Prabhudas Lilladher has released a report on Bharti Airtel’s financial results for the third quarter of financial year 2012.

The highlights of the report are:

• Revenue growth steady; higher branding costs hit margins: Bharti Airtel reported revenues of Rs 185.1 billion (up 7.1 per cent quarter on quarter) and EBITDA of Rs 59.6 billion (margin at 32.2 per cent, versus 33.7 per cent in the second quarter of financial year 2012). The margin compression was driven by a spike in SG&A costs in both India (15.3 per cent of revenue versus 14.1 per cent in the second quarter of financial year 2012) and Africa.

In India, the sponsorship of the Airtel Grand Prix, the BCCI Cricket event and the Delhi Half Marathon had an effect. PAT was hit by a higher tax rate (35.3 per cent versus 32.4 per cent in the second quarter of financial year 2012) driven by India where tax holidays continue to phase out.

• India wireless minutes growth muted as Bharti pushes pricing: Bharti recorded a 0.8 per cent quarter on quarter growth in total MOU in a seasonally strong quarter as it focused on pricing (ARPM up 3.5 per cent quarter on quarter). Revenues in India and South Africa grew 3.8 per cent quarter on quarter, driven by growth in the wireless (4 per cent quarter on quarter; 77 per cent of revenue) and passive infrastructure (2.6 per cent quarter on quarter; 19 per cent of revenue) segments.
• Outlook: We believe that the recent 2G verdict augurs well for competitive intensity to moderate in the 2G space. However, sustained tariff hikes will prove to be difficult as the industry still remains competitive despite licence cancellations and TRAI contemplates intervention to control price rise. Owing to the impact of higher SG&A, we reduce our PAT estimates for FY12E and FY13E by approximately 15 per cent and reduce our FY13E EV/EBITDA based target price to Rs 381 (Rs 409).