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Bharti Airtel: Ends the year on a high - Views on News from Equitymaster

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Bharti Airtel: Ends the year on a high

Apr 29, 2014 | Updated on May 2, 2014

Bharti Airtel has declared results for the full year and fourth quarter for the financial year 2013-14. The company has reported a 13.5% YoY increase in total revenues and an 89.1% YoY increase in net profits during the quarter. Here is our analysis of the results.

Performance summary
  • Consolidated sales grew by 13.5% YoY during the fourth quarter of the financial year 2013-2014 (4QFY14). For the full year FY14, revenues were up by 11.5% YoY.
  • Mobile subscriber base in India grew by 9.2% YoY during the quarter. Total count of subscribers stood at around 205.5 m at the end of March 2014. Total subscriber base on the network (including South Asia and African operations) grew by 9.15% YoY during the quarter.
  • Operating margins improved by 1.8% YoY to 32.7% during the quarter. For the full year FY14, operating margins increased to 32.3% from 30.2%.
  • The net profit increased by 89.1% YoY. For FY14, net profits were up by 21.8% YoY.
Consolidated financial performance snapshot (IFRS)
(Rs m) 4QFY13 4QFY14 Change FY13 FY14 Change
Sales 195,821 222,193 13.5% 769,045 857,461 11.5%
Expenditure 135,319 149,539 10.5% 536,891 580,865 8.2%
Operating profit (EBITDA) 60,502 72,654 20.1% 232,154 276,596 19.1%
Operating profit margin (%) 30.9% 32.7%   30.2% 32.3%  
Other income 103 412 300.0% 425 1,174 176.2%
Interest expense/(income) 11,158 9,911 -11.2% 40,084 48,380 20.7%
Depreciation 38,004 39,444 3.8% 148,148 156,496 5.6%
Share of (loss)/gain in associates 875 1,673 91.2% 3,506 5,211 48.6%
Exceptional items - (1,569)   - 538  
Profit before tax 12,318 23,815 93.3% 47,853 78,643 64.3%
Tax 7,255 13,562 86.9% 25,184 48,449 92.4%
Profit after tax/(loss) 5,063 10,253 102.5% 22,669 30,194 33.2%
Minority interest 23 (637)   88 (2,467)  
Net profit 5,086 9,616 89.1% 22,757 27,727 21.8%
Net profit margin (%) 2.6% 4.3%   3.0% 3.2%  
No. of shares         3,997.4  
Diluted Earnings per share (Rs)*         6.9  
P/E ratio (x)*         48.0  
* On a trailing 12 months basis; adjusted for exceptional items

What has driven performance in 4QFY14?
  • Bharti reported a revenue growth of 13.5% YoY during the quarter. This was achieved by growth in the revenues from most of its segments. Revenues from mobile services, increased by 9.7% YoY. The tele-media services segment recorded a good growth of 12.2% YoY. Revenues from the B2B services and digital TV business (DTH) witnessed a robust growth of 24% YoY and 22.5% YoY respectively. The passive infrastructure service segment however witnessed a fall in revenues of 0.8% YoY during the quarter. However this should be viewed in light of the lower IRU revenues this quarter following the merger of Bharti Infratel Ventures Ltd (BIVL) with Indus Towers that had taken place in 1QFY14.

  • Coming to the key parameters relating to the company's mobile service business in India, the average revenue per user (ARPU) increased to Rs 196 per user per month. The same figure stood at Rs 193 during 4QFY13 and at Rs 195 during 3QFY14. The minutes of usage (MoU) increased sequentially to 437 minutes per subscriber per month in 4QFY14 from 434 in 3QFY14. The same figure for the corresponding quarter last year stood at 455. During 4QFY14, the voice realization per minute increased by 5.6% YoY to 37.13 paisa as against 35.17 paisa in 4QFY13. On a sequential basis it was marginally lower.

  • The robust growth continued on the data front in 4QFY14. The data ARPU and usage increased by 43.6% YoY and 48.1% YoY respectively. On a sequential basis, the growth in ARPU and usage was 5.3% QoQ and 11.2% QoQ respectively.

  • The tele-media services segment reported a 12.2% YoY increase in revenues during the quarter. However, the EBITDA increased by just 0.9% YoY in this segment.

  • The international operations witnessed a growth of 17.2% YoY. The EBITDA margins for the business improved slightly to 24.2% from 24% in 4QFY13.

  • Voice ARPU for the African business declined by 10.2% YoY to US$ 4.4. On a sequential basis, ARPU was fell 6.4%. The voice usage per customer too was up 10.6 % YoY but down 3.5% QoQ. Data ARPU increased by 16.7% YoY while usage too went up by 31.3% YoY. The management has once again stated that they expect voice and data growth to continue in Africa even at stable tariffs.

    Segment-wise performance
    Mobile Services-India 4QFY13 4QFY14 Change
    Revenue (Rs m) 110,173 120,835 9.7%
    % of total revenues 56.3% 54.4%  
    Minutes billed (m) 253,144 264,843 4.6%
    Voice realization per min (Rs) 0.35 0.37 5.9%
    Data realization per mb (Rs) 0.29 0.28 -3.0%
    EBITDA margin 30.6% 34.9%  
    EBITDA per minute (Rs) 0.13 0.16 19.6%
    Telemedia Services
    Revenue (Rs m) 9,130 10,242 12.2%
    % of total revenues 4.7% 4.6%  
    Minutes billed (m) 3,988 4,122 3.4%
    Revenue per minute (Rs) 2.29 2.48 8.5%
    EBITDA margin 41.4% 37.3%  
    EBITDA per minute (Rs) 0.95 0.93 -2.4%
    B2B (Formerly Enterprise Services)
    Revenue (Rs m) 13,144 16,305 24.0%
    % of total revenues 6.7% 7.3%  
    Minutes billed (m) 28,327 32,686 15.4%
    Revenue per minute (Rs) 0.46 0.50 7.5%
    EBITDA margin 21.9% 22.5%  
    EBITDA per minute (Rs) 0.10 0.11 10.2%
    Passive Infra. Services
    Revenue (Rs m) 13,160 13,060 -0.8%
    % of total revenues 6.7% 5.9%  
    EBITDA margin 46.8% 48.5%  
    DTH (Direct to Home)
    Revenue (Rs m) 4,419 5,415 22.5%
    % of total revenues 2.3% 2.4%  
    EBITDA margin 6.7% 17.8%  
    International operations (Africa & South Asia)
    Revenue (Rs m) 64,099 75,111 17.2%
    % of total revenues 32.7% 33.8%  
    EBITDA margin 24.0% 24.2%  
    Others (India )      
    Revenue (Rs m) 761 835 9.7%
    % of total revenues 0.4% 0.4%  
    EBITDA (Rs) (511) (532)  

  • Bharti's operating margins stood at 32.7% during 4QFY14, which was higher than the 30.9% seen during the same period last year. This was largely on account of the savings in access charges and network expenses as percentage of sales.

    Cost Breakdown
      4QFY13 As % of sales 4QFY14 As % of sales
    Access charges 18,338 9.4% 18,366 8.3%
    Licence fee & Spectrum charges 13,828 7.1% 15,896 7.2%
    Network operation 34,002 17.4% 36,429 16.4%
    Employee 5,268 2.7% 5,280 2.4%
    SG&A 16,593 8.5% 18,920 8.5%
    Total exp. 88,029   94,891  

  • Net profits (after minority interest) increased by 89.1% YoY during the quarter. The positive movement in the operating margins was aided by an 11.2% YoY fall in interest costs during the quarter.
What to expect?
At the current price of Rs 327.65, the stock is trading at a multiple of 47.2 times its trailing twelve months earnings.

Bharti Airtel has ended the year on a high. The fundamentals of the stock are certainly better than the same a year ago. Realized rates have increased due to the significant reduction in promotional offers and freebies. This process is now almost complete. The next logical step for the company should be to increase the headline tariffs. The management has hinted about this but would not give any definite indication about the same.

The management seemed to be satisfied with the recent improvement in the regulatory structure in the country but stated that a lot more clarity was still needed.

Regarding the 4G rollout the management has stated that they would wait till Reliance Jio Infocomm unveiled its strategy in the coming months. Till then they would maintain their focus on 3G which is growing at a rapid pace.

The company has still to receive the spectrum that it won in the recently concluded auctions. Therefore the debt on the balance sheet will increase as and when the full payment is made.

The African operations disappointed in the last quarter due to seasonal factors as well as regulatory issues in Nigeria, Gabon and the Democratic Republic of Congo. However the management was hopeful of a quick resolution of the same in the months ahead.

Bharti Airtel has several factors in its favor: improving fundamentals, clearer regulatory structure as well as the possibility of consolidation in the sector. We had recommended investors to 'Buy' the stock in November 2013. We maintain the same view. However we reiterate that investors need to understand that the risk profile of the company is unusually higher than in the case of most blue chip stocks due to the high regulatory and operational risk.

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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