Bharti Airtel: Continues its stable performance - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Bharti Airtel: Continues its stable performance

Jan 22, 2010

Performance summary
  • Sales grow by 7% YoY during 3QY10, 15% YoY during 9mFY10. Growth during quarter led by company’s passive infrastructure business, wherein revenues increased by 35% YoY during the quarter. Revenues of mobile services segment increase marginally.
  • Mobile subscriber base stood at almost 119 m at the end of December 2009, higher by about 39% YoY.
  • During the quarter, the average revenue per user (ARPU) declined by 29% YoY and by 9% QoQ (as compared to 2QFY10). Average minutes of usage (MOU) declined by 12% YoY and 1% QoQ (as compared to 2QFY10).
  • Operating margins contract by 0.8% YoY to 39.3% on the back of higher network operating costs (as a percentage of sales).
  • Net profits grow by 13% YoY during 3QFY10, 23% YoY for the 9mFY10 period. Growth in bottomline on the back of a decent operating performance and interest income.

Consolidated financial performance snapshot (Indian GAAP)
(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Sales 96,674 103,050 6.6% 270,969 310,901 14.7%
Expenditure 57,915 62,602 8.1% 161,575 185,918 15.1%
Operating profit (EBDIT) 38,759 40,447 4.4% 109,395 124,982 14.2%
Operating profit margin (%) 40.1% 39.3%   40.4% 40.2%  
Other income 211 226 7.1% 1,119 793 -29.1%
Interest expense/(income) 4,576 (1,319) -128.8% 14,626 (3,283)  
Depreciation 12,488 15,915 27.4% 33,481 45,283 35.2%
Profit before tax 21,906 26,078 19.0% 62,406 83,775 34.2%
Tax 1,671 3,271 95.7% 2,925 10,961 274.8%
Profit after tax/(loss) 20,235 22,806 12.7% 59,482 72,814 22.4%
Minority interest (471) (427) -9.2% (1,369) (1,408) 2.8%
Share of gain/ (loss) in associate - (10) - (16)  
Net profit 19,764 22,369 13.2% 58,112 71,390 22.8%
Net profit margin (%) 20.9% 22.1%   22.0% 23.4%  
No. of shares         3,797.0  
Diluted Earnings per share (Rs)*         24.2  
P/E ratio (x)*         13.3  
* On a trailing 12 months basis

What has driven growth in 3QFY10?
  • Bharti reported a revenue growth of 7% YoY during the quarter ended December 2009. Revenues during the nine-month period were higher by 15% YoY. Growth during the quarter was led by the company’s passive infrastructure business, where revenues grew by 35% YoY. This segment’s contribution to the overall revenues increased to 14.2% during the quarter, as compared to 10.9% during 3QFY09. The company’s mobile services segment, which contributed to 62% of total revenues, grew at a marginal rate of 0.3% YoY. This was despite a 39% YoY increase in the subscriber base. At the end of the quarter, Bharti had almost 119 m mobile subscribers.

  • The reason for the lower growth in revenues was the drop in key figures such as average revenue per user (ARPU), average revenue per minute (ARPM), and average minutes of usage (MoU). These were lower by 29% YoY, 19% YoY and 12% YoY respectively. On a quarter on quarter basis i.e., in comparison to 2QFY10, these were lower by 9%, 7% and 1% respectively. It must be noted that on a year on year basis, the fall in ARPUs during 3QFY10 is the highest in the past four quarters.

  • ARPUs during this quarter stood at Rs 230 as against Rs 324 a year back. The causes for the same have been the new low tariff plans that have were launched during the quarter. The lower tariff plans have also led to the sharp reduction in ARPMs during the quarter (Rs 0.52 during 3QFY10). However, one good point is that rate in drop of MOUs, which has been on a sharp decline over the past few quarter, reduced during the quarter. The lower tariff plans would the precise reason for the same. Average MOU for the quarter was 446 minutes, as compared 505 minutes during 3QFY09.

    Segment-wise performance*
      3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
    Mobile Services            
    Revenue (Rs m) 79,560 79,802 0.3% 221,759 243,447 9.8%
    % of total revenues 64.3% 62.0%   63.7% 62.9%  
    Minutes billed (m) 123,626 153,241 24.0% 344,677 437,634 27.0%
    Revenue per minute (Rs) 0.64 0.52 -19.1% 0.64 0.56 -13.5%
    EBIT margin 23.3% 20.4%   22.5% 22.1%  
    EBIT per minute (Rs) 0.15 0.11 -29.0% 0.15 0.12 -15.4%
    Telemedia Services            
    Revenue (Rs m) 8,424 8,561 1.6% 24,833 25,679 3.4%
    % of total revenues 6.8% 6.7%   7.1% 6.6%  
    Minutes billed (m) 4,750 4,576 -3.7% 14,594 14,118 -3.3%
    Revenue per minute (Rs) 1.77 1.87 5.5% 1.70 1.82 6.9%
    EBIT margin 23.6% 24.1%   25.0% 22.3%  
    EBIT per minute (Rs) 0.42 0.45 8.1% 0.43 0.41 -4.8%
    Enterprise Services            
    Revenue (Rs m) 21,436 20,682 -3.5% 61,939 63,355 2.3%
    % of total revenues 17.3% 16.1%   17.8% 16.4%  
    Minutes billed (m) 14,212 17,044 19.9% 40,215 47,292 17.6%
    Revenue per minute (Rs) 1.51 1.21 -19.5% 1.54 1.34 -13.0%
    EBIT margin 38.2% 39.5%   37.5% 41.3%  
    EBIT per minute (Rs) 0.58 0.48 -16.8% 0.58 0.55 -4.4%
    Passive Infra. Services^            
    Revenue (Rs m) 13,498 18,242 35.1% 36,335 50,900 40.1%
    % of total revenues 10.9% 14.2%   10.4% 13.1%  
    EBIT margin 2.9% 9.9%   8.1% 8.6%  
    Revenue (Rs m) 908 1,424 56.8% 3,030 3,762 24.2%
    % of total revenues 0.7% 1.1%   0.9% 1.0%  
    EBIT margin -274.1% -251.7%   -167.6% -248.3%  
    * As per Indian GAAP numbers. Excluding inter-segment eliminations and other revenue;
    # Broadband & Telephone services; ^ Share of revenue in the demerged tower subsidiary - Bharti Infratel Ltd.

  • As for the company’s other segments viz., telemedia and enterprise segments, these too reported subdued numbers during 3QFY10. While revenues from the former increased by 2% YoY, the latter saw its revenues drop by about 4% YoY. It must be noted that the 4% YoY fall in revenues of the enterprise business was despite a 20% YoY growth in the minutes billed. This was on a back of a 20% YoY drop in revenues per minute.

  • Bharti’s operating margins during the quarter stood at 39.3% as compared to 40.1% during 3QFY09. This was mainly due to higher network operating costs (on the back of network expansion), which increased by 38% YoY in absolute terms and stood at nearly 21.4% of revenues of revenues during the quarter (16.5% in 3QFY09). The company’s profits grew at a faster pace as compared to the growth in revenues and operating profits. During 3QFY10, profits were higher by 13% YoY and profits during 9mFY10 were higher by 23% YoY. This faster growth at the profitability level was on the back of an interest income (and other finance income such as income on marketable securities) earned in both the period i.e., 3QFY10 and 9mFY10, as against interest expended during the corresponding periods last year.

What to expect?
At the current price of Rs 323, the stock is trading at a multiple of 11.1 times our estimated FY12 earnings. Giving its view on the industry, the management believes the competitive scenario (declining tariff rates) would continue for a few more quarters. Thereafter, the scenario is expected to stabilize. In addition, Bharti’s management believes that the relatively new entrants would somehow get a gist of the Indian telecom industry (the unviable factor that Bharti keeps talking about) and as a result would make the necessary adjustments to their business plans. In addition, with the government looking to tweak the M&A laws in India, consolidation would also take place.

Speaking about the recently acquired Warid Telecom, the management believes that Bangladesh is amongst the few under penetrated telecom markets having a sizable population. This has clearly been the rationale behind acquiring Warid. Bangladesh currently has a telecom penetration level of about 32%. This in turn throws a large opportunity for Bharti.

The churn rate during this quarter stood at about 6.5%. This is quite a large figure, especially when compared to the past few quarters. However, the reason cited for the same was the ban on all new pre-paid connections as well as renewal of existing ones. As per the management, this also impacted the volume of minutes billed during the quarter.

We maintain our view on the stock from a long-term perspective.

To Read the Full Story, Subscribe or Sign In
To Read the Full Story, Subscribe or Sign In

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms


Aug 3, 2020 (Close)


  • Track your investment in BHARTI AIRTEL with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks