Buy this telecom survivor
With a shakeout happening in the telecom sector, the pressure on call charges has been easing. The exit of players, whose licences have been cancelled, is likely to put incumbents in a strong position. Bharti Airtel, the country’s top mobile operator, may be a good bet for investors with a two/three-year investment horizon.
By bidding selectively in the recent spectrum auctions, top operators have also signalled they will not overpay for air waves, as they did during the 3G auction.
It is Advantage Bharti Airtel thanks to its large share of subscribers as well as revenues, stable realisations and a focus on adding active customers. But the progress on turning around the African operations has been slow. Non-mobile businesses such as towers (Bharti Infratel), DTH and telemedia (landline and broadband) have seen significant operational improvements.
At Rs 311, the Bharti Airtel share trades at 18 times its likely per share earnings for FY15, which is lower than the levels it has traded and is marginally cheaper than Idea Cellular.
In the first nine months of the current fiscal, Bharti’s revenues increased 13.5 per cent to Rs 59,863 crore, while net profits fell 45.7 per cent to Rs 1,767 crore due to higher tax outgo and interest costs. With peak spending on expansion out of the way and the return of pricing power, profitability is likely to improve from here.
Bharti has the highest share of subscribers and revenues in the domestic telecom space. Its revenue market share is in excess of 30 per cent, placing it comfortably above competitors. Realisations have been stable at 42-43 paisa a minute over the past several quarters, while minutes of usage are rising steadily. The increased usage can begin to pay off once tariffs are put up.
Bharti’s focus has increasingly been on adding lucrative subscribers and weeding out those who do not recharge regularly. As with its competitors, such as Idea Cellular and RCom, Bharti’s subscriber base declined (by about four million users) in the last couple of quarters as it let go of inactive and non-lucrative customers.
The proportion of active subscribers (those that recharge regularly) has increased significantly to 95 per cent, placing it behind Idea Cellular. The African operation has seen a decline in the ARPU (average revenue per user) as well as revenue per minute the past three-four quarters. This has dragged the profit performance. Bharti’s DTH division continues to add subscribers at a healthy pace and ARPU in this segment has risen steadily over the past several quarters and is now at Rs 186 — among the highest in the industry.