) 2,252 (180.8)
Reported PAT 11,085 9,616 15.3 6,889 60.9
Source: Company, India Infoline Research

Airtel Q1: India wireless shines, Africa disappoints

Bharti Airtel’s Q1 result was a tale of two halves as India wireless business continues to gain momentum while Africa EBIDTA remains stuck in a range. Consolidated revenue/EBIDTA growth of 3.3%/5.7% beat our estimate of 0.35/1.1% qoq on strong India showing. Domestic mobile business saw both volume and pricing surprise positively while mobile margins (+200bps qoq) benefited from operating leverage tailwinds which in turn drove a beat on our consolidated margin forecast of 33.1%. Reported PAT was lower than expected at Rs11.1bn but included e net loss of Rs2.5bn comprising a charge of Rs1.8bn on various disputes and related tax provisions Rs700mn.


India KPIs
Wireless Q4’ 12 Q1’ 13 Q2’ 13 Q3’ 13 Q4’ 13 Q1’ 14* Q2’ 14 Q3’ 14 Q4’ 14 Q1’ 15
Subs base (' 000) 181,279 187,302 185,922 181,922 188,220 190,448 193,457 198,513 205,519 209,411
Additions (' 000) 5,626 6,023 (1,380) (4,000) 6,298 2,728 2,509 5,056 7,006 3,892
% qoq 96.0 7.0 - 189.9 - (56.7) (8.0) 101.5 38.6 (44.4)
ARPU 189 185 177 185 193 200 192 195 196 202
% qoq 1.1 (2.3) (4.1) 4.5 4.3 3.6 (4.0) 1.6 0.5 3.1
MOU/sub (mins) 431 433 417 435 455 455 437 434 437 435
% qoq 2.9 0.4 (3.7) 4.3 4.6 - (4.0) (0.7) 0.7 (0.5)
Voice RPM 36.7 35.7 35.4 35.2 35.0 36.4 36.7 37.1 37.1 38.1
% qoq (2.1) (2.7) (0.8) (0.6) (0.6) 4.0 1.0 1.1 (0.2) 2.5
Total MOU (mn mins) 230,365 239,338 234,424 240,814 253,144 258,380 251,322 255,030 264,843 270,827
% qoq 5.1 3.9 (2.1) 2.8 5.1 2.1 (2.7) 1.5 3.8 2.3
Churn (%) 8.8 8.8 8.5 5.9 3.2 3.2 3.2 2.7 2.4 2.7
Data
Customer base (mn) 35.8 38.7 40.6 41.5 43.5 25.9 28.0 31.9 35.6 39.2
Of which 3G (mn) 2.7 3.7 4.0 5.2 6.4 6.2 7.4 8.8 10.3 12.5
Total MBs on N/W (mn MBs) 10,006 12,566 15,879 19,777 23,937 28,403 34,624 39,932 47,655 55,610
Data ARPU (Rs) 44 40 43 47 55 128 129 137 133 139
Data usage/
customer (MB)		 107 112 133 161 187 392 429 450 464 495
Data realization/MB (paise) 40.9 35.3 32.4 29.3 29.3 32.7 30.0 30.4 28.6 28.0
Telemedia
Customers (' 000) 3,270 3,272 3,275 3,278 3,283 3,289 3,338 3,355 3,356 3,350
Net additions (‘ 000) (47) 2 3 3 5 6 49 17 1 (6)
ARPU - 906 910 909 906 924 944 954 963 1,010
% qoq - - 0.9 0.2 0.5 2.0 2.2 1.1 0.9 4.9
Traffic (mn mins) 4,145 4,162 4,156 3,958 3,988 4,137 4,209 4,075 4,122 4,172
Carriers
NLD (mn mins) 21,588 22,241 22,997 23,216 24,533 23,795 25,045 27,310 28,583 28,036
% qoq 5.0 3.0 3.4 1.0 5.7 (3.0) 5.3 2.1 4.7 (1.9)
ILD (mn mins) 3,518 3,362 4,340 4,303 3,794 2,880 3,406 3,606 4,103 3,741
% qoq (0.3) (4.4) 29.1 (0.9) (11.8) (24.1) 18.3 5.9 13.8 (8.8)
Total mins (Gross) 259,615 269,103 265,717 272,291 285,459 289,192 283,982 290,021 301,651 306,776
Bharti Infratel
Towers 33,326 33,660 34,220 34,668 35,119 35,288 35,376 35.515 35,905 36,112
Sharing factor (x) 1.82 1.82 1.81 1.82 1.82 1.82 1.84 1.87 1.90 1.94
Sharing rev/op (Rs) 37,277 36,170 36,839 37,863 37,467 37,537 38,819 36,955 37,591 37,428
Indus Towers
Towers 109,114 109,318 110,561 111,240 111,819 111,983 112,144 112,615 113,008 113,490
Sharing factor (x) 1.94 1.97 1.98 1.99 1.99 1.99 2.00 2.02 2.05 2.08
Sharing rev/op (Rs) 32,563 29,777 31,711 31,969 31,718 - - - - -
DTH services
Customers (' 000) 7,228 7,400 7,455 7,894 8,100 8,452 8,572 8,807 9,012 9,388
Net adds (‘ 000) 159 172 55 439 206 352 120 235 205 376
ARPU 166 166 177 186 184 197 198 207 203 214
Monthly churn (%) 1.2 1.7 1.9 1.3 1.1 0.6 1.0 0.8 0.9 0.6
Source: Company, India Infoline Research
* Data subscriber definition changed and hence data usage numbers restated from Q1 FY14 and not comparable to earlier quarters 

India wireless: pricing, volume surprise positively; margins up 200bps qoq

India domestic wireless business continues its robust momentum with both pricing and volumes posting a positive beat on our estimates. Voice pricing rose 2.5% qoq (vs est. 0.1% qoq) to 38.1p/min, the fifth successive quarter of uptick. Volume growth of 2.3% qoq though expectedly not as strong as that for Idea was in line with our expectation which drove a 5.5% qoq rise in domestic wireless revenues and ~200bps sequential jump in margins; Bharti’s domestic mobile margin have now risen ~450bps in the past 4 Qs on robust revenue growth and operating leverage tailwinds. Churn inched up to 2.7% but still remains in a sub-3% range as a result of enhanced focus on quality customer acquisition and retention strategy. Mobile capex ramped up to ~18% of sales from 10.7% in previous quarter while total India capex stood at Rs29.5bn out of a potential Rs90bn for FY15 (at midpoint of US$1.4-1.6bn ex-Africa FY15 guidance).  


India non wireless update: Telemedia margin decline, DTH revs up 9.2% qoq

Telemedia: Healthy 4.5% qoq revenue growth, much above our estimate of 0.9% qoq on better than expected ARPUs but EBIDTA margin declined ~40bps qoq on account of license fee levy of 8% on DSL revenues introduced in March 2014.

DTH: Revenues grew 9.2% qoq (vs est. +7% qoq) on the back of higher gross adds (376k vs 205k in Q4) and rise in ARPUs driven by higher HD penetration and up selling of packs; higher gross adds also entailed correspondingly larger procurement of boxes leading to ramp up in capex.

Airtel Business: Revenues declined 1.2% qoq against estimate of 2.5% qoq rise while EBIT margin too declined a sharp 220bps qoq though the company attributed this to mainly lower collection issues, which is purely a timing issue.

Revised data reporting norms: 17% vol growth & 2% data pricing decline qoq

Bharti revised its data reporting norms from Q1 and as per revised definition (at least 1MB of usage/month) total data subscriber base stands at 39.3mn vs >50mn as per previous reporting format. Data volumes jumped 16.7% qoq, data usage/customer rose 7% and pricing (paise/MB) dropped 2% qoq for Q1. Non voice revenues now account for 18.2% of mobile revenues of which data share is at 12.4%.  


Segment wise growth: wireless remains healthy for 3rd successive Q
% qoq Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY14 Q1 FY15
Wireless-India (0.4) 4.1 (1.8) 3.0 5.3 (2.1) 2.6 3.8 5.5
Wireless-S Asia - - - - 13.3 15.9 (1.6) 0.5 (4.8)
Telemedia (2.9) 0.6 (0.0) 2.1 3.9 2.9 1.1 3.8 4.5
Airtel Business 6.2 17.0 2.0 (7.6) 6.8 19.9 (3.7) 0.7 (1.2)
Tower Infra scvs (51.3) 3.3 4.7 3.3 (2.5) (1.8) (0.1) 3.7 2.0
DTH 2.6 7.6 8.7 3.2 10.9 3.5 6.2 0.6 9.2
Source: Company, India Infoline Research
 
Segment wise margin: India mobile margin 450bps in past 4Qs
EBIDTA margin (%) Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY14 Q1 FY15
Wireless-India 30.9 30.7 29.2 30.6 32.4 33.5 34.1 34.9 36.9
Telemedia 42.9 41.4 41.8 41.4 39.7 37.1 36.2 37.3 36.9
Airtel Business 16.5 14.8 15.1 21.3 19.7 19.3 25.6 22.5 20.0
Tower Infra scvs 74.6 44.6 44.5 46.8 44.8 43.0 42.8 48.5 45.6
DTH (0.6) 0.8 3.4 6.7 15.5 12.7 18.0 17.8 24.3
Source: Company, India Infoline Research

Africa: EBIDTA margin disappoint, CC revenue growth at 3.1% qoq  

Although Africa reported US$ revenue growth of 1.7% qoq came in below our estimate of +3.4% qoq, if one adjusts for currency impact, constant currency revenues grew ~3.1% qoq.  Mobile traffic barely grew at 0.4% qoq (est. +6% qoq) while voice RPM remained flat qoq vs expected 0.5% decline. EBIDTA margin decline of ~100bps qoq was a disappointment due to higher network opex and SG&A costs which led to 2.4% dip in absolute EBIDTA. The company moved the acquisition related debt and associated finance costs to India results which led to changes in below EBIDTA line items; company indicated in its conference call that such a move more accurately reflects the pure operational performance of Africa as the debt is not actually used for African operations. Data continues to be a strong point for African operations as data customers now account for more than a third of total base while data volumes grew ~7% qoq and realization improved 8.3% qoq.  


Africa financial highlights
US$ mn Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY14 Q1 FY15
Revenues 1,066 1,097 1,133 1,120 1,062 1,119 1,165 1,145 1,164
% qoq (0.5) 2.9 3.3 (1.1) (5.2) 5.4 4.1 (1.7) 1.7
EBIDTA 275 298 300 285 283 301 300 290 283
EBIDTA margin (%) 25.8 27.2 26.5 25.4 26.6 26.9 25.8 25.3 24.3
EBIT 62 80 80 62 64 75 77 64 47
EBIT margin (%) 5.8 7.3 7.1 5.5 6.0 6.7 6.6 5.6 4.0
PBT (108) (90) (64) (91) (50) (48) (100) (124) (77)
PAT (124) (97) (96) (90) (106) (105) (154) (170) (137)
Capex 119 210 160 235 165 154 140 176 160
Capex/sales 11 19 14 21 16 14 12 15 14
Source: Company, India Infoline Research
Note: Acquisition debt no longer part of Africa operations hence below EBIDTA line numbers restated from Q1 FY14 and not comparable to earlier quarters   

Africa: trend in operating metrics
Key metrics Q2 FY13 Q3 FY13 Q4 FY13 Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY14 Q1 FY15
Subscriber base (mn) 58.7 61.7 63.7 64.2 66.4 68.3 69.4   69.1
Net adds (mn) 2.8 3.0 2.0 0.5 2.2 1.9 1.1   (0.4)
% qoq 3.6 7.4 (32.8) (76.1) 348.5 (11.3) (41.1) -
ARPU (US$/sub) 6.4 6.2 5.9 5.5 5.7 5.8 5.5 5.6
Voice RPM (USc/min) 4.0 3.7 4.0 3.4 3.3 3.3 3.23 3.23
% qoq (15.4) (8.0) 7.3 (14.4) (2.4) 0.4 (2.5) -
MOU (mins/sub) 138 144 123 134 143 141 136 136
Monthly churn (%) 5.1 5.1 5.5 6.7 6.6 6.7 6.1 7.0
Non-voice rev % of mobile revs 13.0 15.1 17.7 17.4 17.9 19.6 20.5 21.5
Mobile traffic
(mn mins)		 23,646 26,174 23,360 25,971 27,848 28,270 28,155 28,256
% qoq 20.3 10.7 (10.8) 11.2 7.2 1.5 (0.4) 0.4
Network sites 15,979 16,371 16,653 17,345 17,444 17,565 17,792   17,781
of which 3G sites 5,347 5,527 5,676 6,201 6,237 6,675 6,923   7,165
Source: Company, India Infoline Research

Africa data highlights
Data Q2 FY13 Q3 FY13 Q4 FY13 Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY14 Q1 FY15
Customer base (mn) 13.9 14.1 14.5 15.5 17.5 19.6 22.3 23.7
% of customer base 23.8 22.9 22.8 24.2 26.4 28.7 32.1 34.2
Total MBs on the network (mn MBs) 2,145 2,450 3,003 3,140 4,215 5,383 6,114 6,541
Data ARPU (US $) 1.0 1.1 1.2 1.3 1.5 1.6 1.4 1.5
Data Usage/customer (MB) 56 58 73 70 85 99 96 96
Data Realization/MB (US c) 1.73 1.94 1.64 1.81 1.74 1.59 1.44 1.56
Source: Company, India Infoline Research

+ve on domestic business but Africa continues to drag profitability

Q1 results indicate domestic business is on strong footing supported by volume as well as pricing growth. Data volumes also retain their robust compounded growth on quarterly basis though data pricing concerns are not fully alleviated. On the other hand Africa operations continue to pose challenge in terms of absolute EBIDTA growth. We revise upwards our FY15/16 earnings estimates post the beat in Q1 and continue to prefer Bharti over Idea at current juncture on better quality of spectrum holdings; we expect renewal payouts to be higher for Idea as compared to peers in the upcoming license renewals. Accumulate with a revised 9-12mth target of Rs400 (earlier Rs380).  


Financial summary
Y/e 31 Mar (Rs m) FY13 FY14 FY15E FY16E
Revenues 769,470 858,635 949,657 1,036,544
yoy growth (%) 7.6 11.6 10.6 9.1
Operating profit 232,580 277,770 315,286 351,389
OPM (%) 30.2 32.4 33.2 33.9
Reported PAT 22,220 27,189 40,756 60,363
yoy growth (%) (47.8) 22.4 49.9 48.1
EPS (Rs) 5.9 6.8 10.2 15.1
P/E (x) 63.7 54.8 36.6 24.7
Price/Book (x) 2.8 2.5 2.4 2.2
EV/EBITDA (x) 9.0 8.1 6.8 5.6
Debt/Equity (x) 1.4 1.3 1.1 0.8
ROE (%) 4.5 4.9 6.6 9.1
RoCE (%) 6.7 8.9 8.1 10.8
Source: Company, India Infoline Research


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