| Summary of Contents
| SHAREKHAN SPECIAL Q4FY2012 Telecom earnings review Key points -
Strong operating performance: For the telecommunications (telecom) sector, the Q4FY2012 results were good at the operating level with both Bharti Airtel and Idea Cellular showing a strong performance on the revenue and operating profit front. Bharti Airtel's South-Asian mobile business reported a 3.3% sequential revenue growth while Idea Cellular reported a 6.7% sequential improvement in its revenues. For Bharti Airtel the operating profit as well as the margin expanded on a sequential basis for all the segments except the enterprise business segment. The consolidated margin for Bharti Airtel showed a 107-basis-point expansion on a sequential basis from 32.2% in Q3FY2012 to 33.3% for the quarter under consideration. In case of Idea Cellular, the reported margin was 145 basis points lower than that in Q3FY2012. This was due to the booking of a one-time charge of Rs150 crore in the network operating cost; adjusting for the same the operating profit margin (OPM) expanded by 50 basis points on a quarter-on-quarter (Q-o-Q) basis. -
Traffic growth momentum seen: Traffic growth momentum was strongly visible for both Bharti Airtel (up 5% sequentially) and Idea Cellular (up 9.1% sequentially). Bharti Airtel's traffic growth came on the back of a change in its strategy of gaining subscribers as well as revenue market share by intervening in the tariff rates. As a result, the revenue per minute (RPM) showed a 1.8% decline on a sequential basis. For Idea Cellular, a 9.1% growth in the volume came on the back of a strong 7.3% volume growth in Q3FY2012. -
Bharti Africa-trailing slow steps: On the African venture, the incremental growth process in terms of revenue and profitability continued (though the revenue grew at a slower pace). The margin expanded by 111 basis points sequentially. With such a snail-paced margin improvement, we have doubts if the African business would be able to attain its stated guidance of revenue and margin growth for FY2014. Factoring the same into our estimates we have lowered our FY2013 estimates for Bharti Airtel and have introduced our FY2014 earnings estimate. Our earnings per share (EPS) estimates for FY2013 and FY2014 stand at Rs14.6 and Rs19.2 respectively. -
Regulatory environment weigh heavy on fundamentals and stock price movement: The Indian telecom sector is passing through a high state of policy uncertainty, where decision on various contentious issues-that could affect the earnings/cash flow and competitive positioning of the players--remain undecided and unknown (read pricing of excess 2G spectrum charges, licence renewal norms, spectrum refarming process etc). On the back of this, the new recommendation of the Telecom Regulatory Authority of India on the auction and reserve price for the cancelled 2G licences spells trouble for the sector. We believe that the news flow in this sector would be very fluid. Hence, any positive or negative development would swing a stock's performance in the northward or southward direction respectively. Fundamentally and valuation-wise, we believe Bharti Airtel is best placed to capture the Indian as well as African telecom wave. Hence, we maintain our positive stance on the stock with a Buy rating and price target of Rs362. | | Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. | | | | | |
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