DBS Group Research is keeping its “buy” recommendation on Singtel with an unchanged target price of $2.69, following Bharti Airtel’s announcement of its 2QFY2021 results.
For the second quarter of FY2021 ended Sept 2020, Bharti recorded its sixth consecutive quarter of loss. But analyst Sachin Mittal is remaining positive on Singtel and its investment in Bharti as Bharti is showing some recovery.
For 2QFY2021, Bharti’s EBITDA came in at Rs 118.5 billion, an improvement of 32% y-o-y and 11% q-o-q, beating consensus expectations of Rs 108.7 billion. EBITDA margin also improved from 44.4% in 1QFY2021 to 46.0% in 2QFY2021.
Revenue for the period also came in ahead of consensus at Rs 257.9 billion, an increase of 22% y-o-y and 7.7% q-o-q.
Mobile service revenue from India is on the path to recovery led by strong customer uptake of 4G services. Indian mobile services customer base reached 293.7 million during the quarter, up 5.0% q-o-q.
Subsequently, 4G data customers in India reached 152.7 million, up by 14.4 million q-o-q, and data usage per subscriber was at 16 GBs/month. Average revenue per user (ARPU) further supported revenues with an increase of Rs 5.0 to Rs 162 during the quarter.
With that, revenue from the segment was up by 26% y-o-y or 7.4% q-o-q, reaching Rs 138.3 billion in 2QFY2021.
Based on this result, Mittal expects Singtel to a post-tax loss of $45-50 million for 2QFY2021 from Bharti, narrower compared to $80 million loss in 1QFY2021.
In Bharti Telecom’s (BTL) standalone books, the net loss is primarily made up of interest charges on its borrowings. In 1QFY2021, the BTL loss contribution to Singtel was at $14 million. In May 2020, BTL carried out a deleveraging exercise in order to break the shackles of debt by divesting 2.75% in Bharti Airtel, at a price of Rs 558 per share, through a negotiated deal which raised an estimated Rs 76 billion, bringing down the effective stake of BTL in Bharti Airtel to 36% (from 38.8%).
In lieu of this, Singtel’s effective ownership in Bharti Airtel also came down from 33.3% to 31.9% since Singtel owns 50.6% in Bharti Telecom. Due to the deleveraging exercise, BTL will not be recording losses in their books where Singtel might end up bearing $10-15 million.
“Hence, from 2QFY2021 onwards, we think there won’t be any loss contribution from BTL to Singtel, instead and Singtel might end up saving $10-15 million going forward each quarter. Therefore, considering the 2QFY2021 results reported by Bharti Airtel paired with the deleveraging exercise carried out by BTL, we estimate that Bharti Airtel’s post-tax loss contribution to Singtel will be around $45- 50 million in 2QFY2021,” says Mittal.
As Bharti Airtel sees its results improve, Mittal expects this to lead Singtel’s overall contribution from associates.
As at 2.45pm, shares in Singtel are trading at $2.06 or 24.6 times FY2021 earnings with a dividend yield of 5.9%.
