Bharti Tele: Right numbers

Bharti Tele-Ventures' margins squeezed, but volumes make up

Bharti's sequential revenue growth of 15.8 per cent was higher than consensus estimates. While its mobile subscriber base grew 12.9 per cent, the surprises were a two per cent improvement in ARPU (average revenue per user) and a 7.2 per cent in MOU (average minutes of usage per user).

Further, the proportion of lower value pre-paid customers fell to 75 per cent of the total subscriber base, compared with 77 per cent in the September quarter.

Finally, non-voice revenues, which includes SMS, voice mail services, call management and other value added services, rose by 110 basis points to 8.5 per cent of total revenues. But despite the positive surprise on the revenue front, growth in operating profit was lower at 11.3 per cent.

The EBITDA margin of the mobile services segment fell 90 basis points, but that was mainly because of losses in the new circles Bharti started operations post June 2004.

Together, these circles posted a loss at the EBITDA level amounting to 1.85 per cent of total mobile services revenues. In existing circles, it posted a 120 basis points gain in EBITDA margin.

The Infotel Services segment, which includes the fixed line, long distance and enterprise services businesses, also reported a 130 basis points drop in the EBITDA margin.

According to the company, this was mainly on account of a drop in STD rates towards the end of the December quarter.

The key mobile services business in existing circles has done extremely well, what with its EBITDA growing by 21 per cent sequentially.

But one of the concerns for Bharti is its high capital expenditure. It has already spent around $750 million on capex in the nine months till December 2004, which was the target it had set for the whole of FY04.

The trend is expected to continue, especially with the company's aggressive plans to reach most of the 5,000 towns in the country by end-FY06. (Its current reach is 2,000 towns). The concern with the high capex is that it will translate into high depreciation charges going forward.

Bharti now trades at an EV/EBITDA valuation of about 11 times based on FY06 estimates, much higher than the Asian average of around 5 times. While Bharti does deserve a premium because of better growth prospects, a premium of over 100 per cent seems stretched.

Great Eastern Shipping

Mercator Lines had earlier set the trend for improved third-quarter results from the shipping industry and it was no surprise that Great Eastern Shipping (GES) has also reported better performance.

GES's profit from ordinary items has grown sequentially by a healthy 72.3 per cent to Rs 287.98 crore. On a y-o-y basis profit from ordinary activities has grown 162.7 per cent.

This stock rose around 3 per cent in Thursday trading. GES has an overwhelming emphasis on transporting oil and petroleum products.

Average freight rates in this segment have improved sequentially ""- in the case of very large crude carriers, average freight rates have improved sequentially by about 111 per cent and for Aframax, they have risen 127 per cent.

And a larger turnover has helped operating profit grow 48 per cent sequentially to Rs 347.57 crore ( excluding other income and sale of ships) and operating profit margins have expanded 1042 basis points to 58.53 per cent.

Going forward, spot freight rates in the tanker segment had eased about 28 per cent from the unsustainable levels reached in December, but they are expected to remain firm due to a favourable supply-demand balance of tanker capacity globally.

Steel Authority of India matches Tata Steel

Tata Steel had earlier reported a doubling of December quarter profit and SAIL has matched that performance in terms of profit growth.

The public sector giant has reported a 105 per cent growth in its net profit to Rs 1,514.2 crore in the December quarter. The stock gained only about half a per cent as the results had been more or less discounted.

Steel prices are higher year-on-year by about 30 per cent and coupled with domestic demand showing no signs of waning, net sales of SAIL grew 32 per cent in the last quarter to Rs 7,769.1 crore.

Sales growth has also been helped by the company increasing its sales of high value products like heavy structurals, plates and bars, and rounds.

Meanwhile, SAIL, like other steel companies, has also seen its raw material cost jump "" it rose 44 per cent to Rs 2,364.2 crore, largely due to higher coking coal prices.

However, a larger turnover helped operating profit rise 149.7 per cent to Rs 3,108.9 crore and operating profit margins rose 1,887 basis points to 40 per cent. Volume growth has been 5 per cent y-o-y, so revenue growth depends on higher prices.

The SAIL management has indicated that it would be looking at hiking prices for the long term customers, when these contracts come up for renewal.

With contributions from Mobis Philipose & Amriteshwar Mathur