Hold Bharti Airtel: Ventura Securities

Ventura Securities has recommended hold rating on Bharti Airtel, in its February 08, 2013 research report. According to the research firm, despite industry witnessing tariff hikes during the quarter, traffic growth is likely to be subdued going ahead as growth is expected to be primarily driven from rural area which has a lower spending capacity.

"Bharti Airtel reported a decline of 0.2% QoQ in revenues to Rs 20,240 crore in Q3FY13. The India/S.Asia revenues fell 1.1% to Rs14,270 crore. Excluding one offs in Q2FY13, consolidated and India / S.Asia revenues growth was at 2.8% and 3.1% respectively. While, Bharti Airtel's mobile revenues have increased 3.9% QoQ to Rs10,940 crore; up ~7.5% YoY. India traffic grew 2.8% QoQ to 241 bn minutes. Gross realized rate in India decreased by 0.2% QoQ to 42.5 paise. Mobile business EBITDA margin remained flat; seasonal tailwind offset by diesel price hike and cost related to stringent KYC norms.

During Q3FY13, the company had an EBITDA of Rs 6183.9 crore, a growth of 4% compared to Q3FY12. The reported EBITDA margin for the quarter was 30.6%. The key trigger to drive this growth are the improved customer acquisition process has enabled a reduction in selling, general & administrative costs in India & South Asia by Rs 101.2 crore compared to Q2FY13.

Africa USD revenues grew 3.3% QoQ during Q3FY13. Net subscriber base grew to 61.7mn adding ~3m net subscribers during the quarter (5% QoQ and 21% YoY) highest in last 10 quarters. Minutes grew by ~11% QoQ to 26.2bn even as blended realizations dropped ~6.5%QoQ due to residual impact of price corrections and weaker African currencies. Africa EBITDA margins declined by ~70bp QoQ to 26.5% on account of a new market launch and weakness in Franco-African markets. Post the acquisition of Zain’s Africa business in 1QFY11, the management had targeted revenues and EBITDA of US$5bn and US$2bn respectively by FY13. However, the company has failed to achieve both the targets.

Passive infrastructure was up by 3% QoQ and 8% YoY to Rs 2,640 crore (margins down 40bp QoQ) driven by increase in revenue/tenant/tower and sites rolled out in last six months. Segments EBITDA margin for Q3FY13 was 37%. The EBIT over the same period was Rs 420 crore as compared to Rs 375.8 crore YoY, a growth of 11.8%. Bharti Infratel holds 34,668 towers and average sharing factor of 1.82 times. During Q3FY13, Indus Towers had 111,240 towers and average sharing factor of 1.99 times.

Despite industry witnessing tariff hikes during the quarter, traffic growth is likely to be subdued going ahead as growth is expected to be primarily driven from rural area which has a lower spending capacity. While the company’s recent revenue market share gains in domestic business is encouraging, subdued growth outlook in its non-wireless units in India and slower improving profitability in Africa remains the key overhang for the stock. At a CMP of Rs 321, the stock is currently trading at a consensus P/E of 23.4x and 16.7x for FY14E & FY15E and we believe all the negatives pertaining to regulatory woes have been factored in. We recommend a HOLD on the stock," says Ventura Securities research report.

FIIs holding more than 30% in Indian cos

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