The Bharti Airtel stock rose in early trade a day after telco reported its lowest quarterly profit in 15 years. Continued pricing pressure in the telecom sector after Reliance Jio's entry in 2016 and its bid to gain market share with low priced/free tariff offers led to 77.8% fall in net profit.
In fact, the stock was the top gainer on Sensex (4.38%) and Nifty (4.62%) today. It rose to a one-month high level of Rs 427 on BSE.
We look at why the stock rallied even as the firm reported Rs 83 crore in profit which was lower compared to net profit of Rs 373 crore in the same period a year ago.
The telco also clocked a deferred tax credit of Rs 464 crore in Q4 of this fiscal.
Above expectations
The net profit came above estimates of analysts and brokerages. Most of them had predicted net loss for the firm for the first time in 15 years. UBS had expected the mobile carrier to post Q4 loss of Rs 220 crore.
Africa business
Bharti Airtel's net profit from Africa business touched an all-time high of Rs 699 crore, which led to the positive sentiment around the stock.
Analysts' take
Analysts seem impressed with firm's metrics.
Nomura analysts said Q4 operating performance was resilient relative to expectations as mobile business metrics not too bad.
UBS has maintained a price target of Rs 560 with rating "buy". The company has "solidly defended its market share and has the spectrum, capacity and willingness to invest," UBS in a note said.
CLSA has reatined its buy rating on the stock with target price cut to Rs 590. CLSA said that Q4 Consoliated Earnings before interest, tax, depreciation and amortisation (EBITDA) was ahead of estimates. It lowered FY19-21 Revenue and EBITDA forecasts by 8-15%. It expects the firm to deliver 14 percent CAGR in consolidated EBITDA.
Deutsche Bank has a buy call on the stock with a price target of Rs 475. It said that the financials were weak as expected, but had better metrics. The stock offers a valuation upside when sector revenues recover.
Capital expenditure
The firm ended the financial year with its highest ever capital expenditure of Rs 240 billion, said Gopal Vittal, MD and CEO, Airtel India and South Asia.
Commenting on the financial performance, Kotak Institutional Equities said stiff cost rationalization across businesses helped the firm avoid reporting net loss in quarter.
Earnings review
The consolidated revenue of the telecom major fell 5.4 per cent to Rs 19,634 crore in Q4. It had posted consolidated revenue of Rs 21,934.60 crore in the same quarter last year.
Blaming the 'artificially suppressed pricing' for tepid Q4 numbers, Gopal Vittal, MD and CEO, Airtel India & South Asia said, "The telecom industry continues to witness below cost, artificially suppressed pricing. Industry revenues were further adversely impacted this quarter due to the reduction in international termination rates."
Airtel's annual consolidated revenue stood at Rs 83,688 crore, down 9.8 per cent from the previous year. The company's consolidated net debt has increased to Rs 95,228 crore from Rs 91,714 crore in the previous quarter. However, its net revenue from Africa grew 13.4 per cent Y-o-Y.
The telecom major had posted a profit of Rs 373.40 crore in the corresponding quarter last year and Rs 305.80 crore in the sequential quarter ended December 31, 2017.