X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Bharti Airtel: Data revenues drive growth - Views on News from Equitymaster
StockSelect
  • MyStocks

MEMBER'S LOGINX

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

Bharti Airtel: Data revenues drive growth
Feb 5, 2015

Bharti Airtel has declared results for the third quarter of the financial year 2014-15. The company has reported a 5.8% YoY increase in total revenues and a 135.4% YoY increase in net profits during the quarter. Here is our analysis of the results.

Performance summary
  • Consolidated sales grew by 5.8% YoY during the third quarter of the financial year 2014-2015 (3QFY15) on the back of robust growth of 61.9% YoY in mobile data revenues.
  • Mobile subscriber base in India grew by 9.4% YoY during the quarter. Total count of mobile subscribers in India stood at around 217.2 m at the end of December 2014. Total subscriber base on the network (including South Asia and African operations) grew by 9% YoY during the quarter.
  • Operating margins improved by 1.2% YoY to 33.5% during the quarter. The operating profit grew by 9.6% YoY.
  • The net profit increased by 135.4% YoY. The net margin improved to 6.2% in the quarter compared to 2.8% seen in 3QFY14.

Consolidated financial performance snapshot
(Rs m) 3QFY14 3QFY15 Change 9MFY14 9MFY15 Change
Sales 219,607 232,281 5.8% 636,030 690,953 8.6%
Expenditure 148,601 154,424 3.9% 430,785 458,765 6.5%
Operating profit (EBITDA) 71,006 77,857 9.6% 205,245 232,188 13.1%
Operating profit margin (%) 32.3% 33.5%   32.3% 33.6%  
Other income - -   - -  
Interest expense/(income) 10,754 10,523 -2.1% 39,010 30,430 -22.0%
Depreciation 39,188 38,015 -3.0% 117,052 116,910 -0.1%
Share of (loss)/gain in associates 1,064 1,800 69.2% 3,538 5,087 43.8%
Exceptional items 674 (2,921)   2,107 (6,491)  
Profit before tax 22,802 28,198 23.7% 54,828 83,444 52.2%
Tax 16,569 13,145 -20.7% 34,887 43,236 23.9%
Profit after tax/(loss) 6,233 15,053 141.5% 19,941 40,208 101.6%
Minority interest 131 688   1,830 926  
Net profit 6,102 14,365 135.4% 18,111 39,282 116.9%
Net profit margin (%) 2.8% 6.2%   2.8% 5.7%  
No. of shares         3,997.4  
Diluted Earnings per share (Rs)*         12.2  
P/E ratio (x)*         29.7  
* On a trailing 12 months basis; adjusted for exceptional items

What has driven performance in 3QFY15?
  • Bharti reported a revenue growth of 5.8% YoY during the quarter. This was achieved by growth in the revenues from most of its segments. Revenues from mobile services (India) increased by a robust 13% YoY largely due to a stupendous growth of 61.9% YoY in data revenues. Mobile data revenues now contribute more than 85% of the incremental revenues of the company. The tele-media services segment continued to record good growth. Revenues were up 13.2% YoY in this segment. Revenues from the B2B services were flat but the digital TV business (DTH) business continued the strong performance recording a growth of 15.8% YoY. The passive infrastructure service segment witnessed a growth of 8.7% YoY during the quarter.

  • Coming to the key parameters relating to the company's mobile service business in India, the average revenue per user (ARPU) increased to Rs 202 per user per month from Rs 195 per user per month seen during 3QFY14. The same figure stood at Rs 198 during 2QFY15. The minutes of usage (MoU) decreased sequentially to 416 minutes per subscriber per month in 3QFY15 from 418 in 2QFY15. The same figure for the corresponding quarter last year stood at 434. The voice realization per minute increased by 1.2% YoY to 37.67 paisa as against 37.23 paisa in 3QFY14. On a sequential basis however, it was flat.

  • The robust growth in data usage continued in 3QFY15. The data usage per customer increased by 38.3% YoY. However, data realisations decreased by 9.9% YoY. Data ARPU increased by 24.6% YoY. On a sequential basis, the growth in data ARPU and data usage per customer were 13.2% QoQ and 10.4% QoQ respectively. Data realisations were up 2.6% QoQ.

  • The international operations witnessed de-growth of 6.1% YoY. The EBITDA margins for the business too fell slightly to 20.4% from 24.7% in 3QFY14. The African business continues to face challenges.

    Segment-wise performance (IFRS)
    Mobile Services-India  3QFY14 3QFY15 Change
    Revenue (Rs m) 116,446 131,635 13.0%
    % of total revenues 53.0% 56.7%  
    Minutes billed (m) 255,030 267,485 4.9%
    Voice realization per min (Rs) 0.37 0.38 1.2%
    Data realization per mb (Rs) 0.30 0.27 -9.9%
    EBITDA margin 34.2% 37.1%  
    EBITDA per minute (Rs) 0.34 0.37 8.5%
    Telemedia Services
    Revenue (Rs m) 9,869 11,171 13.2%
    % of total revenues 4.5% 4.8%  
    Minutes billed (m) 4,075 4,250 4.3%
    Revenue per minute (Rs) 2.42 2.63 8.5%
    EBITDA margin 36.2% 39.2%  
    EBITDA per minute (Rs) 0.88 1.03 17.5%
    B2B (Formerly Enterprise Services)
    Revenue (Rs m) 16,195 16,177 -0.1%
    % of total revenues 7.4% 7.0%  
    Minutes billed (m) 30,915 33,407 8.1%
    Revenue per minute (Rs) 0.52 0.48 -7.6%
    EBITDA margin 25.6% 21.9%  
    EBITDA per minute (Rs) 0.13 0.11 -20.8%
    Passive Infra. Services
    Revenue (Rs m) 12,592 13,692 8.7%
    % of total revenues 10.8% 10.4%  
    EBITDA margin 42.4% 47.7%  
    DTH (Direct to Home)
    Revenue (Rs m) 5,384 6,234 15.8%
    % of total revenues 4.6% 4.7%  
    EBITDA margin 18.1% 27.4%  
    International operations (Africa & South Asia)
    Revenue (Rs m) 76,764 72,064 -6.1%
    % of total revenues 65.9% 54.7%  
    EBITDA margin 24.7% 20.4%  
    Others (India)
    Revenue (Rs m) 707 690 -2.5%
    % of total revenues 0.6% 0.5%  
    EBITDA (Rs) (583) (433)  

  • Bharti's operating margins stood at 33.5% during 3QFY15, which was higher than the 32.3% seen during the same period last year. This was largely on account of the savings in most cost heads as percentage of sales.

    Cost Breakdown
      3QFY14 As % of sales 3QFY15 As % of sales
    Access charges 28,755 13.1% 28,804 12.4%
    Licence fee & Spectrum charges 18,824 8.6% 22,172 9.5%
    Network expenses 51,140 23.3% 53,007 22.8%
    Employee costs 11,579 5.3% 11,653 5.0%
    Sales & Marketing 22,720 10.3% 22,770 9.8%
    Admin & other 15,583 7.1% 16,018 6.9%
    Total expenses 148,601   154,424  

  • At the net level, lower interest costs and depreciation combined with the strong operating performance and a lower tax rate; resulted in a huge 135.4% YoY jump in the bottomline.
What to expect?
At the current price of Rs 363.4, the stock is trading at a multiple of 27.9 times its trailing twelve months earnings.

The management of Bharti Airtel stated that they remain focused on revenue growth. Data revenues are clearly driving the company's growth prospects in India. Apart from contributing over 85% of the total incremental mobile revenues; data ARPU has crossed the voice ARPU in 3QFY15. Data revenues stand at 16.2% of mobile revenues in India and 10.5% of mobile revenues in Africa

Despite the positive news on the growth front, the management stated that they will have to remain focused at all times, as input costs would continuously increase over time. Thus as per them, pricing power must return to the industry. Thankfully, we have already seen that to an extent. The management also believes that margin improvement in India will continue.

The management stated that they remain bullish on Africa despite all the challenges. Bharti is the top telco in 10 countries and number two in 4 countries in the continent in terms of revenue market share (RMS). The company completed its 3G rollout in Africa in 3QFY15 and had has begun its 4G rollout as well. The management stated that the internet boom has just begun in Africa had the growth potential is huge. Thus, they will continue to invest in the continent.

The capex (excluding spectrum payouts) for FY15 has been revised to US$ 2.6-2.8 bn with US$ 800 m earmarked for Africa. Next year's capex will be stated at the 4QFY15 results.

Regarding the issue of setting up a payments bank in India, the management stated that they have applied to the RBI for the license. The company has partnered with Kotak Mahindra Bank for the same. This is a business where scale matters a lot as margins are thin. Thus, telcos have an inherent advantage due their large customer base, brand loyalty, extensive distribution network as well as their understanding of the technologies involved. However, the management believes getting the necessary software infrastructure in place, complying with regulations as well as scaling up fast, will be the key challenges in this business.

In the performance review of our December 2014 Stock Select report, we had changed our view on the stock to Buy. We maintain our Buy view as well as our FY17 target price of Rs 544.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow our suggested asset allocation and that no single stock comprises more than 5% of your portfolio.

To Read the Full Story, Subscribe or Sign In



DISCLOSURES UNDER SEBI (RESEARCH ANALYSTS) REGULATIONS, 2014
INTRODUCTION:
Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on October 25, 2007. Equitymaster is a joint venture between Quantum Information Services Private Limited (QIS) and Agora group.
BUSINESS ACTIVITY:
An independent research initiative, Equitymaster is committed to providing honest and unbiased views, opinions and recommendations on various investment opportunities across asset classes.
DISCIPLINARY HISTORY:
There are no outstanding litigations against the Company, it subsidiaries and its Directors.
GENERAL TERMS AND CONDITIONS FOR RESEARCH REPORT:
For the terms and conditions for research reports click here.
DETAILS OF ASSOCIATES:
  1. Quantum Information Services Private Limited (QIS) having its registered office at 103, Regent Chambers, Nariman Point, Mumbai 400021 is registered under SEBI (Investment Advisers) Regulations, 2013 vide Registration No. INA000000680. QIS provides information on mutual funds and personal financial planning, financial markets in general, and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services through its website www.personalfn.com
  2. Agora Holdings (Cyprus) Limited having its registered office at Akropolis, 59-61, 3rd Floor, Office 301 Strovolos 2012 Nicosia Cyprus belongs to Agro group (Agora) which owns www.agora-inc.com and is one of the largest and most successful consumer newsletter publishers in the world.
  3. Common Sense Living Private Limited (CSL) owns www.commonsenseliving.co.in and is an initiative that provides straightforward lifestyle and wealth-building ideas from wealth coach Mark Ford. CSL is 100% subsidiary Company of Equitymaster.
DISCLOSURE WITH REGARDS TO OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST:
  1. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any financial interest in the subject company.
  2. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.
  3. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any other material conflict of interest at the time of publication of the research report.
DISCLOSURE WITH REGARDS TO RECEIPT OF COMPENSATION:
  1. Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past twelve months.
  2. Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.
  3. Neither Equitymaster nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  4. Neither Equitymaster nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  5. Neither Equitymaster nor it's Associates have received any compensation or other benefits from the subject company or third party in connection with the research report.
GENERAL DISCLOSURES:
  1. The Research Analyst has not served as an officer, director or employee of the subject company.
  2. Equitymaster or the Research Analyst has not been engaged in market making activity for the subject company.
Definitions of Terms Used:
  1. Buy recommendation: This means that the investor could consider buying the concerned stock at current market price keeping in mind the tenure and objective of the recommendation service.
  2. Hold recommendation: This means that the investor could consider holding on to the shares of the company until further update and not buy more of the stock at current market price.
  3. Buy at lower price: This means that the investor should wait for some correction in the market price so that the stock can be bought at more attractive valuations keeping in mind the tenure and the objective of the service.
  4. Sell recommendation: This means that the investor could consider selling the stock at current market price keeping in mind the objective of the recommendation service.
Feedback:
If you have any feedback or query or wish to report a matter, please do not hesitate to write to us.

Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

BHARTI AIRTEL SHARE PRICE


Dec 12, 2017 09:53 AM

TRACK BHARTI AIRTEL

  • 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

BHARTI AIRTEL - MTNL COMPARISON

COMPARE BHARTI AIRTEL WITH

MARKET STATS