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Bharti Airtel: Data revenues drive growth

Feb 5, 2015 | Updated on Oct 30, 2019

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.

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