From being a white elephant, Bharti is SingTel's new cash cow

The Indian telecommunications company is expected to contribute about 15-19% of SingTel’s earnings in FY11F/12F.

In a statement, DBS Bank predicted that Bharti will make the turnaround from being SingTel’s “key drag” last year to a key profit driver in 2011 and beyond.

The New Delhi based company, in which SingTel has a 32.04% stake, is showing improvement in its Indian & African operations, beating consensus estimate of Rs16.1bln with net profit of Rs 17.9bln (excluding exceptional losses of Rs.4.9bn (one-time brand re-launch cost and forex losses).

DBS credits the profit jump to the near-stabilizing of revenue per minute (RPM) in India and the improvement in African operations.

The bank said the new level of RPM indicates the end of price wars. RPM declined only 0.8% QoQ, lowest in the past eight quarters while the average revenue per user (ARPU) of the operator stood at Rs.198 versus Rs.202 in 2Q11.

DBS revealed that Bharti is set to launch its third generation (3G) services across all its 13-telecom circles in India by the end of March.

The telco believes the premium offering would help stabilise its ARPU.

Bharti’s EBITDA margin in Africa, expanded by over 100 basis points sequentially to 25%, reflecting rationalisation of costs.

"[The expansion] should continue as the company will outsource peripheral services such as network management and customer care over the next four quarters, DBS said.

Bharti's final objective is to secure 40% EBITDA margin in Africa by FY13F.