Bharti: A good call

Lower tariffs have seen users talking more; that has helped Bharti ring in good numbers.

Lower call charges have only got users talking more. Taking industry watchers by surprise, the minutes of use (MoU) for the Rs 27,025 crore Bharti Airtel have gone up sharply to 507 minutes in the March 2008 quarter compared with Rs 474 minutes in the December 2007 quarter.

Bharti had reduced the rate for pre-paid users to Rs one in January this year. That has left the average revenue per user(ARPU), for India's biggest telecom operator, more or less intact at Rs 357 sequentially and ensured that the operating profit margin(OPM) hasn't come off too much at 41.6 per cent and down about 100 basis points q-o-q.

All in all, Bharti has posted a sterling set of numbers for the March 2008 quarter with revenues up a smart 12.3 per cent sequentially, on the back of a net addition of close to 6.2 million subscribers.

It's not just the retail user base that's bringing in the money for Bharti, the telco's enterprise or corporate business turned in a strong operating margin of over 50 per cent, though a more sustainable margin for the future would be in the region of 45 per cent.

Bharti is among the faster-growing players and added to its market share in the March quarter taking it up to 23.8 per cent; there's little reason why the telco should not maintain the tempo in a market that's estimated to grow to 500 million subscribers by 2010 from 260 million currently.

Most of Bharti's incremental growth is coming from rural areas where penetration is still low. For FY08, Bharti reported a net profit of Rs 6,700 crore a rise of 57 per cent.

While the growth should taper off on a higher base, it would be reasonable to expect profits to grow at 30 per cent compounded over the next couple of years, especially with new businesses like IPTV and later 3G services, chipping in.

The stock soared 10 per cent on Friday, and at Rs 925, trades at just over 20 times FY09 estimates. Given the potential for earnings growth, the stock should be an outperformer.

ABB: Sales slip is showing

Engineering major ABB's net sales growth for the March 2008 quarter is somewhat disconcerting. At 17 per cent, the growth is way below the 39 per cent growth that the capital goods maker turned in during CY07.

The Rs 5,930 crore firm claims that there's little to worry about: larger sized orders are apparently stretching the time taken to book revenues. Revenues are typically accounted for only after a certain part of the order has been completed and some amount of expenditure incurred.

The ABB stock fell just a bit to Rs 1171 on Friday in an otherwise good market. The growth in the order book, though seems fine: at a 35 per cent, it is in keeping with the growth of 36 per cent in CY07.

The operating profit margin(OPM) continues to improve: at 11.2 per cent it is up 140 basis points. For perspective, the OPM in CY07 was up110 basis points at 12.2 per cent. ABB has thus managed to pass on the higher costs of inputs like steel.

The firm has commissioned a small power transformer manufacturing facility that will enable it to cater better for the power sector.

Going forward, ABB's growth will be powered by its outstanding order backlog of Rs 6,174 crore. At Rs 1171, the stock trades at 36 times estimated CY 08 earnings and appears a tad expensive.

Competitor BHEL at Rs 1866, gets a discounting of 21 times estimated FY 09 earnings, while Siemens at Rs 644, trades at about 35 times estimated year ended September 2008 earnings.