CMP = Rs 825 (as of April 30)
Price target: Rs 900
Result highlights
- Bharti Airtel has announced a robust revenue growth of 9.8% quarter on quarter (qoq) and 58.1% year on year (yoy) to Rs5,393 crore for Q4FY2007.
- The sequential revenue growth was driven by a 12.9% rise in the mobile revenues whereas the non-mobile businesses grew at relatively lower rate of 5.6% sequentially to Rs1,871 crore.
- The operating profit margin (OPM) at 41.5% is the highest reported in any quarter. The sequential improvement of 70 basis points came as a positive surprise and was driven by a 160-basis-point sequential improvement in the OPM of the mobile business.
- The ability to boost margins in spite of the adverse impact of the reduction in the roaming charges (adverse impact of Rs50-60 crore) is quite commendable. Consequently, the operating profit grew by 11.8% qoq and 419.4% yoy to Rs2,241 crore.
- The profit before tax (PBT) grew by 4.5% qoq to Rs1,507 crore and was in line with expectations. However, the decline in the effective tax rate to 9% (as compared with 14.8% in Q3) resulted in a higher than expected net profit of Rs1,353 crore (up by 11.4% qoq and 98.3% yoy).
- For the full year, the consolidated revenues and earnings grew by 58.8% to Rs18,520 crore and 88.6% to Rs4,257 crore. The OPM improved by 320 basis points to 40.2% (contributed by a 160-basis-point improvement in the OPM of the mobile business and a 320-basis-point uptick in the margin of the non-mobile business).
- The total subscriber base grew by 86.4% to over 39 million in FY2007 (including 37.14 million mobile subscriber base, which grew by 89.7% during the year).
- In terms of key highlights, there were a number of regulatory changes introduced during the quarter. The reduction in the roaming charges was negative whereas the introduction of revised access deficit charge (ADC) regime and reduction in the port charges payable to state-owned telecom operators would have a positive impact on the earnings.
- In terms of business environment, the government announced the increase in the limit for foreign direct investment (FDI) from 49% to 74% and steps are being taken to implement the same. Another key development was the entry of Vodafone as a competitor through the acquisition of a controlling stake in Hutch Essar.
- To factor in the better than expected performance, I have revised upwards our earnings estimates by 2.8% for FY2008 and introduced our FY2009 estimates. At the current market price the stock trades at 25.8x FY2008 and 20.2x FY2009 estimated earnings.
- I maintain our Buy call on the stock with a revised one-year price target of Rs900.
