SingTel – CIMB

Bharti’s growth momentum continues

Bharti 2QFY08 Results

In line with consensus but above our expectations. Bharti’s (Sing Tel’s 30.5% associate) recorded 1H08 net profit of Rs. 31.2bn (+85%yoy) that was 3% below consensus estimates but 7% above our expectation.

Revenue surged 45%yoy on robust subscriber growth. The India growth story continues with Bharti’s subscriber base growing by 81% yoy and 15% qoq. Bharti cemented its market leadership role by increasing its market share by 180bps yoy to 23.9% as at end Sept 07. Bharti ended 2QFY08 with 48.9m mobile subscribers.

ARPU declined but EBITDA margin expanded. MOUs declined 2% qoq, contributing to lower ARPUs (-6% qoq). This can be linked to the rationalisation of its free minutes/low tariff plans as well as some seasonality factors. These initiatives, combined with economies of scale helped lift EBITDA margins to 42.8% (+140bps qoq, +370bps yoy). Management expects MOU recovery going into Q3 and Q4. However, ARPU should continue to decline as Bharti expands into rural areas but management is focused on making every subscriber profitable.

Spectrum not expected to be growth bottleneck. Management clarified that spectrum constraints are limited to CBD areas but is not an issue for rural/hinterland areas where Bharti is pursuing new subscribers.

Tower demerger initiative is awaiting High Court approval in early November.

Regulatory update. The DoT has accepted TRAI’s recommendations for allowing unlimited service providers in one circle, permitting dual technologies in one circle and adopting and enhancing the subscriber-linked criterion for allocation of additional spectrum. These developments are would increase competitive pressure for GSM players like Bharti. GSM players including Bharti have appealed against these decisions with a Nov 12 date set for the hearing.


Bharti continues to execute well on all fronts: delivering top-line growth, growing its margins and extending its market leadership despite increased competition. Bharti is comfortably on track to meet consensus FY08 earnings estimate of Rs 64.6bn with scope to surprise on the upside.

Outlook remains bright for Bharti. With penetration rates still below 20%, Bharti clearly has attractive growth opportunities ahead as the undisputed market leader. We believe that concerns regarding increased competition from the potential regulatory change that allows unlimited serviced providers in one circle as well as a more aggressive Vodafone is premature. There are still ample growth opportunities for the major players and Bharti’s excellent track record as the market leader remains intact.

Bharti’s compelling growth prospects is a key reason for our bullish view on SingTel. Bharti is the largest value driver contributing 32% to our SingTel valuation. This should increase as Bharti’s growth outpaces SingTel’s other business units. From the earnings contribution standpoint, Bharti currently contributes 32% of associate income or 17% of SingTel’s earnings.

Valuation and recommendation

Maintain OUTPERFORM with unchanged target price of S$4.54. SingTel remains our top-pick among Singapore telcos over the next 6 months, offering reliable earnings growth as well as highly liquid exposure to fast-growing associates such as Bharti and Telkomsel.

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