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Bharti Airtel
If the Street seems disappointed with Bharti Airtel’s second attempt to team up with African telecom major MTN—the stock lost nearly 6 per cent on Monday—it’s probably because the benefits will not be seen in a hurry. Also, MTN has been valued roughly at a forward priceearnings multiple of around 20 times and that pretty much factors in the near term upsides. Moreover, Bharti’s earnings will be diluted by about 5 per cent in the first year and the net outflow of cash of around $4 billion (close to Rs 20,000 crore) will weigh on investors’ minds especially with the 3G auctions around the corner.

Of course Bharti is expected to generate operating cash flows of just under Rs 35,000 crore in 2009-10 and 2010-11. But, since the stock was already trading at a not-so-cheap 17 times before the deal was announced, it’s not surprising that it’s lost some ground. Also, there’s some amount of circumspection because the play now changes from being an India-centric one to one that also involves the African market. That’s not such a bad thing because Africa is a large hunting ground, hugely underpenetrated and the risks are minimised because much like in India, it’s pre-paid connections that form the chunk of the market.

Despite that, the average revenue per user (arpu) are reasonably high resulting in reasonably strong operating margins of around 40 per cent.

Bharti Airtel
With every fourth subscriber its user, Bharti Airtel is India’s largest mobile phone company. With urban markets reaching saturation levels, the company is looking at penetrating the ‘B’ and ‘C’ circles or rural markets for growth. For the December quarter, over 55 per cent of the company’s net subscriber additions of 2.73 million were from rural areas. In addition to tying up with co-operatives such as IFFCO, to attract the rural consumer, the company offers agri-related information such as commodity prices, weather updates and farming techniques.

The company’s expansion into ‘B’ and ‘C’ circles is to get a bigger pie of a market, which is expected to more than double to 250 million by FY12 from 100 million currently. Interestingly, even with 250 million subscriber base in FY12, the penetration of mobile telephony in rural India would still hover around 30-33 per cent (now under 10 per cent) as compared to 70-100 per cent currently in metro and ‘A’ circles. With increasing rural incomes, expect the penetration levels to move up further, thereafter.

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While the company’s expansion deeper into rural segment will help it boost volume growth, it is likely to lead to sharp falls in average revenues per user (ARPUs) as competitors drop prices to attract subscribers. ARPUs, which were at Rs 355 levels a year ago and at Rs 321 now, would continue to trend down, as more price-sensitive rural consumers are added to its existing base. More importantly, margins have ranged 30-31 per cent in the last three quarters, helped by higher base and sharing of infrastructure.

The company’s urban focus will continue to revolve around services of its Telemedia division, which includes DTH, IPTV, Broadband, fixed line and communication needs of small businesses. While the segment currently contributes just 9 per cent of revenues, it fetches over Rs 1,000 in ARPUs. Going ahead, triggers for the stock could be listing of Bharti Infratel, the tower subsidiary and Indus its tower joint venture with Idea and Vodafone.
source - BS

Bharti Airtel
Bharti Airtel’s share of the GSM space may have come off from 35 per cent six months ago to 25 per cent currently and its net subscriber additions in March may have been lower than those for Vodafone. But it refuses to take part of the price war: instead it wants to focus on revenue market share and protect its profitability.

The telco already enjoys revenue market share in 14 out of the 22 circles and commands an ARPU that is among the highest in the industry. Of course, ARPUs may fall –in the March 2009 quarter the drop may be over 5 per cent with some of its prepaid customers shifting to Reliance Communications to take advantage of the free minutes offered by the latter. However, in the long run, not playing the price game should pay off.

The stock has underperformed the market since the start of the year and earnings estimates have been downgraded because of the fierce competition and regulatory changes. At an ev/ebitda of under 7 times for 2009-10 estimated numbers, the stock is attractively valued.
source - BS

However, MTN is believed to be less cost efficient than Bharti, so the Indian firm can give it a tip or two on managing expenses. Also, the Indian market is becoming a bit of ajungle with a host of new entrants and while Bharti may continue to have the lion’s share, in terms of revenues, profitability will be under pressure. So, it’s not a bad idea to de-risk the business model by foraying into a market that holds tremendous potential given the size of its population. Till such time as there is consolidation in the home market, Bharti can focus on the alliance—and consequent merger—which will come with the usual synergies. The biggest saving should come from the two shopping together for equipment— industry watchers say they could save anywhere between 10-15 per cent.
source - BS

Bharti Airtel
In what has probably been one of the most difficult quarters for incumbent GSM telcos, because of Reliance Communication’s GSM rollout, Bharti Airtel’s numbers have been reasonably good. It’s true the sequential rise in revenues at just 2 per cent is atad disappointing — revenues in the past have risen by about 5-6 per cent —but a decent operating profit margin(OPM) has made up for it.

The reported OPM of 40.7 per cent would be higher by about 200 basis points, if rentals paid for 35,000 towers transfered to Indus Towers are adjusted. The fall in average revenue per user (ARPU) which slipped by 6 per cent sequentially to Rs 305 was more or less expected partly because of the competition and also because Bharti is increasing its rural reach with 52 per cent new subscribers from rural areas. Also, while the minutes of usage came off by 20 minutes to 485 minutes, it was partly because the quarter had fewer days; adjusting for that, the fall would be just 9 minutes.

Obviously the free minutes offered by the competition has had some impact but the average revenue per minute has fallen just 2 per cent sequentially implying that Bharti hasn’t attempted to match the competition’s prices.

If margins for the wireless have been good, it’s because Bharti has managed to control expenses on sales - while market share gives it bargaining power in the urban areas, rural channels tend to be cheaper. Also, since it now covers 80 per cent of the population, capital expenditure may not rise much going ahead. While competition is likely to get fiercer and put pressure on the top line - Vodafone has been gaining share in several new circles where it has launched - Bharti’s scale and revenue market share of 32 per cent give it an edge over the competition. The stock has underperformed the market since the start of the year and currently trades at 7.5 times EV/EBITDA (enterprise value/ earnings before interest, tax and depreciation) which is attractive.
source - BS

Bharti Airtel Ltd (updated - 24 July 2009)
The Bharti Airtel stock dipped by about one per cent to Rs 814 on Thursday with the Street somewhat disappointed with the June 2009 quarter results. Even after adjusting for the downward revision in mobile telephony charges, the sequential growth in revenues is just 4.6 per cent. That’s however significantly better than the 2 per cent increase reported in the March 2009 quarter. The average revenue per user (ARPU) is down somewhat sharply to Rs 278 from Rs 305 in the March 2009 quarter; again part of this, around Rs 12, can be attributed to termination charges being reduced and some part to competitive pressures — some players have been offering free minutes.

Besides, the management says it is focusing on some customer segments that might not yield very high ARPUs, though it’s clear it won’t be throwing away free minutes. That may be agood strategy to pursue to keep market share intact — currently, Bharti’s share of the subscriber base is 24 per cent — but it indicates that competitive pressures are intense and that profitability will be impacted at some point in the future. The good news is that traffic seems to be picking up because after a bit of a lull in the past few quarters, Bharti reported over 10 billion minutes of traffic in the June quarter.

However, minutes of usage per user has fallen by 7 minutes to 478 sequentially, which was perhaps to be expected given the company’s rural thrust — around 60 per cent of the net additions during the quarter came in from the hinterland. With rural focus to continue, Bharti’s minutes of usage can be expected to fall further. What’s commendable is that the telco posted a strong operating profit margin of nearly 42 per cent with a tight leash on costs and wireless margins, at around 32 per cent, too were reasonably good. Bharti has the advantage of scale and should be able to sustain operating margins at around 40 per cent perhaps for another year. However, the stock may not do too much until the full impact of the MTN acquisition is clear.
source - BS

Bharti Airtel Ltd (updated - 20 Aug 2009)
Bharti Airtel continues to gain revenue share in the Indian mobile telephony market. The company’s share of wireless gross revenues, as Kotak Securities points out, has increased to just under 33 per cent at the end of June 2009 - the share at the same time last year was a shade over 31 per cent. That, in a market in which competition is getting keener with each player trying to outdo the other by offering attractive tariffs.

While Reliance Communications rolled out its GSM network in January this year, offering free minutes to start with, both Vodafone and Idea Cellular have ventured into new circles in a bid to ramp up presence and Tata Docomo has just launched a GSM service with a unique offer -per-second billing. Bharti has been compelled to keep up - it recently came up with its Special Five scheme with local tariffs as low at 20 paise per minute.

Although Bharti was feeling the pressure - its share of net additions had come off to just under 20 per cent earlier this year - the three months to June saw the telco bounce back to gain a share of around 300-400 basis points. At the end of July, the share was up to just under 30 per cent.

The company added 2.8 million subscribers both in June and July while competitors like Idea added 1.4 million subscribers in July, seeing a month-onmonth fall of close to 12 per cent. While Idea has gained share in the newer circles where it has rolled out services, it seems to be stagnating in a couple of circles where it is the incumbent. The environment, of course, continues to be challenging, especially with minutes of usage seemingly no longer price-elastic. Although penetration remains under 40 per cent and leaves enough headroom for growth, especially in rural markets, it’s unlikely that the players can increase their average revenue per user or revenue per minute.

Nevertheless, given its scale, Bharti is well-positioned to weather the competition. Since April, the stock has gained 34 per cent compared with a rise of 52 per cent for the Sensex, one reason being the potential deal with MTN. While the stock may not do too much until the deal comes through, at the current price of Rs 405, it trades at an EV/ebitda (enterprise value/earnings before interest, tax and depreciation) of 9 times for 2009-10 and is attractively valued.
source - BS

Bharti Airtel Ltd (updated - 31 Oct 2009)
The Indian mobile telephony space is likely to remain intensely competitive for at least another year or so, as new entrants attempt to get a foothold and incumbents scramble to maintain market share. As such, mobile tariffs could drop further, putting pressure on the revenues and operating margins of telecom operators.

So, it’s possible that Bharti Airtel, which saw a sequential dip in revenues of about a per cent in the September 2009 quarter, may find it hard to grow revenues meaningfully for the next few quarters. While the Bharti management is clear that it will not price its services irrationally, perhaps the operator may want to relook its tariffs, because it needs to hold on to its customers and attract new users.

Even if the brand is strong, it may not hurt to be a little more aggressive on pricing in the current environment. The Bharti management, however, believes the market leader needn’t lead the price war.

The telco’s market share of net additions in the September 2009 quarter, at 18.6 per cent, was way below the 23.8 per cent it enjoyed in the June quarter.

Of course, it’s more important to have profitable customers and garner revenue market share and that’s where Bharti has been very successful; its revenue share is an enviable 32.7 per cent. Also, the volume of traffic increased sequentially by 2 per cent during the September quarter but the average rate per minute dropped by about 4 per cent. The weaker top line clearly hurt the operating profit margins for the wireless business, which dipped by about 100 basis points to a shade under 32 per cent.

The good news is that more than a third of the company’s revenues are now earned from nonmobile businesses, which is what has helped the company post an operating profit margin of 42.1 per cent.

What Bharti has going for it is a strong brand and balance sheet with a net debt of less than Rs 1,000 crore, which will help it bid for 3G licences, and puts it in a much stronger position vis-a-vis peers.

However, investors are concerned about the immediate future, which is why the Bharti stock lost just over 6 per cent on Friday and is unlikely to do much in the near term.
source - BS