Published on 13/07/2017 2:42:34 PM | Source: Emkay Global Financial Services Ltd

Reduce Bharti Airtel Ltd For Target Rs.306.00 - Emkay

Cost efficiencies paying off well; Currency headwinds impacted Africa

* Standalone EBITDA growth was 3% with margin expansion of 125bps, driven by continued focus on ‘War-on-Waste’ initiative, which resulted in cost increase of 1%. Subsidiaries (exBharti Infratel) continued to face pressure.

* Adverse currency movements affected Africa operations. On comparable basis, constant currency EBITDA grew at a healthy rate of 28.7%, driven by increased focus on cost control. Lower capex aided operating FCF (EBITDA-capex) vs cash burn in FY16.

* Rise in capex to Rs384bn vs Rs271bn was led by spectrum purchase and continued data network roll-out in India. Adjusting for sale of assets in Africa, FCF turned negative at Rs25bn vs Rs65.3bn. Lower tax outgo of Rs32bn vs Rs47bn in FY16 restricted cash burn.

* Gross debt was up at Rs1.1tn vs Rs1tn, increase restricted by sale proceeds from Africa and stake sale in BHIN. 29% of debt is payable within next 2 years while 52% is payable after 5 years. 


“WAR on WASTE” initiatives bearing fruits

* Standalone revenues of Rs623bn grew by 3%, while focus on ‘War-on-Waste’ initiative to control costs aided EBITDA growth of 7% to Rs239bn. Standalone revenues were impacted by weakness in India mobile revenue following the launch of free offerings by Reliance Jio.

* Consolidated revenues at Rs955bn were down 1%, impacted by currency headwinds in Africa. Strict control over costs and healthy growth in Bharti Infratel led to EBITDA growth of 4% to Rs353bn.

* Continued currency headwinds in Africa impacted growth in INR terms while in constant currency Africa business grew by 3.5% (4.4% adjusting for the impact of divestment of tower assets). EBITDA increase of 28.7% in CC terms was commendable due to costcontrol initiatives. Lower capex and EBITDA growth aided operating free cash flow generation.


Spectrum purchase and continued capex in India dented FCF

Cash flow from operation (CFO) was Rs292bn, up 5%, partially aided by lower tax outgo. Gross capex increased by 42% to Rs384bn due to spectrum purchases and continued spends in India. Rise in capex dented FCF generation, which turned negative at Rs25bn vs Rs65bn positive in FY16 (this is adjusting for sale of assets in Africa).


Africa asset sales and stake sale in BHIN restrict debt increase

Gross debt was up at Rs1.1tn vs Rs1tn, as it included all spectrum-related future payments. Proceeds from Africa assets sale was Rs66.7bn and stake sale in BHIN was Rs62bn, restricting increase in debt. 29% of debt is payable within next 2 years while 52% is payable after 5 years. 


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