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Results Update / Review

Bharti Airtel: Reported broadly in-line 2QFY13


  • Bharti Airtel reported broadly in-line 2QFY13, excluding the one-time income from favorable judgment in a case related to interconnect payments, which positively impacted reported revenue/EBITDA/PBT/PAT by INR5.9/2.4/3.5/2.4b respectively. However, the positive impact on PAT was partially offset by an INR0.6b onetime tax expense related to dividend distribution tax for Indus Towers.
  • Consolidated proforma revenue grew 1.7% QoQ to INR196.9b. Consolidated proforma EBITDA grew 5.1% YoY and 4.5% QoQ to INR61.1b led by better performance in Africa and Indian non-mobile segments.
  • Consolidated proforma net profit declined 48% YoY and 29% QoQ to INR5.4b due to higher-than-expected finance cost and tax rate.
  • Proforma India and South Asia revenue grew 0.8% QoQ to INR138.3b. Proforma EBITDA grew 2.6% QoQ to INR44.7b largely driven by 13% QoQ growth in non-mobile, while proforma mobile EBITDA declined 1% QoQ.
  • India mobile traffic declined 2.1% QoQ (vs 4% decline for Idea); mobile RPM remained flat QoQ at 42.7p
  • Africa EBIDTA increased 8.4% QoQ to USD298m on a 3% QoQ revenue growth (20% QoQ traffic growth, 15% RPM decline). EBITDA margin improved 140bp QoQ to 27.2%.
  • Consolidated net debt declined ~2% QoQ to INR668b on INR appreciation but increased 4.5% QoQ in USD terms to USD12.7b due to consolidation of BWA venture acquired from Qualcomm.1HFY13 capex was USD1.4b.
  • Rationalization in channel commissions led to ~150bp improvement in SGA costs for India & SA, lower than the 240bp savings reported by Idea; Bharti has a relatively higher proportion of dongles and post-paid revenues.
  • While Africa business and operating performance surprised positively, India mobile business continues to be impacted by hyper-competition, despite recent corrective measures like rationalization of channel commissions. We believe sustained RPM improvement would be imperative for a turnaround in India business.
  • We upgrade FY13E EBITDA and EPS estimates by 3-5% to incorporate the one-time interconnect income and better-than-expected proforma results; our FY14E estimates remain largely unchanged.
  • We expect 7% EBITDA CAGR over FY12-14E. At CMP of INR271, the stock trades at EV/EBITDA of 6.9x FY13E and 6x FY14E. Maintain Neutral with a target price of INR265/sh.

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