RESULTS REVIEW 2QFY18 03 NOV 2017 Bharti Airtel BUY HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters Resilient performance Bharti Airtel’s 2QFY18 revenue at Rs 218bn (-0.8% QoQ, -11.7% YoY) was in line with estimates. EBITDA at Rs 79.2bn (+2.1/-16.1% QoQ/YoY; 36.4% margin) was the key surprise, led by (1) Strong cost control in the India wireless business, and (2) Healthy revenue as well as margin performance in Africa. Stringent cost control helps cushion the impact of IUC rate-cuts from 3QFY18. After the sharp Jio-driven pricing crack, we reckon Bharti’s India wireless EBITDA will bounce back, with industry consolidation and resulting pricing power. Price hikes by Jio can accelerate EBITDA growth. Tata’s/Uninor acquisitions in India (at trivial valuations) bolster its leadership. We foresee FCF turning meaningfully positive by FY19E , as capex eases and operations improve. Still, near-term challenges persist. With a massive Rs 2.3tn investment, Jio can further disrupt Indian telecom till it achieves a critical subscriber base (from its ~11%) and revenue market share (aspiration 50%). Nevertheless, Bharti remains best- positioned to combat the potential onslaught, if any. Our SOTP is Rs 618 (9x Sep-19E EV/e for India wireless, plus Rs 59 for Tata/Uninor). Key highlights India’s wireless financials and key KPIs: Revenues stood at Rs 122.5bn, -5.2% QoQ and -17% YoY, broadly in-line. EBITDA at Rs 42.1bn (-5% QoQ, -33% YoY) was better-than-expected on the back of lower network and SG&A expenses. ARPU stood at Rs 145/month vs. Rs 154/month in 1QFY18. The mobile broadband subscriber base of 55.2mn, +6.3mn QoQ, was positive. Data traffic grew by 66% QoQ and 4.4X YoY to 784bn MBs, still only ~20% of R-Jio’s data volumes. The tight control on costs, given the pressure on revenues and step-up in capex guidance (Rs 200bn to Rs 250bn), is a positive. Africa delivers for fifth straight quarter: Bharti delivered healthy improvement in EBITDA in Africa (+23/37% QoQ/YoY). In constant currency, EBITDA inched up to USD 251mn in 2QFY18 vs. USD 151mn in 1QFY17. 2QFY18 EBITDA was partly supported by a one-off in Kenya. Near-term outlook: The near-term remains challenging, as down-trading of subscribers will impact ARPU, and so will the IUC rate-cut impact. Stake sale in Infratel/Indus is a potential trigger. Consolidated Financial Summary (Rs bn) 2QFY18 2QFY17 YoY (%) 1QFY18 QoQ (%) FY16 FY17 FY18E FY19E FY20E Net Sales 217.8 246.5 -11.7 219.6 -0.8% 851.4 911.5 991.2 1,054.2 1,135.2 EBITDA 79.2 94.4 -16.1 77.6 2.1% 339.8 353.3 306.4 339.5 398.6 APAT 3.4 14.6 -76.5 3.7 -6.6% 60.8 38.0 10.7 18.1 41.8 Diluted EPS (Rs) 15.2 9.5 2.7 4.5 10.5 P/E (x) 35.2 56.3 200.1 118.5 51.1 EV / EBITDA (x) 9.1 9.0 10.6 9.5 7.9 RoIC 4.0 3.8 1.9 3.3 4.9 Source: Company, HDFC sec Inst Research INDUSTRY TELECOM CMP (as on 02 Nov 2017) Rs 543 Target Price Rs 618 Nifty 10,424 Sensex 33,573 KEY STOCK DATA Bloomberg BHARTI IN No. of Shares (mn) 3,997 MCap (Rs bn) / ($ mn) 2,171/33,589 6m avg traded value (Rs mn) 2,241 STOCK PERFORMANCE (%) 52 Week high / low Rs 549/283 3M 6M 12M Absolute (%) 30.6 56.3 75.5 Relative (%) 27.2 44.1 53.5 SHAREHOLDING PATTERN (%) Promoters 67.1 FIs & Local MFs 9.9 FPIs 16.4 Public & Others 6.6 Source : BSE Himanshu Shah [email protected]+91-22-6171-7315
13
Embed
BUY Resilient performance - HDFC securities Airtel - 2QFY18...Bharti Airtel BUY HDFC securities Institutional Research is also available on Bloomberg HSLB & Thomson Reuters
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
RESULTS REVIEW 2QFY18 03 NOV 2017
Bharti Airtel BUY
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
Resilient performanceBharti Airtel’s 2QFY18 revenue at Rs 218bn (-0.8% QoQ, -11.7% YoY) was in line with estimates. EBITDA at Rs 79.2bn (+2.1/-16.1% QoQ/YoY; 36.4% margin) was the key surprise, led by (1) Strong cost control in the India wireless business, and (2) Healthy revenue as well as margin performance in Africa. Stringent cost control helps cushion the impact of IUC rate-cuts from 3QFY18. After the sharp Jio-driven pricing crack, we reckon Bharti’s India wireless EBITDA will bounce back, with industry consolidation and resulting pricing power. Price hikes by Jio can accelerate EBITDA growth. Tata’s/Uninor acquisitions in India (at trivial valuations) bolster its leadership. We foresee FCF turning meaningfully positive by FY19E, as capex eases and operations improve. Still, near-term challenges persist. With a massive Rs 2.3tn investment, Jio can further disrupt Indian telecom till it achieves a critical subscriber base (from its ~11%) and revenue market share (aspiration 50%). Nevertheless, Bharti remains best-positioned to combat the potential onslaught, if any. Our SOTP is Rs 618 (9x Sep-19E EV/e for India wireless, plus Rs 59 for Tata/Uninor).
Key highlights India’s wireless financials and key KPIs: Revenues
stood at Rs 122.5bn, -5.2% QoQ and -17% YoY, broadly in-line. EBITDA at Rs 42.1bn (-5% QoQ, -33% YoY) was better-than-expected on the back of lower network and SG&A expenses.
ARPU stood at Rs 145/month vs. Rs 154/month in 1QFY18. The mobile broadband subscriber base of 55.2mn, +6.3mn QoQ, was positive. Data traffic grew by 66% QoQ and 4.4X YoY to 784bn MBs, still only ~20% of R-Jio’s data volumes. The tight control on costs, given the pressure on revenues and step-up in capex guidance (Rs 200bn to Rs 250bn), is a positive.
Africa delivers for fifth straight quarter: Bharti delivered healthy improvement in EBITDA in Africa (+23/37% QoQ/YoY). In constant currency, EBITDA inched up to USD 251mn in 2QFY18 vs. USD 151mn in 1QFY17. 2QFY18 EBITDA was partly supported by a one-off in Kenya.
Near-term outlook: The near-term remains challenging, as down-trading of subscribers will impact ARPU, and so will the IUC rate-cut impact. Stake sale in Infratel/Indus is a potential trigger.
Net Income 14.6 14.6 5.0 3.7 3.7 3.4 -76.5% -6.6% 29.2 7.1 -75.7% Source: Company, HDFC sec Inst Research
Healthy EBITDA performance in light of stiff competition from Jio This is led by wasteful expenditure and zero-based budgeting on major costs Reduction in tower rental prices remains an opportunity for telcos including Bharti Extraordinary costs is towards a one-time expense on technology upgradation and re-farming QoQ increase in finance costs is owing to incremental Rs 3.8bn forex and derivative loss
Despite 5% QOQ drop in revenues in India wireless business, EBITDA margin is flat owing to steep cost control initiatives Africa delivered a strong revenue and margin performance Other businesses are (1) Some pressure in the home BB business, given the impact of sharp data price decline in wireless, (2) Strong performance in DTH, with a healthy +16% YoY EBITDA growth on the back of strong 10% top-line growth, and (3) Strong EBITDA growth in the India Enterprise segment (+6% QoQ, +17% YoY)
Wireless ARPU declined 6% QoQ in-line with expectations; ARPU trajectory is expected to remain down for another two quarters, as high-ARPU customers’ down-trading continues, before we see the impact of up-trading 7mn QoQ additions in mobile broadband subscribers is a key positive DTH net subscriber additions were modest, impacted by higher churn; we presume this to be on account of Free Dish Uptick is ARPU is positive and could be on account of the GST benefit, with tax at 18% vs. earlier service tax of 15% and entertainment tax of 6-8%
Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period
Date CMP Reco Target 03-Nov-17 543 BUY 618
RECOMMENDATION HISTORY
200
300
400
500
600
700
Nov-
16
Dec-
16
Jan-
17
Feb-
17
Mar
-17
Apr-
17
May
-17
Jun-
17
Jul-1
7
Aug-
17
Sep -
17
Oct
-17
Nov-
17
Bharti Airtel TP
BHARTI AIRTEL : RESULTS REVIEW 2QFY18
Page | 12
Disclosure: I, Himanshu Shah, CA, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. Any holding in stock –No HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475. Disclaimer: This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HSL or its affiliates to any registration or licensing requirement within such jurisdiction. If this report is inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This document may not be reproduced, distributed or published for any purposes without prior written approval of HSL. Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HSL may from time to time solicit from, or perform broking, or other services for, any company mentioned in this mail and/or its attachments. HSL and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. HSL, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. HSL and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report. HSL or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. HSL or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from t date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction in the normal course of business. HSL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither HSL nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. HSL may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research Report. HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 2496 5066 Compliance Officer: Binkle R. Oza Email: [email protected] Phone: (022) 3045 3600 HDFC Securities Limited, SEBI Reg. No.: NSE-INB/F/E 231109431, BSE-INB/F 011109437, AMFI Reg. No. ARN: 13549, PFRDA Reg. No. POP: 04102015, IRDA Corporate Agent License No.: HDF 2806925/HDF C000222657, SEBI Research Analyst Reg. No.: INH000002475, CIN - U67120MH2000PLC152193 Mutual Funds Investments are subject to market risk. Please read the offer and scheme related documents carefully before investing.