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 3^rd 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