Monday, May 4, 2009

[Investors Please Listen] Bharti Airtel Q4FY09 result update ; Profits in-line, minutes growth subdued; BUY; Target : Rs952

Bharti Airtel

 

Profits in-line, minutes growth subdued


BUY

 

CMP: Rs749                                  Target Price: Rs952


Bharti Airtel's Q4FY09 net profit at Rs22.4bn came in line with estimates, however muted revenue growth of mere 2% QoQ to Rs98.2bn v/s our estimate of Rs102bn, was due to lower growth of 3.6% QoQ in mobile revenues (caused by higher than expected drop in ARPU to Rs305 v/s our estimate of Rs314) and 1.3% sequential drop in carrier revenues. Although there was lower revenue booking from passive infra segment due to Indus IRU accounting, we believe that the revenue growth was mainly hit by mobile & carrier revenues only. EBIDTA for the quarter grew by 1.3% QoQ to Rs40bn (v/s our estimate of Rs41.8bn) while margins dropped 30bps sequentially to 40.7%. Margin drop was mainly due to rise in network operating expenses (90bps). While non-elimination of rental payment to Indus (per US GAAP) have impacted EBIDTA margins by 2%, the margin drop for the quarter was limited to 30bps due to effective promotional cost control (S&M costs reduced by 9.6% QoQ, i. e. 156bps). Lower finance costs (Rs2.1bn v/s estimate of Rs3.3bn) due to below expected forex loss resulted in earnings beat. PAT grew by 3.7% QoQ to Rs22.4bn.

Considering higher than expected fall in ARPU and continued above expected subscriber growth, we have cut FY10E ARPU, revenue, EBIDTA and PAT estimates by 7.8%, 2.9%, 3.7% and 6.2% respectively. Our EPS estimates are at Rs52.8 and Rs59.6 for FY10E and FY11E respectively. We reduce our DCF based price target on the stock from Rs1025 to Rs952. We continue to retain BUY rating on the stock. Stock split (1:2) and maiden dividend (Rs2/share) are positive value drivers, MNP introduction and 3G auction remain key near-term risks.


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