RESULTS REVIEW 1QFY19 29 JUL 2018 Bharti Airtel BUY HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters Revival on the cards? Bharti Airtel’s 1QFY19 revenue at Rs 200.8bn (+2.3 QoQ) and EBITDA at 67.3bn (-2.9% QoQ) was marginally higher than estimates led by both India wireless and Africa. Modest revenue decline in India wireless business (+1.2% QoQ, ~-1% adjusted for Telenor) despite 9% ARPU decline to Rs. 105 and healthy margin in Africa were the key highlights. Management indicated that the prices should start lifting upwards in six months. Though it is a function of competitive dynamics, the equal structural split amongst the three large players has started to emerge. With complete exit of weaker players and thus lack of their subscribers for grab, merger of Voda-Idea and their likely comeback to regain the lost grounds on 4G and with towering cash burn for all the operators, we believe improvement in pricing is a high probability event. This will be positive for all the players. Even if competitive intensity remains high, Bharti with its manageable debt and assets monetization, healthy spectrum footprint and head-start in 4G is well poised. Reiterate BUY. Our SOTP is Rs 455, 9x FY20E EV/E for India wireless. Key highlights India wireless business: India wireless EOP subscribers stood at 345mn, +41mn QoQ (incl. Telenor 28mn). ARPU declined from Rs. 115 to Rs. 105. Data volumes grew by 355% YoY/39% QoQ to 2.15bn GBs. EOP data subs were at 95mn (27.5% of total), +8.7 mn QoQ. Competitive intensity though remain high, worst of the pain in terms of subscriber downgrades is behind. We expect the ARPU to decline further marginally, however revenue erosion to stem a key positive. Costs pressure to keep EBITDA growth under check. Capex during 1QFY19 was at Rs. 82bn due to front loading. But management has maintained guidance of ~Rs. 270bn. 4G FDD coverage is broadly through. Incremental capex to be on TDD (VoLTE), fiber and transmission. Africa, healthy margin performance: Led by management change, enhanced distribution, focus on network and cost rationalization- Bharti has delivered healthy improvement in Africa EBITDA over FY17-18. Africa revenue and EBITDA increased by 6.3/7.6%. Though the quarter was slow, the constant currency growth was upbeat. Near-term outlook: The near-term remains challenging as hyper competition persists. Consolidated Financial Summary (Rs bn) 1QFY19 1QFY18 YoY (%) 4QFY18 QoQ (%) FY17 FY18 FY19E FY20E FY21E Net Sales 200.8 219.6 (8.6) 196.3 2.3 954.7 836.9 827.7 920.0 980.4 EBITDA 67.3 77.6 (13.3) 69.3 (2.9) 353.3 300.8 276.0 335.5 385.9 APAT 1.0 3.7 (73.5) 0.8 17.4 38.0 11.0 (12.2) 8.4 28.8 Diluted EPS (Rs) 9.5 4.7 (3.1) 2.1 7.2 P/E (x) 38.0 76.7 NA NA 50.3 EV / EBITDA (x) 7.1 8.1 9.2 7.6 6.5 RoE (%) 5.7 1.6 (1.8) 1.3 4.4 Source: Company, HDFC sec Inst Research INDUSTRY TELECOM CMP (as on 27 Jul 2018) Rs 365 Target Price Rs 455 Nifty 11,278 Sensex 37,337 KEY STOCK DATA Bloomberg BHARTI IN No. of Shares (mn) 3,997 MCap (Rs bn) / ($ mn) 1,458/21,216 6m avg traded value (Rs mn) 2,641 STOCK PERFORMANCE (%) 52 Week high / low Rs 565/331 3M 6M 12M Absolute (%) (10.8) (19.4) (12.3) Relative (%) (17.5) (23.0) (27.6) SHAREHOLDING PATTERN (%) Promoters 67.1 FIs & Local MFs 12.4 FPIs 18.5 Public & Others 2.0 Source : BSE Himanshu Shah [email protected]+91-22-6171-7315
13
Embed
BUY Revival on the cards? - Moneycontrol.comstatic-news.moneycontrol.com/static-mcnews/2018/08/... · 2018-08-01 · Africa, healthy margin performance: Led by management change,
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 1QFY19 29 JUL 2018
Bharti Airtel BUY
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
Revival on the cards? Bharti Airtel’s 1QFY19 revenue at Rs 200.8bn (+2.3 QoQ) and EBITDA at 67.3bn (-2.9% QoQ) was marginally higher than estimates led by both India wireless and Africa. Modest revenue decline in India wireless business (+1.2% QoQ, ~-1% adjusted for Telenor) despite 9% ARPU decline to Rs. 105 and healthy margin in Africa were the key highlights.
Management indicated that the prices should start lifting upwards in six months. Though it is a function of competitive dynamics, the equal structural split amongst the three large players has started to emerge. With complete exit of weaker players and thus lack of their subscribers for grab, merger of Voda-Idea and their likely comeback to regain the lost grounds on 4G and with towering cash burn for all the operators, we believe improvement in pricing is a high probability event. This will be positive for all the players.
Even if competitive intensity remains high, Bharti with its manageable debt and assets monetization, healthy spectrum footprint and head-start in 4G is well poised. Reiterate BUY. Our SOTP is Rs 455, 9x FY20E EV/E for India wireless.
Key highlights India wireless business: India wireless EOP subscribers
stood at 345mn, +41mn QoQ (incl. Telenor 28mn). ARPU declined from Rs. 115 to Rs. 105. Data volumes grew by 355% YoY/39% QoQ to 2.15bn GBs. EOP data subs were at 95mn (27.5% of total), +8.7 mn QoQ.
Competitive intensity though remain high, worst of the pain in terms of subscriber downgrades is behind. We expect the ARPU to decline further marginally, however revenue erosion to stem a key positive. Costs pressure to keep EBITDA growth under check.
Capex during 1QFY19 was at Rs. 82bn due to front loading. But management has maintained guidance of ~Rs. 270bn. 4G FDD coverage is broadly through. Incremental capex to be on TDD (VoLTE), fiber and transmission.
Africa, healthy margin performance: Led by management change, enhanced distribution, focus on network and cost rationalization- Bharti has delivered healthy improvement in Africa EBITDA over FY17-18. Africa revenue and EBITDA increased by 6.3/7.6%. Though the quarter was slow, the constant currency growth was upbeat.
Near-term outlook: The near-term remains challenging as hyper competition persists.
YoY and QoQ numbers are not comparable owing to acquisition of Telenor YoY revenue and access costs are not comparable owing to 57% cut in termination rate from 14p/min to 6p/min Despite intense competition, Bharti has held on well to its revenue Increase in access costs QoQ owing to 15% increase in minutes Increase in costs owing to consolidation of Telenor operations
Bharti see revenue decline bottoming led by new subscriber growth and decline in rate of subscriber downgrades India business has been the key laggard in FY18 while Africa delivered a strong EBITDA performance
Bharti Airtel 1,458 365 455 BUY 8.1 9.2 7.6 76.7 NA 173.0 1.6 NA 1.3 Idea Cellular 248 57 70 BUY 13.0 27.7 13.5 NA NA NA NA NA NA Bharti Infratel 531 287 306 NEU 7.8 8.3 7.7 20.9 20.9 18.8 15.7 15.2 17.2 Source: Company, HDFC sec Inst Research
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
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.