According to Bhavesh Gandhi of IIFL the margins were below their estimates despite Q2 and Q3 being a seasonally strong quarter.
Bhavesh Gandhi of IIFL and Naveen Kulkarni PhillipCapital in an interview to CNBC-TV18 spoke about the lower than expected third quarter numbers by Bharti Airtel.
According to Gandhi, the margins were only slightly below their estimate of 34 percent. The margins for the quarter came in at 33.5 percent but the PAT numbers looked in line with their estimate, adds Gandhi. However, the African business also has performed below their estimate, says Gandhi.
The company surpassed street expectations on the bottomline front on Wednesday but its Q3 topline and operating performance was slightly below estimates. However, Africa has still been struggling; missing estimates on all counts as revenue declined 1 percent quarter-on-quarter to Rs 6,827.6 crore and operating profit slipped 175 basis points to 21.9 percent (could be the lowest since Bharti acquired Africa business).
Kulkarni too is disappointed with the numbers and says the wireless voice business for Bharti has not been as great as it was for Idea Cellular and with the African business also posting weak numbers, the house would tweak their estimates for Bharti both on the India business and Africa business front. He expects the stock to correct tomorrow. However, he would also look forward for the management guidance.
"Bharti would have lost voice market share to Idea and smaller players because the smaller players are quite competitive in this quarter," adds Kulkarni.
Below is the transcript of Bhavesh Gandhi ande Naveen Kulkarni’s interview with CNBC-TV18's Reema Tendulkar and Kritika Saxena.
Reema: Your initial reaction to Bharti’s numbers?
Gandhi: Our profit estimates were in the range of about Rs 1,450 crore odd and on the face of it the Profit after Tax (PAT) numbers do look in line with our estimates though we want to look into detail of what is any exceptional or any Forex gain or loss as the case maybe before further comments.
Reema: Margins have come in at about 33 and a half percent as is flashing on the screen. Would that also largely be in line with your expectations?
Gandhi: Margins are at 33.5 percent, a bit below our estimate of 34 percent for the quarter. With e Q3 and Q4 being seasonally very strong quarters we expected some sort of margin push on a sequential basis but then yes, at 33.5 percent and given the profit after tax (PAT) numbers, both of them more or less look in line.
Kritika: Quickly if you could just take us through the margin levers. What really would have contracted the margins this time?
Gandhi: Probably some of the SG&A cost would have put some kind of a control but it will be very difficult to gauge on the face what is the reason and then anyways as I said margins are about 50 basis points away from our expectations. So that may not turn out to a big disappointment.
Reema: I have with me the Africa performance and that again is looking extremely bleak. So the company has delivered revenue de-growth of one percent in terms of the top line and margins have contracted from 23.6 percent to 21.9 percent. Now that is looking extremely disappointing, it is a decline of 1.75 percent in the Africa margin. So anyway the expectations were quite modest for Africa but the company continues to struggle and this would perhaps be a new low for the margins on Africa. How would you read it?
Gandhi: The numbers from what you have said are clearly disappointing and below estimates. We had expected a sequential US dollar revenue growth for the African business and on USD margins which were already at a lower level in Q2 have dipped even further on the face of it. So, clearly both margins and the topline which has emerged as an equally bigger worry leaves a lot of disappointment.
Q: What is your view on the numbers?
Kulkarni: The numbers are not good primarily in their operating performance on the wireless minutes is lower than expectation. What is also happened in this quarter is the realisation for Bharti Airtel is stable whereas for Idea realisation per minute was down. So Bharti would have lost voice market share to Idea and smaller players because the smaller players are quite competitive in this quarter so that would have impacted the overall scenario. Data revenues are still good so that is encouraging.
Africa in any case, this quarter was going to be a weaker quarter because of the devaluation of Naira. Apart from that the environment was also not very strong because lots of African countries are exposed to crude, the economic environment in many of the countries is little challenging at the current stage.
Africa numbers we are not expecting it them to be strong but we were expecting around USD 260 million its come out to USD 240 million so that is also not very encouraging at this moment.
Kritika: Where do the numbers stand stacked against Idea Cellular?
Kulkarni: From an India business perspective Idea delivered very healthy voice minutes of around 5.1 percent voice growth in total. There was a 2 percent decline in realisation, still there was a 3 percent improvement whereas Bharti Airtel has delivered around 1.5 percent. So, I would say that total voice business has not been that great for Bharti whereas Idea it was better I would say.
Reema: What do you expect the stock to do tomorrow?
Kulkarni: I think the stock might correct a little bit tomorrow.
Reema: Would you look to tweak your estimates on Bharti on a consolidated basis?
Kulkarni: Yes likely because our India business estimates especially in the wireless voice business, we could tweak them little downwards.
Reema: You won’t tweak it on the back of Africa because that is where the big miss appears to be?
Kulkarni: Africa would be another aspect where we would be looking at tweaking the numbers. There is another big event happening with Nigeria elections; after that there could be another round of devaluation of currency. So, we will wait for the managements guidance on these aspects, how they are looking at Africa.
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