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Saturday, November 8, 2008

Bharti Airtel - Telecom Major - Results inline of expectation - BUY

Bharti Airtel
Cluster: Apple Green
Recommendation: Buy
Price target: Rs985
Current market price: Rs688

Price target revised to Rs985

Result highlights

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The consolidated revenues of Bharti Airtel grew by 6.3% quarter on quarter (qoq) and by 42.3% year on year (yoy) to Rs9,020.3 crore during Q2FY2009. The revenues of the mobile business grew by 5.3% qoq while that of the non-mobile business grew by 10.2% qoq in Q2FY2009.
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The operating profit margin (OPM) at 41% dropped from 41.5% in Q1FY2009. The earnings before interest, tax, depreciation and amortisation (EBITDA) margin declined because of a quarter-on-quarter rise of 16.8% in the network operating cost to Rs1,439.2 crore due to an increase in the national long distance (NLD) carriage charges, an increase in diesel prices and rural expansion. The operating profit stood at Rs3,699.3 crore, up 5% on a quarterly basis.
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The net profit grew by a mere 1.1% qoq and by 26.8% yoy to Rs2,046.3 crore due to a derivative and foreign exchange (forex) fluctuation loss of Rs586.2 crore (v/s a forex loss of only Rs150 crore in Q1FY2009) and an increase in the depreciation charge by 15% qoq to Rs1,154.9 crore.
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In terms of operational highlights of the mobile business, the average revenue per user (ARPU) declined by 5.4% qoq to Rs331. However, the total minutes of usage (MoU) marked a growth of 10.1% qoq to 11,583 crore minutes. In the non-mobile business, the ARPU increased by 0.8% to Rs1,147.
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Bharti Airtel added 8.1 million subscribers during the quarter, taking its subscriber base to 77.48 million and overall market share to 24.8%. The company was allocated spectrum in Tamil Nadu, Bihar and Karnataka during the quarter.
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We have modified our earnings estimate a little to account for the strong subscriber additions and lower ARPU. We have downgraded our FY2009 earnings estimate by 2% to Rs44.1 but maintained our earnings estimate for FY2010 at Rs54.7. At the current market price of Rs688, the stock trades at 12.6x FY2010 estimated earnings and 7.6x on enterprise value (EV)/EBITDA. We maintain our Buy call on the stock with a revised price target of Rs985.

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