* Q1 net profit falls 43 pct to 7.2 bln (poll: 10 bln)
* Bottom line eroded by Scartel D&A costs, weaker rouble
* Core profit margin, sales growth targets ahead of
* Shares rise 4 pct in London
(Adds analyst comment, details, share price)
By Maria Kiselyova
MOSCOW, May 29 Russian mobile phone operator
Megafon said a weaker rouble and
depreciation costs related to last year's acquisition of Scartel
hurt first quarter earnings, but its core profit and sales
growth targets remained intact.
The country's economic downturn has so far not hurt telecoms
operators because consumers are still spending. But the
weakening of the rouble - resulting from the Ukraine crisis and
prospect of recession - has prompted a revaluation of
foreign-currency liabilities that translates into non-cash
Megafon, the second-largest operator behind MTS,
bought high-speed wireless Internet provider Scartel to get
ahead of rivals in 4G infrastructure and boost its customer base
But the acquisition brought depreciation and amortisation
costs of around 14 billion roubles, which contributed a 43
percent drop in first quarter net profit to 7.2 billion roubles,
along with a foreign exchange loss of around 5 billion roubles
due to the revaluation of its foreign currency debt.
Analysts had forecast net profit of 10 billion roubles.
Megafon, which is cutting costs to counter the recent hit to
its profits, said it expected to grow revenues by 6-8 percent
this year and achieve a core profit margin of at least 44
percent despite the weaker economy.
Russia is now forecast to achieve growth of just 0.5 percent
this year, hurt by Western sanctions and instability brought by
the Ukraine crisis and wider emerging market uncertainty.
Analysts at JP Morgan said revenue guidance from Megafon,
the last of the "Big Three" mobile operators to report first
quarter results, seemed conservative given that it reported a
10.6 percent rise in first-quarter sales to 74.9 billion roubles
($2.2 billion), slightly above estimates. Mobile revenues rose
8.5 percent, driven by an increase in subscriber base and
booming data revenues.
That compares to a forecast from rival MTS of 3-5 percent
sales growth this year while Vimpelcom recently cut
forecasts and now expects "low to mid single digit" declines in
Megafone also reported forecast-beating operating income
before depreciation and amortisation (OIBDA), up 0.4 percent to
32.5 billion roubles versus the 32.3 billion forecast, and OIBDA
margin at a slightly better-than expected 43.3 percent.
Its London-listed shares rose 4 percent by 1055 GMT.
In addition to Scartel, Megafon's margins were hurt by an
increase in international interconnect termination rates due to
the rouble depreciation and additional sales and marketing
expenses as part of its sponsorship of the Sochi Olympics.
A drive to offer cheap smartphones also hurt margins, though
revenues from the sales of handsets rose 35 percent. Megafon,
controlled by Russia's richest man Alisher Usmanov, hopes high
handset sales will ultimately drive data consumption.
($1 = 34.5882 Russian Roubles)
(Reporting by Maria Kiselyova; Editing by Elizabeth Piper and