Hold Bharti Airtel; target of Rs 306: Emkay

“Bharti Airtel, Indian wireless revenue grew 1.1% qoq (our est. 3.2%), led by 3.5% growth in subscribers and 0.4% growth in MoU. India & SA wireless revenue grew 1.7% QoQ to Rs106.8bn (our est. of 3.3%). Total India & SA revenue grew 2.2% to Rs137.2bn. Wireless EBITDA declined 9.4% qoq to Rs32.4bn with 371bps qoq decline in margin. India & SA EBITDA stood at Rs43.6bn down 8% QoQ, EBITDA margin at 31.8% declined 306bps QoQ. PAT of Rs14.3bn grew 3% QoQ, aided by forex gain.”

“ARPM fell 2.5% qoq and ARPU stood at Rs185 (-2.1% qoq) due to: 1) 2% increase in service tax, 2) Trai’s reco combo packs and 3) prevailing pricing pressure in the industry. MoU was at 433 (+0.4% qoq). VAS share was at 16.3% v/s 16.2 in Q4FY12. 3G subscribers stood at 3.7mn as compared to 2.7mn in Q4FY12. Revenue declined 0.5% to $106.8mn impacted by currency and economic headwinds in Africa. However, rupee depreciation led to revenue growth of 6.9% to Rs57.6bn in rupee terms. Cost escalation due to network expansion and higher SG&A led to EBITDA decline of 8% in constant currency with margin at 25.9% (decline of 190bps qoq). Subscriber growth at 5.1% qoq remained strong. But MoU declined 1.6% qoq to 120 and ARPU declined 5% qoq to $6.5. ARPM stood at $c5.4 v/s $c5.6 in Q4FY12.”

“Weak Q1FY13 performance and muted outlook on margins in near term is leading to downgrade in our estimates. Revenue downgraded by 2%/1.9% for FY13E/14E. However, due to significant cost pressure EBITDA has been revised downward by 9.8%/8.7% for FY13E/14E. Revised earnings for FY13E / FY14E stand at Rs10.5/ Rs15.7. At CMP of Rs274, stock trades at 6.5x /5.3x EV/EBITDA for FY13E/14E,” says Emkay Global Financial Services research report.

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