Bharti's nos disappoint; bearish on Indian telcos: Nomura

Sachin Gupta, Asian Telecoms Research at Nomura said Bharti's performance is definitely lower than expectations. He also does not expect a significant improvement in the company's domestic business soon. Overall, he is bearish on Indian telecom companies, added Gupta.

Here is the edited transcript of the interview on CNBC-TV18.

Q: The stock is down 2%. Is the poor reaction for the market justified in the light of the numbers?

A: I think the numbers do look quite weak on the revenue line, EBITDA line and at the PAT line as well because I don't think anyone was expecting fantastic results anyway. But, this is weaker than what Vodafone or Idea had reported.

Just to give you some numbers, given that the results have only just come out, they had 3% revenue growth sequentially but the EBITDA is actually down 6%. So it looks like to get customers these guys have spent a fair bit on cost as well. Hence, margins have taken a hit.

I guess the other two disappointing elements is the African business where we have seen flat EBITDA and that is where a lot of people were expecting earnings growth to continue. So margins have actually gone down.

Same for the Indian wireless business as well. They have seen revenue growth broadly in line with what Idea and Vodofone did at 2%, but EBITDA is down 4%. That looks to be the key reasons for disappointment.

Q: Do you expect margins to pick up anytime soon or do you think both from India and Africa business given the issues which the management is highlighting about the regulatory and the tax issues, margins may continue to remain subdued?

A: Margins should improve. Firstly, in Africa it is still running pretty low at 26-27% margins. The aspiration or anticipation is that this should get up to 30% or higher and that should be starting to kick in now. That is a bit of a question mark and the conference calls in the next few hours should be able to give more clarity.

In domestic business, I don’t think there is going to be significant improvement in the near-term. The data economics still hasn't really kicked in and the economics is generally lower than what we have seen on voice. There will be pressure but, not to the extent we have seen this quarter.

Q: What is the call on the stock after looking at these numbers?

A: We have been relatively bearish on the Indian telecos, be that from operational standpoint or from the regulations. I don’t think these results are going to win too many friends in the near-term

Q: Do you see more downside from this level of Rs 286 despite the fact having underperformed such a lot?

A: There could be marginal downside. I don't think too many people will be changing their numbers just on the back of one weak result. It is quite a big company and I am sure Bharti will realise this is a weak quarter. These guys will need to turn the business around.

It will be pretty naïve to try and extrapolate one weak quarter in to perpetuity. The numbers may not change much and the interest level in Indian telecos has been relatively low anyway. You won't imagine further downside but, there will be some reaction to this result.