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Mobile Telesystems' Third-Quarter Revenue Soars

TSC Ratings

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Mobile Telesystem's (MBT Quote) Q3 FY08 total revenue grew 26.9% to $2.81 billion from $2.22 billion in Q3 FY07, driven by subscriber additions, rising voice traffic and VAS adoption. Services and connection fees revenue rose 27.4% to $2.80 billion from $2.20 billion a year ago. Meanwhile, sales from the handsets and accessories posted a decline of 24.4% to $15.44 million from $20.44 million. Total consolidated subscribers advanced 12.3% to 87.57 million from 77.97 million a year ago, mainly due to higher subscriber additions in Russia and Uzbekistan.

Geographically, in Russia, the average monthly revenue per subscriber (ARPU) grew 12.8% to $11.50 and subscriber acquisition costs per additional subscriber (SAC) spiked 7.4% to $26.10. Further, the churn rate rose to 9.1% from 7.1%. In Ukraine, ARPU ascended to $8.20 from $7.30 a year ago, while SAC slipped 5.5% to $10.30. The churn rate in Ukraine deteriorated to 15.8% from 12.5% a year ago. In Uzbekistan, ARPU decreased to $7.30, while SAC jumped 75.0% to $7.70 and the churn rate improved to 7.3%. In Turkmenistan, ARPU decreased 82.3% to $10.00, while SAC fell 73.6% to $5.50. The company's mobile penetration rate in Russia, Ukraine, Uzbekistan, Turkmenistan, Armenia and Belarus climbed to 124.0%, 120.0%, 38.0%, 16.0%, 80.0% and 83.0% respectively. MBT's market share plummeted to 35.0%, 33.0% and 69.0% in Russia, Ukraine and Armenia, respectively. In Uzbekistan and Belarus the company maintained its 49.0% and 52.0% market share, respectively, while in Turkmenistan it increased to 87.0%.

MBT's gross profit margin declined 78 basis points to 75.51% from 76.29% a year ago, primarily due to increased cost of services. Similarly, the company's operating margin fell 292 basis points to 33.26% from 36.18% in the same quarter of the last year, due to higher operating expenses. Additionally, the company's interest expense decreased 10.7% to $34.90 million resulting in an improvement in the interest coverage ratio to 26.80 from 20.52 a year ago. Net income plunged 21.3% year-over-year to $515.56 million or $1.35 per share from $654.73 million or $1.66 per share in Q3 FY07.

At the end of Q3 FY08, the company's total cash and cash equivalents inched up 2.6% to $667.72 million. The net operating cash flow of SVU augmented 35.4% year-over-year to $1.35 billion. The return on equity expanded 1,067 basis points to 44.76% from 34.09% a year ago. Similarly, the return on assets rose 344 basis points to 20.03% from 16.59%. However, a relatively poor quick ratio of 0.33 suggests that the company's weak liquidity position. Total debt increased 3.2% to $3.19 billion from $3.09 billion a year ago. Stockholders' equity slipped marginally to $5.02 billion from $5.05 billion in Q3 FY07. Consequently, the debt-to-equity ratio deteriorated to 0.64 from 0.61 a year ago.

In October 2008, MTS placed two ruble bonds worth a total of 20.00 billion rubles. The company repurchased 37.80 million shares as part of reorganization of Bashcell and MSS for approximately $450.00 million.

Recently, the company has applied for regulatory approval to acquire 100% of cellular phone retailer Telefon.Ru. Mobile TeleSystems has also signed a strategic, nonequity partnership agreement with Vodafone Group (VOD Quote) to cooperate in the field of commerce and marketing.

Looking forward to FY08, the company reaffirmed its revenue guidance of 25.0% revenue growth and reduced its CAPEX outlook to $2.00 billion from $2.50 billion.

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