Bharti Airtel: Hot line

Robust mobile telephony and enterprise segment revenues drove FY07 numbers

Bharti Airtel has rung in a good set of numbers for FY07. Driven by a revenue growth of 72 per cent in the mobile telephony segment and 42 per cent in the enterprise space, the company has turned in total revenues of Rs 18,519 crore for FY07.

Despite the average revenues per user (ARPU) coming off to Rs 406 (lower by about 8 per cent), the company managed an increase in its operating profit margin for FY07 to 40.2 per cent up from 37.3 per cent in FY06.

This is possibly because the proportion of pre-paid customers has increased by about 600 basis points to 88.5 per cent during the year.

Also the average minutes per user are up by 10 per cent for FY07 at 475. Thus, margins for the mobile segment were up a strong 170 basis points, while those for the enterprise segment were up by 370 basis points.

The operating profit for FY07 saw an impressive rise of 72 per cent to Rs 7,451 crore. Revenues for the March quarter were a tad below expectations because the company took a hit of around Rs 60 crore on account of roaming rates being cut. However, despite this mobile margins were up sequentially by 150 basis points.

Looking ahead, the company continues to expand its presence-by the end of FY08 it plans to cover 70 per cent of the population compared with 59 per cent at present.

It has gained market share from 20.4 per cent to 23 per cent in FY07 but with Vodafone coming in, it's hard to see market share growing very much beyond this.

Moreover, margins which are at an all-time high and while they may not fall because of economies of scale kicking in, they could stay at these levels, which too is creditable.

Newer businesses such as broadband, direct-to-home and IPTV will make the model more robust. At the current price of Rs 827, the stock trades at around 26 times estimated FY08 earnings and should continue to outperform.

Cipla: In troubled waters

The Cipla stock declined a huge 14 per cent on Friday thanks to its uninspiring financial performance for the March 2007 quarter, and the general bearishness in the market.

Cipla's performance in the March 2007 quarter was adversely affected by lower exports, a rising operational cost structure and rupee appreciation.

As a result, operating profit declined 22.6 per cent y-o-y to Rs 147 crore in Q4 FY07 compared with 6.3 per cent growth in net sales to Rs 938.47 crore. Its operating profit margin also declined 590 basis points y-o-y to 15.7 per cent in the last quarter. In contrast, in FY 07, operating profit margin grew 20 basis points y-o-y to 23 per cent.

No doubt, the company's formulation exports grew 16.8 per cent y-o-y in the last quarter, but analysts highlight that surging exports of low margin anti-HIV medication resulted in difficulty to absorb higher raw material costs.

The company also faced a decline in API exports to regulated markets by 27 per cent y-o-y in Q4, which resulted in total exports rising just 0.5 per cent during the quarter.

In the domestic market, the company's sales expanded 14.4 per cent y-o-y in the last quarter, thanks to improved demand from segments such as anti-asthmatics, antibiotics and cardiovascular segments.

But this didn't help in protecting margins. Some of the pressure on margins was also owing to other expenditure rising 14.8 per cent y-o-y to Rs 250.67 crore in the last quarter, owing to higher factory overheads such as power and fuel, coupled with higher selling expenses.

The adjusted raw material costs as a percentage of net sales also went up 410 basis points y-o-y to 53 per cent in the last quarter. After the disappointing performance, some analysts have cut their earnings forecast by 13-18 per cent for FY08 and FY09.

With contributions from Shobhana Subramanian and Amriteshwar Mathur