Bharti Airtel's Q2FY19 results (Outperformer) - Mixed quarter – India wireless margins surprise negatively
Q2FY19 result highlights
- Mixed consolidated financial performance: Consolidated revenue was up +1.7% qoq and -6% yoy to Rs204.2bn (IDFCe: Rs199 bn) primarily driven by beat in India wireless and Africa. Consolidated EBITDA at Rs 63.4 bn (IDFCe:Rs 65.2 bn) is below estimates, driven by weak performance in India wireless segment. Consolidated EBITDA margins at 31.1% vs. IDFCe 32.6%. PAT at Rs 1.18b n vs. our expectations of Rs -6571 mn was helped by exceptional gain.
- India wireless better on topline but weak on EBITDA: India wireless revenues were better than expectations Rs 102bn (IDFCe: Rs99 bn), down 2 % qoq. India wireless EBITDA at Rs 21.4 bn (IDFCe: Rs23.3 bn). The EBITDA margins in India were impacted by higher network opex. India wireless ARPUs were at Rs101 vs IDFCe Rs. 102 , down 4.5% qoq. Bharti added 7.45mn wireless broadband customers qoq. Total HSD subscriber base stands at 65 mn (penetration of 29.6% of Bharti’s subs). Data subscriber additions momentum has been moderated. Churn rates increased to 3.6% in Q2FY19 and Bharti lost 6.59mn subs qoq.
- Key highlights from conference call: Bharti is simplifying tariff plans and introducing minimum ARPU plans. This could weed out some low segment customers but benefit overall ARPUs. This should also help reduce rotation subs, and lower channel costs (SG&A). Additionally, the company is refarming the entire 900Mhz for 4G. Bharti will be updating the capex guidance in Q3 (FY19E guidance was Rs270bn as of 1QFY19). 1HFY19 consolidated capex stood at Rs159bn.
Key positives: India wireless revenue and Africa business
Key negatives: Weak growth in data subscribers
Impact on financials: FY19E/FY20E EBITDA adjusted by -5.5%/ -6.1%
Valuations & view
India wireless revenue performance was better than expectations led by better volumes. ARPU performance was inline, and we would imagine that Dec-18 ARPU performance should be better helped by seasonality and moderation in down trading. The pace of price war is settling down and steps towards reduction in leverage will be the key catalyst. Maintain Outperformer with a revised target price of Rs400 (SOTP based) from Rs465. The cut in TP is due to EBITDA cut, higher net debt and lower multiple for DTH business.
Bharti Airtel provides telecommunication systems and services to individuals and businesses in India with operations in 20 countries across Asia and Africa. In India, Co.'s product offerings include 2G, 3G and 4G wireless services, mobile commerce, fixed line services, high speed DSL broadband, IPTV, DTH, enterprise services including national & international long distance services to carriers. In the rest of the geographies, it offers 2G, 3G wireless services and mobile commerce. Co. had nearly 287 million customers across its operations at the end of Dec 2013.
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