Bharti nos inline with expectation, bullish on co: Experts

Karan Mittal of ICICI Direct is especially pleased with the telecom giant's average revenue per minute (ARPM) expansion, which has been pretty decent at about 1.1 percent for voice.

Below is the verbatim transcript of Abhishek Anand, Bhavesh Gandhi, Ankur Rudra & Karan Mittal's interview with Sonia Shenoy, Latha Venkatesh & Anuj Singhal on CNBC-TV18.

Sonia: What would your reaction be?

Anand: Operationally the company has delivered tad better numbers than what we were expecting. So even on the margin side, we were expecting 32.3 percent margin and the company has delivered those. Definitely Africa revenue is also a tad better than what we were anticipating. So operationally numbers look decent to me.

Latha: Is there anything particular that disappointed you? Have you looked at the adjustments in the net?

Anand: Not yet got the data, but looks like there is some adjustments below EBITDA level, which has led to a lower profit after tax (PAT) than what we were anticipating.

Latha: What are your first thoughts, the sales have come in slightly better than what our poll threw up, profits unadjusted we still don’t know but the EBITDA has come in higher than what we thought?

Gandhi: The EBITDA numbers were in line with estimates and so was the topline at about Rs 22,000 crore which was what we had expected. So the two numbers were largely in line. The profit numbers one has to look in details before commenting though the headline number was much below expectations.

Latha: We have got an exceptional tax element of Rs 221 crore if that is added to the profit perhaps you get a more realistic view. That is the exceptional loss on tax provisions which has pulled down the profit otherwise I think we should be going with Rs 850 crore profit if we added that unexpected loss. Does that still disturb you?

Gandhi: Even adding back the exceptional tax provision - as you say probably is still below our estimates - one needs to look at the final details before commenting further on what has impacted the bottomline.

Sonia: What would your call be on the stock now, it is up about 2 percent right now reacting to earnings but since you were pointing out as well that the Africa revenues is a little under expectations, how would you move on the stock?

Anand: I would remain positive on the stock because I think the stock has corrected sharply on competition concerns. Looking at the operating performance, we would remain positive on the stock.

Sonia: What is your initial view, margins have moved up to about 32.3 percent this time but how have you read the numbers?

Rudra: I think on India wireless numbers you can see a recovery from the seasonal weakness we saw in the September quarter where network minutes are declined and there was a worry on the street that given the continuation of reduction in discounts, maybe that has gone too far and hence the minute growth and the revenue per user growth will not happen. So that has recovered strongly - that is a positive. As you said, margins recovery has been led by India wireless where Indian wireless margins have grown to 34 percent. The other positives are that revenue per minutes (RPMs) have continued to rise especially voice RPMs where sequential improvement is quite good and indicated industry is moving to the healthy structure. Finally if you look at the data part which is one of the bigger growth drivers for the industry, Idea Cellular also a few days ago continued to grow very robustly for Bharti.

Latha: What is your price target at the moment?

Rudra: Our price target is Rs 392. We have close to 20 percent upside on Bharti. We remain buyers.

Sonia: Between Bharti and Idea now that you have seen both the numbers, which is your top pick?

Rudra: Both have close to 20 percent upside but Idea has corrected even more sharply than Bharti in recent weeks. So the upside is almost equal, we like both names. From a longer-term perspective we would prefer Bharti a bit more. There is a bit more of a turnaround debt but in the immediate short-term, we like both names.

Anuj: Your first take on Bharti Airtel numbers because prima facie it looked like while the revenues and margins were in-line with estimates or slightly higher than estimates, there was some problem with the net profit even if you were to take out the one-offs?

Mittal: Yes the numbers operationally were in line. In fact what is even good is the Average Revenue Per Minute (ARPM) expansion which has been pretty decent at about 1.1 percent for the voice side. If you look at comparative Idea there just about 0.7 percent sequential increase in the ARPMs. Also they have been able to manage their data revenue per MB which is almost stable sequentially whereas for the other list of telecom companies we saw about 2 paisa decline. So that is a very welcoming and heartening sign in the Indian telecom space especially maintaining on the price discipline.

But yes below the EBITDA line there were a couple of disappointments and largely it was because of the higher tax provisioning. As we mentioned although even if we remove the exceptional items the very fact that the company operates in 18 separate countries following separate tax laws for each of the countries and most of the African units are still loss making. So when you cumulate the profit before tax and the tax, it appears to be on the higher side. So till about the tax level even the PBT is much higher than expectations. So overall the numbers look good.

Sonia: Some of your peers believe that the EBITDA margins for the Africa business were lower than what they were expecting so at about 25.8 percent for the Africa business, it is a downtick of 100 bps quarter on quarter. Would that worry you or do you think this is par for the course?

Mittal: Yes, see the African business has been subdued for quite some time though we have seen some improvement in the last two quarters. We were also expecting about 27 percent EBITDA margins in the African business so that is a bit of a let down there. But what compensates is the revenue growth slightly higher than expectations. So yes and then we need to imagine that there is a lot more competition in Africa which was envisaged than what was envisaged earlier. So yes the African margins are a little disappointing.