Beats estimates; but outlook remains grim

Transcription

1 RESULTS REVIEW 1QFY16 5 AUG 2015 Bharti Airtel SELL INDUSTRY TELECOM CMP (as on 4 Aug 2015) Rs 413 Target Price Rs 375 Nifty 8,517 Sensex 28,072 KEY STOCK DATA Bloomberg/Reuters BHARTI IN/BRTI.BO No. of Shares (mn) 3,997 MCap (Rs bn) / ($ mn) 1,652/25,899 6m avg traded value (Rs mn) 2,245 STOCK PERFORMANCE (%) 52 Week high / low Rs 452 / 336 3M 6M 12M Absolute (%) Relative (%) SHAREHOLDING PATTERN (%) Promoters FIs & Local MFs 9.46 FIIs Public & Others 8.81 Source : BSE Vivekanand Subbaraman vivekanand.s@hdfcsec.com Beats estimates; but outlook remains grim Bharti s 1QFY16 results (adjusted for extraordinaries) were ahead of estimates as the company s domestic wireless business continues to outperform on the back of robust data revenue growth. During the quarter Bharti was also able to divest tower assets worth US$ 1.3bn in Africa. Yet, this result doesn t assuage our concerns on the damaging prospects of Reliance Jio s market entry, which could pressure FY17/18 voice as well as data pricing. We value the company s India business at 6x rolling 12 month forward EV/EBITDA arriving at a target price of Rs 375 and maintain our anticonsensus SELL stance. Investors should look at the company s Africa tower divestiture(s) and/or exit from African operations as exit opportunities as we believe that these positives are dwarfed by concerns in the India business due to competitive factors. Q1FY16 results exceed expectations : Revenues of Rs 237bn grew by 3%YoY/3%QoQ; EBITDA grew by a healthy 7%YoY/2% QoQ to Rs 82.6bn. In the mobile segment, volume trends surprised positively with 5%QoQ/7%YoY growth, led by 4%QoQ/8%YoY decline in voice RPM. Africa : tower sale the key highlight : The company s Africa business continues to witness sluggish growth trends, underperforming low expectations and growing just 1%YoY/1%QoQ on a constant currency basis. During the quarter, the key highlight was the divestiture of tower assets in four countries, Congo B, Ghana, Nigeria and Uganda, helping the company raise US$ 1.34bn. The company s Africa PBT improved significantly (reduced losses) due to the same. Outlook and view : We believe that the company faces a bleak growth outlook from the competitive threats in the data business, led by the entry of Reliance Jio. Our estimates are significantly below consensus, and we retain our SELL stance. FINANCIAL SUMMARY # (Rsmn) 1QFY16 1QFY15 YoY (%) 4QFY15 QoQ (%) FY13 FY14 FY15 FY16E FY17E Net Sales 236, , , , , , , ,336 EBITDA 82,562 77, , , , , , ,322 APAT 18,764 16, , ,756 27,520 56,063 54,404 74,527 Diluted EPS (Rs) (24.9) P/E (x) EV / EBITDA (x) RoE (%) * FY13 financials not comparable YoY led by change in accounting of Indus to equity basis # Consolidated HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters

2 Bharti s consolidated EBITDA was marginally ahead of estimates, led by positive surprise on revenue. During the quarter there were several exceptional items including (1) gains (net of depreciation, tax and minority interest impact) pertaining to divestiture of tower assets in Uganda, Ghana, Congo B & Nigeria of Rs 11.3bn (2) charges and provisions on account of dispute settlements and restructuring of Rs 6.7bn Adjusted PAT was in-line with estimates. EBITDA margins were in-line with our estimates with SGA savings offsetting higher than expected network costs. QUARTERLY CONSOLIDATED FINANCIALS SNAPSHOT (Rs mn) 1QFY16 1QFY15 YoY (%) 4QFY15 QoQ (%) 1QFY16E Vs est (%) Net Sales 236, , , , License Fee 23,101 22, , , Access charges 27,419 27,889 (1.7) 27,988 (2.0) 27,708 (1.0) Network cost 51,548 51, , , Employee cost 12,115 11, , , SG&A 40,063 40, , , Total Operating Expenses 154, , , , EBITDA 82,562 77, , , Depreciation 40,404 40, , , EBIT 42,158 36, ,722 (1.3) 40, Finance cost 12,308 10, , ,770 (10.6) Finance income (834) (3,957) (78.9) (3,395) (75.4) (3,500) (76.2) FX (Gains) / Loss 7,802 3, ,811 (27.8) 3, Exceptional (gain)/loss (4,581) 2,519 1,326 - PBT 27,463 24, , ,528 (0.2) Tax 13,481 14,627 (7.8) 10, ,538 (0.4) (Gain)/Loss from JV (2,126) (1,578) (2,136) (2,000) Minority Interest (8.4) RPAT 15,543 11, , ,691 (0.9) APAT* 18,764 16, ,976 (24.9) 18, * APAT is net of forex gain/loss and exceptional items MARGIN ANALYSIS As % of Net Sales 1QFY16 1QFY15 YoY (bps) 4QFY15 QoQ (bps) 1QFY16E Vs est (bps) License Fee Access charges (54) 12.1 (57) 11.9 (35) Network cost (50) Employee cost (4) 5.2 (5) SG&A (49) 17.1 (18) 17.1 (21) Total Opex (131) EBITDA Margin (35) 34.9 (8) EBIT Margin (74) RPAT Margin (19) APAT Margin (292) 8.0 (12) Tax Rate (1,001) 49.2 (9) 49.2 (9) Page 2

3 Management highlighted that India revenue growth adjusted for the change in termination rates stood at 13%YoY, against a reported number of 10%YoY. India EBITDA margin was positively impacted by 70bps YoY/50bps QoQ, on account of the regulatory changes. Despite improving EBITDA and EBIT margins, PBT margins declined YoY/QoQ on account of high spectrum amortisation and interest costs. Africa continues to disappoint, as constant currency revenue growth stood at 1%YoY/1%QoQ. Africa network operating cost increased by 10% QoQ as a result of the tower asset divestiture. This has resulted in lower EBITDA margins. Africa PBT margin improved sharply (reduced losses) as a result of the tower deals. FINANCIAL SUMMARY : INDIA & AFRICA 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 % chg YoY % chg QoQ India (Rs mn) Revenue 158, , , , , % 4.2% EBITDA 60,524 61,088 63,594 67,870 70, % 3.5% EBIT 35,628 36,474 38,850 41,962 43, % 2.5% PBT 35,168 35,665 40,734 41,266 35, % -13.9% PAT 23,481 24,499 28,194 28,115 22, % -20.1% Margin (%) EBITDA 38.2% 38.5% 39.1% 40.7% 40.4% 222 bps -29 bps EBIT 22.5% 23.0% 23.9% 25.2% 24.8% 228 bps -41 bps PBT 22.2% 22.5% 25.1% 24.8% 20.5% -174 bps -430 bps PAT 14.8% 15.4% 17.3% 16.9% 12.9% -189 bps -393 bps Africa (in US$ mn) Revenue 1,164 1,140 1,103 1, % -3.0% EBITDA % -10.7% EBIT % -61.0% PBT (77) (69) (115) (218) (138) 79.2% -36.7% Rep. PAT (137) (124) (136) (183) (154) 12.4% -16.1% Margin (%) EBITDA 24.3% 23.6% 21.8% 20.7% 19.1% -528 bps -165 bps EBIT 4.0% 5.6% 4.6% 3.1% 1.3% -277 bps -186 bps PBT -6.6% -6.1% -10.4% -21.8% -14.2% -760 bps 758 bps PAT -11.7% -10.9% -12.3% -18.3% -15.8% -408 bps 248 bps Page 3

4 EBITDA margin improvements have been aided by regulatory changes and operating leverage. Management mentioned that EBITDA margin was higher by 40bps QoQ/60bps YoY due to regulatory changes. However, EBIT margin improvements haven t kept pace with EBITDA margin improvements due to spectrum amortisation and interest costs. Non-wireless businesses : Telemedia and Enterprise business, saw sharp improvement in EBIT margin, led by robust growth. Airtel s DTH business witnessed robust revenue growth and operating leverage. The company s DTH business continues to outperform Dish TV and Videocon DTH. SEGMENTAL PERFORMANCE : INDIA BUSINESS (Rs mn) 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 % chg YoY % chg QoQ Wireless Revenue 127, , , , , % 2.9% EBITDA 47,294 46,565 48,857 51,478 53, % 3.0% EBITDA margin (%) 37.1% 36.9% 37.1% 38.4% 38.4% 133 bps 4 bps EBIT 28,440 27,646 29,833 32,016 31, % -0.3% EBIT margin (%) 22.3% 21.9% 22.7% 23.9% 23.1% 83 bps -74 bps Telemedia Revenue 10,705 11,160 11,171 11,288 11, % 1.2% EBITDA 3,947 4,506 4,407 5,165 5, % 2.0% EBITDA margin (%) 36.9% 40.4% 39.5% 45.8% 46.1% 925 bps 36 bps EBIT 1,756 2,129 2,013 2,849 2, % 4.1% EBIT margin( %) 16.4% 19.1% 18.0% 25.2% 26.0% 956 bps 73 bps Enterprise Revenue 16,111 17,037 16,177 17,805 19, % 10.6% EBITDA 1,437 4,102 3,568 3,079 4, % 33.4% EBITDA margin (%) 8.9% 24.1% 22.1% 17.3% 20.9% 1194 bps 357 bps EBIT 1,755 2,487 1,929 1,542 2, % 57.3% EBIT margin( %) 10.9% 14.6% 11.9% 8.7% 12.3% 142 bps 366 bps Passive Infra Revenue 13,328 13,744 13,692 13,518 13, % 3.2% EBITDA 3,223 6,355 6,550 6,766 6, % 0.4% EBITDA margin( %) 24.2% 46.2% 47.8% 50.0% 48.7% 2451 bps -136 bps EBIT 4,964 5,306 5,511 5,950 6, % 2.3% EBIT margin( %) 37.2% 38.6% 40.2% 44.0% 43.6% 640 bps -37 bps DTH business Revenue 5,915 6,263 6,234 6,348 6, % 7.9% EBITDA 1,438 1,529 1,707 2,078 2, % 15.9% EBITDA margin( %) 24.3% 24.4% 27.4% 32.7% 35.2% 1086 bps 242 bps EBIT (626) (676) (360) NM 412.3% EBIT margin (%) -10.6% -10.8% -5.8% 1.3% 6.1% 1664 bps 478 bps Others Revenue % 11.3% EBITDA (426) (566) (430) 317 (488) 14.6% % EBITDA margin (%) -54.5% -77.9% -62.3% 44.3% -61.3% NM NM EBIT (571) (479) (472) 473 (289) NM NM EBIT margin (%) -73.1% -65.9% -68.4% 66.1% -36.3% NM NM Page 4

5 Minutes growth exceeded estimates and was driven by elasticity as voice RPM declined. Adjusted for the termination cut, voice RPM declined by 4%YoY (Rs /min decline to Rs 0.367/min) The sharp increase in monthly churn is an area of concern and management attributed the same to market interventions by the company and comeptitive pressures. Data revenue grew 67%YoY/12%, a continuation of healthy trends, driven by greater per subscriber usage and customer adds. At this juncture, reduction in per MB realisations isn t alarming as the same is driven by increased utilisation of data packs by customers, rather than rate decreases. KEY OPERATING METRICS INDIA WIRELESS BUSINESS 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 % chg YoY % chg QoQ Overall EOP Subs (in 000's) 209, , , , , % 2.1% MOU (in mins/sub) % 1.4% RPM (in Rs) % -1.5% ARPU (in Rs) % -0.1% MOUs (in mn) 270, , , , , % 4.7% Wireless Revenue (in mn) 125, , , , , % 3.1% Monthly Churn % bps 78 bps Voice KPIs Voice Revenue (in Rs mn) 103,070 99, , , , % 0.9% Voice RPM (in Rs) % -3.6% Non Voice KPIs (incl. data) Non Voice Rev (in Rs mn) 22,900 25,218 29,360 31,226 34, % 10.2% Non Voice RPM (in Rs) % 5.3% Data KPIs Subs (in 000's) 39,320 40,108 42,249 46,386 49, % 6.6% Usage (mn MBs) 55,610 67,668 77,281 86, , % 17.8% Usage/Sub (MBs) % 7.6% Rate/MB % -4.7% ARPU (Rs) % 2.6% Data Revenue (Rs mn) 15,594 18,048 21,141 23,235 26, % 12.3% Data as % of wireless rev 12.4% 14.5% 16.2% 17.6% 19.2% 680 bps 156 bps Non-data KPIs (in Rs mn) SMS+VAS revenue 6,892 6,733 7,749 7,500 7, % 3.1% Others % 22.3% Non-voice, non-data rev 7,316 7,185 8,222 7,991 8, % 4.2% Non-data VAS % of Wireless rev 5.8% 5.8% 6.3% 6.1% 6.1% 32 bps 7 bps Page 5

6 Currency effects continued to play a spoil-sport in the company s Africa business, where reported revenue growth sharply diverged constant currency revenue growth, which stood at 1%YoY/1%QoQ. In Africa too, the company faces pressures in voice business, akin to India. Africa data revenue surged 49%YoY/13%QoQ, driven by elasticity of usage to pricing reduction. KEY OPERATING METRICS : AFRICA WIRELESS BUSINESS 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 % chg YoY % chg QoQ EOP Subs (in 000's) 69,086 71,367 74,599 76,263 78, % 2.7% MOU (in mins/sub) % 2.7% RPM (in US Cents) % -6.3% ARPU (in US$) % -3.8% MOUs (in mn) 28,256 28,966 30,361 31,045 32, % 5.6% Wireless Revenue (in $ mn) 1,164 1,140 1,103 1, % -3.0% Churn % bps -39 bps Active Subs (VLR) % bps -40 bps Voice KPIs Voice Revenue (in US$ mn) % -5.6% Voice RPM (in US cents) % -10.6% Non Voice KPIs (incl. data) Non Voice Rev (in $ mn) % 4.9% Non Voice RPM (in US cents) % -0.7% Data KPIs Subs (in 000's) 9,882 11,049 11,242 12,289 13, % 6.1% Usage (mn MBs) 6,541 8,061 9,475 11,256 13, % 23.0% Usage/Sub (MBs) % 11.8% Rate/MB (in US cents) % -8.0% ARPU ($) % 2.9% Revenue ($ mn) % 13.2% Data rev % 7.4% 8.6% 9.4% 11.3% 13.2% 576 bps 188 bps Non Voice Rev (excl. data) ($ mn) % -1.8% Page 6

7 We build in a tepid oiutlook for the Bharti s India wireless business due to the entry of Reliance Jio. We expect the company s voice as well as data business revenue to get impacted by pricing pressure We expect India and South Asia EBITDA margin to witness gradual improvements as India business margin pressures are offset by reduced losses in South Asia. For Africa, our EBITDA margin estimates factor in higher network costs due to tower divestiture KEY ASSUMPTIONS FY12 FY13 FY14 FY15 FY16E FY17E FY18E India Subs (in 000's) 181, , , , , , ,017 India MOUs (in mn) 888, ,520 1,029,576 1,080,087 1,189,760 1,267,549 1,340,929 India MOU/Sub India RPM (in Rs) India ARPU (in Rs) India Wireless rev. (Rs mn) 387, , , , , , ,136 India Voice rev. (Rs mn) 325, , , , , , ,242 India Voice RPM (in Rs) India Voice rev. % 84.1% 83.1% 82.9% 78.8% 73.5% 69.8% 66.1% Non Voice KPIs (incl data) : India Non voice rev. (Rs mn) 61,654 69,703 78, , , , ,894 Non Voice RPM (in Rs) Non voice rev. % 15.9% 16.9% 17.1% 21.2% 26.5% 30.2% 33.9% India and South Asia Revenue (Rs mn) 518, , , , , , ,528 % chg YoY 11.6% 1.0% 10.0% 11.9% 5.9% 5.5% 6.2% EBITDA (Rs mn) 183, , , , , , ,285 Margin % 35.4% 32.5% 35.6% 38.9% 38.9% 39.3% 39.7% % chg YoY 5.5% -7.3% 20.5% 22.2% 5.8% 6.8% 7.3% Africa Revenue (US$ mn) 4,137 4,417 4,491 4,592 4,119 4,417 4,668 % chg YoY 54.8% 6.8% 1.7% 2.2% -10.3% 7.2% 5.7% EBITDA (US$ mn) 1,094 1,176 1,171 1, Margin % 26.4% 26.6% 26.1% 21.8% 20.5% 20.7% 20.9% % chg YoY 84.6% 7.6% -0.5% -14.6% -15.3% 8.1% 6.8% Consolidated Revenue (Rs mn) 715, , , , , ,336 1,055,963 % chg YoY 20.0% 7.6% 11.6% 7.3% 1.9% 6.0% 6.1% EBITDA (Rs mn) 237, , , , , , ,878 Margin % 33.2% 30.2% 32.4% 34.1% 33.9% 34.2% 34.6% % chg YoY 15.6% -1.9% 19.4% 13.0% 1.3% 7.0% 7.2% Source: HDFC sec Inst Research Page 7

8 We reduce our RPM assumptiosn for the India wireless business as we build in a sharp decline in pricing on account of competitive pressures. Our voice RPM assumptions are Rs 0.337/min for FY16 and Rs 0.320/min for FY17 (FY15 : Rs 0.374/min; Q1FY16 : Rs 0.349/min) We also reduce our Africa business estimates led by persistent weakness in underlying revenue growth and unfavourably currency moves. We reduce our EBITDA estimates for the company s Africa business as we build in network cost escalation led by tower asset divestiture. REVISION IN ESTIMATES Rs mn FY16E FY17E Revised Earlier % chg Revised Earlier % chg India - Wireless KPIs EOP Subs (in 000's) 240, , % 254, , % MOU (in mins/sub) % % RPM (in Rs) % % ARPU (in Rs) % % MOUs (in mn) 1,189,760 1,189, % 1,267,549 1,267, % India - Financials Overall Revenue 683, , % 721, , % EBITDA 265, , % 283, , % EBITDA margin % 38.9% 38.9% 0 bps 39.3% 39.3% 0 bps Africa - Wireless KPIs EOP Subs (in 000's) 82,364 82, % 88,129 88, % MOU (in mins/sub) % % RPM (in US Cents) % % ARPU (in US$) % % MOUs (in mn) 133, , % 150, , % Wireless Revenue (in $ mn) 4,119 4, % 4,417 5, % Africa - Financials ($ mn) Rs / $ % % Overall Revenue 4,119 4, % 4,417 5, % EBITDA 846 1, % 915 1, % EBITDA margin % 20.5% 21.3% -77 bps 20.7% 22.0% -128 bps Consolidated - Financials Overall Revenue 939,037 1,014, % 995,336 1,103, % EBITDA 318, , % 340, , % EBITDA margin % 33.9% 33.6% 26 bps 34.2% 34.2% -1 bps Adj. PAT 54,404 68, % 74,527 74, % PAT margin % 5.8% 6.8% -100 bps 7.5% 6.7% 76 bps O/s shares 4,000 4, % 4,000 4, % EPS % % Source: HDFC sec Inst Research Page 8

9 We value Bharti s domestic wireless business at 6.0x rolling 12-month forward EV/EBITDA, a discount to Idea (6.5x) due to the company s lower growth prospects. We remain concerned about Bharti s domestic wireless business on account of (1) increasing capex to support data growth: this is likely to cap FCF potential (2) sustained competitive pressures preventing tariff increases (3) looming threat of Reliance Jio s entry in the telecom business. We believe that Reliance Jio s competitive entry could be very damaging for Bharti, if voice RPM is under pressure. SOTP VALUATION SUMMARY Segments Methodology Rolling 12m EBITDA/share EV/EBITDA Value Value/Share EBITDA (Rs bn) (Rs) multiple (x) (in Rs bn) (Rs) Wireless EV/EBITDA , Telemedia " Enterprise " DTH " International " Infratel DCF* Enterprise Value 2, (-) Net debt Equity Value 1, (-) One time spectrum charge Target price 1, * Details available in our Bharti Infratel result update ; we assign 25% holdco discount to the valuation of Bharti Infratel and Airtel DTH Source: HDFC sec Inst Research SOTP VALUATION SUMMARY FY17E data revenue growth (%) Voice RPM change (FY17E) Target price (Rs/sh) 0.0% -2.5% -5.0% -7.5% -10.0% FY17E Voice RPM (Rs) % % FY17E Data 30% % revenue (Rs bn) % Source: HDFC sec Inst Research Note : We assume stable cost inflation as well as a steady multiple of 6x rolling 12-m forward multiple to arrive at a target price. Page 9

10 PEER VALUATIONS Company Country M-Cap (US$ mn) Rating P/E ROE % FY15-17 CAGR(%) EV/EBITDA (x) FY16 FY17 FY16 FY17 EBITDA EPS FY16 FY17 Bharti India 25,884 SELL Idea India 9,271 SELL (4.1) Bharti Infratel India 14,234 BUY Towercos American Tower Corp USA 40,364 NR Crown Castle Intl. Corp USA 27,328 NR (20.9) (20.9) TBIG Indonesia 2,861 NR Global telcos (developing) Bharti Airtel* India 25,884 NR Idea Cellular* India 9,271 NR (4.6) Bharti Infratel* India 14,234 NR China Mobile China 262,622 NR XL Axiata Indonesia 1,921 NR PT Telkom Indonesia 21,542 NR AIS Thailand 20,723 NR True Corp Thailand 7,803 NR Maxis Behrad Malaysia 12,855 NR Telekom Malaysia Malaysia 6,434 NR Turkcell Turkey 9,841 NR Turk Tele Turkey 8,434 NR Telefonica Brazil Brazil 20,443 NR Source: HDFC sec Inst Research, Bloomberg ; * Bloomberg consensus estimates Page 10

11 CONSOLIDATED INCOME STATEMENT (Rs mn) FY13 FY14 FY15 FY16E FY17E Net Sales 769, , , , ,336 Growth (%) License Fee 66,486 76,631 87,391 90,132 95,567 Access charges 113, , , , ,098 Network cost 173, , , , ,903 Employee cost 38,823 46,228 47,123 48,120 51,005 SG&A 145, , , , ,441 Total Operating Cost 536, , , , ,014 EBIDTA 232, , , , ,322 EBIDTA (%) EBIDTA Growth (%) (1.9) Depreciation 148, , , , ,099 EBIT 84, , , , ,222 Interest 36,937 35,957 28,603 32,204 26,836 Forex loss/(gain) 3,148 12,423 21,530 20,000 0 PBT 44,346 72, , , ,609 E/o loss/(gain) - (538) 8,532 (15,000) - Tax 25,184 48,449 54,047 62,170 64,566 Minority Interest (88) 2,467 1,248 4,749 5,516 Share of loss/(profit) & others (3,506) (5,211) (7,223) (5,223) (3,223) PAT 22,756 27,726 51,835 62,180 74,527 EO loss/(gain) (net of tax) - (207) 4,228 (7,776) - APAT 22,756 27,520 56,063 54,404 74,527 APAT Growth (%) (46.6) (3.0) 37.0 EPS EPS Growth (%) (46.6) (3.0) 37.0 CONSOLIDATED BALANCE SHEET (Rs mn) FY13 FY14 FY15 FY16E FY17E SOURCES OF FUNDS Share Capital 18,988 19,987 19,987 19,987 19,987 Reserves 484, , , , ,170 Others Total Shareholders Funds 503, , , , ,157 Minority Interest 40,886 42,102 48,525 53,274 58,790 Long Term Debt 569, , , , ,283 Short Term Debt 98, , , , ,542 Total Debt 667, , , , ,825 Non-current liabilities 58,466 74, , , ,080 TOTAL SOURCES OF FUNDS 1,269,932 1,472,761 1,534,773 1,607,742 1,829,852 APPLICATION OF FUNDS Net Fixed Assets 638, , , , ,703 Acquired intangible assets 648, , , ,283 1,057,283 Other non-current assets 108, , , , ,744 Non-current assets 1,395,348 1,607,915 1,730,363 1,744,408 1,914,730 Inventories 1,109 1,422 1,339 1,406 1,477 Trade Receivables 67,824 62,441 67,252 65,733 69,674 Cash & Equivalents 81, , , , ,549 Other Current Assets 46,349 47,921 48,860 54,766 47,957 Current Assets 196, , , , ,657 Trade Payables 259, , , , ,495 Other Current Liabilities 62,419 75,030 77,931 72,814 76,586 Current Liabilities 322, , , , ,081 Net current Assets (125,416) (135,154) (195,591) (207,213) (155,424) TOTAL APPLICATION OF FUNDS 1,269,932 1,472,761 1,534,773 1,607,742 1,829,852 Page 11

12 CONSOLIDATED CASH FLOW (Rs mn) FY13 FY14 FY15 FY16E FY17E Reported PAT 22,756 27,726 51,835 62,180 74,527 PAT from Operations 22,756 27,726 51,835 62,180 74,527 Depreciation 148, , , , ,099 Interest 40,085 48,381 50,133 52,204 26,836 Working Capital Change 23,841 29,723 18,739 6,021 34,641 OPERATING CASH FLOW ( a ) 234, , , , ,103 Capex (133,167) (114,159) (146,411) (181,406) (182,421) Free Cash Flow 101, , ,607 95, ,682 Investments & Others (55,890) (135,574) (74,070) 155,000 - INVESTING CASH FLOW ( b ) (189,057) (249,733) (220,481) (26,406) (182,421) Capital Issuance 31,654 67, Debt Issuance (36,194) 17,024 (106,351) ,669 Interest & other finance income (31,154) (40,011) 83,200 (80,880) (143,049) Dividend (4,413) (4,596) (17,882) (15,804) (30,310) FINANCING CASH FLOW ( c ) (40,107) 40,377 (41,033) (96,570) (15,690) NET CASH FLOW (a+b+c) 5,666 52,970 14, , ,992 Parked in overdrafts 75,709 83,419 6, , ,224 Closing Cash & Equivalents 81, , , , ,549 KEY RATIOS PROFITABILITY (%) FY13 FY14 FY15 FY16E FY17E EBITDA Margin EBIT Margin APAT Margin RoE RoCE Core ROCE EFFICIENCY Tax Rate (%) Asset Turnover (x) Inventory (days) Debtors (days) Payables (days) Cash Conversion Cycle (days) (91) (94) (107) (126) (134) Debt/EBITDA (x) Net D/E Interest Coverage PER SHARE DATA EPS (Rs/sh) CEPS (Rs/sh) DPS (Rs/sh) BV (Rs/sh) VALUATION P/E P/BV EV/EBITDA OCF/EV (%) FCF/EV (%) FCFE/Mcap (%) Dividend Yield (%) Page 12

13 RECOMMENDATION HISTORY Bharti Airtel TP Date CMP Reco Target 30-Apr SELL Aug SELL Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period Page 13

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