Thursday, January 28, 2010


3QFY10 results above estimates: Bharti's 3QFY10 earnings (Rs22.1b; up 2.3% YoY, down 4.8% QoQ) were ahead of our estimates driven by relatively lower margin decline in the mobility segment (down only 160bp QoQ despite sharp tariff cut) and Rs1.5b forex gain. While revenue (Rs97.7b; down 0.7% QoQ) was broadly in-line, EBITDA (Rs39.1b, down 5.6% QoQ) was above expectations. Mobile EBITDA declined 6.5% QoQ to Rs24.2b. Telemedia
(EBITDA up 7.6% QoQ) and passive infrastructure (EBITDA up 6.2% QoQ) posted strong numbers while enterprise business was soft with 9% QoQ EBITDA decline.

Wireless metrics mixed: Mobile APRU declined 8.7% QoQ (MOU down 0.9% QoQ to 446, RPM down 7.9% QoQ to Rs0.52) to Rs230 (in-line). Mobile traffic grew 6.6% QoQ (vs 2% growth in 2QFY10 and 6-8% growth in preceding three quarters) due to elasticity, lower MOU arbitrage post tariff cuts, and likely seasonal strength. RPM declined 7.9% QoQ to Rs0.52 and was 2.3% above estimate.

Upgrading earnings by 5-7%; maintain Buy: While 3QFY10 traffic growth (+6.6% QoQ) was below expectations, growth is likely to sustain driven by full migration of subscribers to new tariff schemes. We upgrade FY11/FY12 revenue estimates by 2-4% to reflect better RPM, EBITDA by 2-4% (4% growth in FY11, 18% growth in FY12 as competitive intensity recedes) on relatively stable margin performance, and earnings by 5-7%. Bharti trades at EV/
EBITDA of 7.4x FY11E and 6.2x FY12E; and P/E of 13.7x FY11E and 12.5x FY12E. While sector revenues and margins are likely to remain under pressure over the next 2-3 quarters due to hypercompetition, Bharti remains best placed given low capex intensity, unlevered balance sheet, and scale advantage. We maintain Buy with a revised DCF based price target of Rs414 (implied EV/EBITDA of 8x FY12E).

To read the full report: BHARTI AIRTEL