Bharti Tele: Static line

Bharti Tele's operating margins continue to remain flat in Q3

Even as Bharti Tele-Ventures continues to grow its subscriber base (2.4 million net additions in Q3 FY06), its operating margin remained stagnant for the past three quarters at around 37 per cent.

There has been a slight dip in margin in the December quarter to 36.8 per cent, dragged down by lower margins in the enterprise segment.

The management has ascribed the fall to higher capital expenditure associated with large contracts and rollout of operations in new places.

Bharti's capex is likely to remain high as the rollout into new territories continues, the estimate for FY07 being Rs 6,500 crore. That means revenues need to grow at a much faster pace for margins to expand or remain steady.

The revenue growth in Q3 FY06 was 11 per cent q-o-q, though mobile services grew faster at 14 per cent q-o-q. With the subscriber mix increasingly changing in favour of pre-paid customers "" up 2.2 percentage points q-o-q to 79.7 per cent "" who typically generate lower Average Revenue Per User (ARPUs), the ARPU too is likely to come off, though the fall over the last three quarters has not been very significant.

In fact, the ARPU in the December quarter at Rs 470 has been slightly lower than the Rs 476 in Q2 FY06 and Rs 491 in Q1 FY06.

Therefore, even as the average minutes of use per user are up in the third quarter at 411 minutes from 388 minutes in the September quarter, the effective rate per minute has fallen to Rs 1.14 from Rs 1.23 in Q2 FY06. The stock has underperformed the market badly in the third quarter.

The consensus EPS for FY06 is Rs 12.30, which means Bharti has to turn in an EPS of Rs 3.90 in Q4. Unless estimates are changed, the market is likely to be disappointed.

ABB: Electrifying numbers

The boom in the power equipment sector has resulted in ABB posting a smart 32.21 per cent y-o-y growth in net revenues to Rs 985.72 crore in the December quarter. Operating profit improved by 32.24 per cent y-o-y to Rs 155.06 crore in Q4 CY05.

Though there was a big increase in other expenditure of 42.57 per cent y-o-y and a 34.42 per cent rise in personnel costs, lower steel prices, better cost control and improvement in efficiencies helped reduce the cost of raw material and erection services, which went up only 27.72 per cent.

Its operating margin improved by 62 basis points y-o-y to 14.12 per cent. The ABB stock is up over 45 per cent since the beginning of the October, as order flows improved.

In the December quarter, its order book rose 49 per cent to Rs 1,016.6 crore, and the company closed the year with an order book of Rs 2,100 crore. In January 2006, it bagged a Rs 430-crore order from ONGC. The result propelled the ABB stock a further 8.6 per cent to Rs 2,483 on Tuesday.

But the expanding order book and visibility of revenues seem factored into the stock price as the stock trades at a rich valuation of 35 times CY06 EPS.

With contributions from Shobhana Subramanian and Amriteshwar Mathur