MOSL: BHARTI AIRTEL (Buy)-Sluggish quarter-Africa biz set to outdo India mobility

Bharti Airtel: Sluggish quarter; Africa biz set to outdo India mobility; Ballooning leverage to be cushioned by divestments

(BHARTI IN, Mkt Cap USD16.3b, CMP INR298, TP INR390, 31% Upside, Buy)

• Lackluster performance continues: Consol. revenue grew 2% QoQ (-6% YoY) to INR204.2b (in-line). However, consol. EBITDA declined 7% QoQ (-21% YoY) to INR62.4b (in-line), dragged by India wireless business, partly offset by an uptick in Africa business. Consequently, consol. EBITDA margin contracted 290bp QoQ to 30.6%. Consol. PAT grew 22% QoQ to INR1.2b. However, adjusted for exceptional items and one-off deferred tax gains, the company reported a net loss of INR23.7b (v/s INR13.9b in 1QFY19). BHARTI incurred capex of INR77b/INR159b in 2Q/1HFY19 (FY19 capex guidance: INR270b). Net debt increased by USD578m to USD16.3b; in INR terms, it was up by INR105b to INR1.18t due to currency depreciation.
• 1HFY19 performance: Revenue/EBITDA/adj. PAT declined 7%/17%/109% YoY in 1HFY19. EBITDA margin contracted 380bp YoY to 32%. For 2HFY19, we expect revenue growth of 5% and EBITDA decline of 10% YoY.
• Africa continues cushioning dismal domestic performance: India wireless revenue fell 2% QoQ to INR102.5b due to a 5% QoQ fall in ARPU to INR101 (led by downtrading, seasonality and RJio’s Monsoon Hungama offer). This, along with sharply higher network/access costs, accentuated the impact on India wireless EBITDA (-22% QoQ to INR21.5b; 9% miss). Africa biz, however, was the saving grace, where revenue/EBITDA grew 7%/9% QoQ due to stable costs.