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Bharti Airtel: Data revenues drive gains
Jul 30, 2014 | Updated on Aug 1, 2014

Bharti Airtel has declared results for the first quarter of the financial year 2014-15. The company has reported a 13.3% YoY increase in total revenues and a 60.9% YoY increase in net profits during the quarter. Here is our analysis of the results.

Performance summary
  • Consolidated sales grew by 13.3% YoY during the first quarter of the financial year 2014-2015 (1QFY15) on the back of robust growth in data services.
  • Mobile subscriber base in India grew by 9.6% YoY during the quarter. Total count of subscribers stood at around 222.1 m at the end of June 2014. Total subscriber base on the network (including South Asia and African operations) grew by 9.1% YoY during the quarter.
  • Operating margins improved by 1.4% YoY to 33.6% during the quarter. The operating profit grew by 18% YoY.
  • The net profit increased by 60.9% YoY. The net margin improved to 4.8% in the quarter compared to 3.4% seen in 1QFY14.

Consolidated financial performance snapshot
(Rs m) 1QFY14 1QFY15 Change
Sales 202,995 230,055 13.3%
Expenditure 137,546 152,855 11.1%
Operating profit (EBITDA) 65,449 77,200 18.0%
Operating profit margin (%) 32.2% 33.6%  
Other income - -  
Interest expense/(income) 11,676 9,565 -18.1%
Depreciation 38,470 40,365 4.9%
Share of (loss)/gain in associates 822 1,578 92.0%
Exceptional items 2,252 (1,820)  
Profit before tax 18,377 27,028 47.1%
Tax 9,684 15,326 58.3%
Profit after tax/(loss) 8,693 11,702 34.6%
Minority interest 1,804 617 -65.8%
Net profit 6,889 11,085 60.9%
Net profit margin (%) 3.4% 4.8%  
No. of shares   3,997.4  
Diluted Earnings per share (Rs)*   8.0  
P/E ratio (x)*   46.7  
* On a trailing 12 months basis; adjusted for exceptional items

What has driven performance in 1QFY15?
  • Bharti reported a revenue growth of 13.3% YoY during the quarter. This was achieved by growth in the revenues from most of its segments. Revenues from mobile services, increased by 9.9% YoY. The tele-media services segment recorded a good growth of 12.9% YoY. Revenues from the B2B services and digital TV business (DTH) witnessed a robust growth of 14.8% YoY and 20.7% YoY respectively. The passive infrastructure service segment however witnessed a muted growth in revenues of 3.9% 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 202 per user per month. The same figure stood at Rs 200 during 1QFY15 and at Rs 196 during 4QFY14. The minutes of usage (MoU) decreased sequentially to 435 minutes per subscriber per month in 1QFY15 from 437 in 4QFY14. The same figure for the corresponding quarter last year stood at 455. During 4QFY14, the voice realization per minute increased by 4% YoY to 37.08 paisa as against 36.60 paisa in 1QFY14. On a sequential basis too, it was up by 2.5%.

  • The good growth continued on the data front in 1QFY15. The data ARPU and usage increased by 8.4% YoY and 26.2% YoY respectively. On a sequential basis, the growth in ARPU and usage was 5.4% QoQ and 6.5% QoQ respectively.

  • The tele-media services segment reported a 12.9% YoY increase in revenues during the quarter. However, the EBITDA increased by 4.9% YoY in this segment.

  • The international operations witnessed a growth of 17.5% YoY. However, the EBITDA margins for the business fell slightly to 23.8% from 26.1% in 1QFY14.

  • Voice ARPU for the African business declined by 2.8% YoY to US$ 4.4. On a sequential basis, ARPU was stable. The voice usage per customer was up 1.6% YoY and up by 0.2% QoQ. Data ARPU increased by 16.8% YoY while usage too went up by 36.7% YoY.

    Segment-wise performance
    Mobile Services-India 1QFY14 1QFY15 Change
    Revenue (Rs m) 116,013 127,525 9.9%
    % of total revenues 57.2% 55.4%  
    Minutes billed (m) 258,380 270,827 4.8%
    Voice realization per min (Rs) 0.37 0.38 4.0%
    Data realization per mb (Rs) 0.33 0.28 -14.1%
    EBITDA margin 32.4% 36.9%  
    EBITDA per minute (Rs) 0.32 0.37 13.8%
    Telemedia Services
    Revenue (Rs m) 9,484 10,705 12.9%
    % of total revenues 4.7% 4.7%  
    Minutes billed (m) 4,137 4,172 0.8%
    Revenue per minute (Rs) 2.29 2.57 11.9%
    EBITDA margin 39.7% 36.9%  
    EBITDA per minute (Rs) 0.91 0.95 4.0%
    B2B (Formerly Enterprise Services)
    Revenue (Rs m) 14,036 16,111 14.8%
    % of total revenues 6.9% 7.0%  
    Minutes billed (m) 26,675 31,777 19.1%
    Revenue per minute (Rs) 0.53 0.51 -3.6%
    EBITDA margin 19.7% 20.0%  
    EBITDA per minute (Rs) 0.10 0.10 -2.2%
    Passive Infra. Services
    Revenue (Rs m) 12,832 13,328 3.9%
    % of total revenues 6.3% 5.8%  
    EBITDA margin 44.8% 45.6%  
    DTH (Direct to Home)
    Revenue (Rs m) 4,900 5,915 20.7%
    % of total revenues 2.4% 2.6%  
    EBITDA margin 15.5% 24.3%  
    International operations (Africa & South Asia)
    Revenue (Rs m) 60,202 70,713 17.5%
    % of total revenues 29.7% 30.7%  
    EBITDA margin 26.1% 23.8%  
    Others (India)
    Revenue (Rs m) 791 779 -1.5%
    % of total revenues 0.4% 0.3%  
    EBITDA (Rs) (321) (426)  
    * As per IFRS numbers. Excluding inter-segment eliminations

  • Bharti's operating margins stood at 33.6% during 1QFY15, which was higher than the 32.2% 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
    Cost Breakdown 1QFY14 As % of sales 1QFY15 As % of sales
    Access charges 19,141 13.6% 18,766 11.9%
    Licence fee & Spectrum charges 14,816 10.5% 17,689 11.2%
    Network operation 34,199 24.2% 36,390 23.1%
    Employee costs  5,588 4.0%  5,482 3.5%
    Cost of goods sold 314 0.2% 267 0.2%
    SG&A 18,053 12.8% 19,798 12.5%
    Total expenses 92,111   98,392  
    * FIs = financial institutions

  • Net profits (after minority interest) increased by 60.9% YoY during the quarter. The positive movement in the operating margins was aided by an 18.1% YoY fall in interest costs during the quarter.
What to expect?
At the current price of Rs 372.6, the stock is trading at a multiple of 46.7 times its trailing twelve months earnings.

The company has gotten off to a good start to the financial year. Voice ARPU continues to improve while minutes of usage remain stable. This is a result of the winding down of promotional offers made by the company last year.

On the data front, the growth in data usage per customer as well as the growth in the number of data customers continues to remain robust. While the realizations from data services will continue to trend down, this is a natural process as the customer base continues to expand.

The company sold off about 3,100 towers in Africa during the quarter. The proceeds will be used to lower debt on the balance sheet. The company’s debt to EBITDA ratio currently stands at 2.35 times. The management reiterated its intension to lower it to 2 times. At the same time the company has significantly refinanced its existing debt by issuing long term corporate bonds in the international debt markets. This has already had an impact as can be seen by the lower interest costs in the quarter.

It is important to note that the company is cash flow positive in both India and Africa at the operating level. The concerns remain largely on the regulatory front.

Regarding the acquisition of Loop Mobile, the management stated that the regulatory process was still not complete and that further details would be available only after the deal was finalised.

We are currently in the process of updating our estimates for the company from a FY17 perspective. 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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