Bharti Airtel's Q3FY18 results (Outperformer) - Miss on India wireless, Africa outperforms
Q3FY18 result highlights
- Weak operating performance: Cons. revenues were down 6.7% qoq at Rs203.18bn (IDFCe Rs205.9 bn), with 8.6% qoq decline in India revenues (mobile and Homes -12% & -3% qoq respectively; Passive Infra +2% qoq; DTH +3% qoq); Africa revenues were down -1.9% in USD terms. Consolidated EBITDA margins were down 51bp to 37.3% (India wireless -173 bp qoq; Africa +312 bp) leading to -5.2% qoq fall in EBITDA (Rs75.8bn vs IDFCe Rs74.3bn).Reported profit at Rs3.3bn (-1% QoQ, -32.6% YoY) inline with our estimate of Rs.3.2 bn.
- India wireless recovery will take more time: Bharti’s India wireless performance was below par, given impact of IUC cuts and ongoing downtrading. India wireless ARPUs were down from Rs145 in Q2FY18 to Rs123 in this quarter (IDFCe: Rs130). While consumption metrics were good, we think faster adoption of data plans is needed to offset the impact of downgrading. Bharti added 7mn wireless broadband customers (6.3mn in Q2). Management was hesitant to call this the bottom ARPU but believes that at the current ARPU levels, 4G plans are accretive.
- Capex to remain elevated, intent to de-lever balance sheet stays: Bharti expects capex to remain at this levels even for next year in order to drive 4G coverage and capacity. This is needed, in our view, given opportunity to gain share and remain operator of choice as customers migrate to data plans. The intent to de-lever balance sheet remains, however there was no incremental update on progress of Infratel stake sale.
Key positives: Strong margins performance in Africa
Key negatives: Weak operational performance in India wireless.
Impact on financials: FY19E-20E EBITDA upgraded by 1-2%
Valuations & view
Bharti reported weak India wireless operating performance led by IUC cut, but overall cost control and Africa prevent any downgrades. While the quarter is soft, our positive call on Bharti is not short term, and is based on permanent nature of market share benefits that Bharti should derive in ongoing industry consolidation. Maintain Outperformer with an unchanged March 2019 target price of Rs575 (set at 8x FY20E EBITDA).
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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