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Bharti Airtel: A mixed quarterly performance - Views on News from Equitymaster
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Bharti Airtel: A mixed quarterly performance
May 7, 2015

Bharti Airtel has declared results for the fourth quarter and full year 2014-15. The company has reported a 3.5% YoY increase in total revenues and a 30.5% YoY increase in net profits during the quarter. Here is our analysis of the results.

Performance summary
  • Consolidated sales grew by 3.5% YoY during the fourth quarter of the financial year 2014-2015 (4QFY15). For the full year FY15, revenues were up 7.3% YoY.
  • Mobile subscriber base in India grew by 10% YoY during the quarter. Total count of mobile subscribers in India stood at a little over 226 m at the end of March 2015. Total subscriber base on the network (including South Asia and African operations) grew by 10% YoY during the quarter.
  • Operating margins improved to 35.2% during the quarter. The operating profit grew by 10.8% YoY.
  • The net profit increased by 30.5% YoY. The net margin improved to 5.4% in the quarter compared to 4.3% seen in 4QFY14. For the full year FY15, the bottomline was up by 86.9% YoY.
  • The company has declared a final dividend of Rs 2.22 per share.

Standalone financial snapshot
(Rs m) 4QFY14 4QFY15 Change FY14 FY15 Change
Sales 222,605 230,398 3.5% 858,635 921,351 7.3%
Expenditure 149,419 149,275 -0.1% 580,205 607,468 4.7%
Operating profit (EBITDA) 73,186 81,123 10.8% 278,430 313,883 12.7%
Operating profit margin (%) 32.9% 35.2%   32.4% 34.1%  
Other income - -   - -  
Interest expense/(income) 10,031 19,703 96.4% 49,040 50,133 2.2%
Depreciation 39,444 38,401 -2.6% 156,496 155,311 -0.8%
Share of (loss)/gain in associates 1,673 2,136 27.7% 5,211 7,223 38.6%
Exceptional items (1,569) (1,469)   538 (8,532)  
Profit before tax 23,815 23,686 -0.5% 78,643 107,130 36.2%
Tax 13,562 10,811 -20.3% 48,449 54,047 11.6%
Profit after tax/(loss) 10,253 12,875 25.6% 30,194 53,083 75.8%
Minority interest 637 322 -49.5% 2,467 1,248 -49.4%
Net profit 9,616 12,553 30.5% 27,727 51,835 86.9%
Net profit margin (%) 4.3% 5.4%   3.2% 5.6%  
No. of shares         3,997.4  
Diluted Earnings per share (Rs)*         13.0  
P/E ratio (x)*         30.1  
* On a trailing 12 months basis; adjusted for exceptional items

What has driven performance in 4QFY15?
  • Bharti reported a revenue growth of 3.5% YoY during the quarter. Growth was impacted by the appreciation of the US dollar against major African currencies. Revenues from mobile services (India) increased by a robust 11% YoY largely due to a strong growth in data services. Mobile data revenues now contribute 17.6% of revenues of the company (on a standalone basis). The tele-media services segment continued to record good growth. Revenues were up 10.2% YoY in this segment. Revenues from the B2B services were up 9.2% YoY. The digital TV business (DTH) business continued the strong performance recording a growth of 17.2% YoY. This business is now positive at the EBIT level and has begun to generate free cash. The passive infrastructure service segment witnessed a growth of 3.5% 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 198 per user per month from Rs 196 per user per month seen during 4QFY14. The minutes of usage (MoU) decreased to 418 minutes per subscriber per month in 4QFY15 from 437 in 4QFY14. The voice realization per minute decreased by 3% YoY to 36.22 paisa as against 37.16 paisa in 4QFY14.

  • The robust growth in data usage continued in 4QFY15. The data usage per customer increased by 41% YoY. However, data realisations decreased by 6% YoY. Data ARPU increased by 24.6% YoY. The growth in data ARPU was 32% YoY respectively.

  • The international operations witnessed de-growth of 12.3% YoY. The EBITDA margins for the business too fell slightly to 19.2% in 4QFY15. The African business continues to face challenges.

    Segment-wise performance*
    Mobile Services-India 4QFY14 4QFY15 Change
    Revenue (Rs m) 120,836 134,135 11.0%
    % of total revenues 54.3% 58.2%  
    Minutes billed (m) 264,843 277,869 4.9%
    Voice realization per min (Rs) 0.37 0.36 -2.5%
    Data realization per mb (Rs) 0.29 0.27 -6.3%
    EBITDA margin 34.9% 38.6%  
    EBITDA per minute (Rs) 0.16 0.19 16.9%
    Telemedia Services
    Revenue (Rs m) 10,242 11,288 10.2%
    % of total revenues 4.6% 4.9%  
    Minutes billed (m) 4,122 4,429 7.4%
    Revenue per minute (Rs) 2.48 2.55 2.6%
    EBITDA margin 37.3% 45.8%  
    EBITDA per minute (Rs) 0.93 1.17 26.0%
    B2B (Formerly Enterprise Services)
    Revenue (Rs m) 16,305 17,805 9.2%
    % of total revenues 7.3% 7.7%  
    Minutes billed (m) 32,686 35,466 8.5%
    Revenue per minute (Rs) 0.50 0.50 0.6%
    EBITDA margin 22.5% 17.3%  
    EBITDA per minute (Rs) 0.11 0.09 -22.5%
    Passive Infra. Services
    Revenue (Rs m) 13,060 13,518 3.5%
    % of total revenues 5.9% 5.9%  
    EBITDA margin 48.5% 50.1%  
    DTH (Direct to Home)
    Revenue (Rs m) 5,415 6,348 17.2%
    % of total revenues 2.4% 2.8%  
    EBITDA margin 17.9% 32.7%  
    International operations (Africa & South Asia)
    Revenue (Rs m) 75,111 65,859 -12.3%
    % of total revenues 33.7% 28.6%  
    EBITDA margin 24.2% 19.2%  
    Others (India)
    Revenue (Rs m) 835 715 -14.4%
    % of total revenues 0.4% 0.3%  
    EBITDA (Rs) (444) 317  
    * As per IFRS numbers. Excluding inter-segment eliminations

  • Bharti's operating margins stood at 35.2% during 4QFY15, which was higher than the 32.9% 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
      4QFY14 As % of sales 4QFY15 As % of sales
    Access charges 28,732 12.9% 27,988 12.1%
    Licence fee & spectrum charges 19,831 8.9% 21,735 9.4%
    Network expenses 50,219 22.6% 48,276 21.0%
    Employee costs 11,517 5.2% 11,881 5.2%
    Sales & marketing 22,631 10.2% 23,003 10.0%
    Admin & other 16,552 7.4% 16,392 7.1%
    Total expenses 149,482   149,275  

  • At the net level, a strong operating performance and lower depreciation combined with a lower tax rate; resulted in a 30.5% YoY jump in the bottomline.
What to expect?
At the current price of Rs 390, the stock is trading at a multiple of 30.1 times its trailing twelve months earnings.

Bharti Airtel had a mixed quarter in 4QFY15. Growth in data services remains robust. However, realisations continue to fall. While the company enjoys good numbers in terms of customer additions, newer customers are being added at lower price points. The company recorded its best ever increase in net subscriber additions in 4QFY15 at 8.8 m. However, the voice ARPM fell by 3% YoY and 4% QoQ.

While the India business continues to fire on all cylinders, Africa remains a drag on performance. The appreciation of the US dollar against major African currencies impacted the reported numbers. However, even on a constant currency basis, the performance remains below par. The management continues to remain bullish on Africa despite the challenges.

The company has won 111.6 MHz of spectrum in the recently concluded auctions. The total payout is Rs 291.29 bn. However, the company will need to pay the amount in a staggered manner. Thus, the immediate impact is limited. The company has the largest spectrum footprint with a spectrum market share of 16.1% (20.4% excluding MTNL and BSNL). Post the auctions Bharti Airtel is the only telco which has pan-India 2G, 3G and 4G spectrum. This puts it in the ideal position to take advantage of the boom in data services. The company also purchased additional spectrum in the premium 900 MHz band for data services in 10 circles. However, the company will remain in capex mode for the foreseeable future as the roll-out happens. The final capex (excluding spectrum payouts) for FY15 was Rs 185 bn. The FY16 capex will be US$ 3 bn.

The management has stated that costs are rising for the industry and it is inevitable that pricing will have to rise. However, no telco has raised tariffs recently and it will be a challenge to do so in a competitive environment.

The performance of the company has been satisfactory in our opinion. We maintain our Buy view on the stock.

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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