Nomura research: Bharti Airtel: Upbeat on data / Zain potential

Bharti Airtel: Upbeat on data / Zain potential


 Data growth should balance out declines in voice
The seasonally weaker September quarter has been trending well
domestically and overall there is more rationality in pricing in the
market. The company remains upbeat on data potential. In other
markets, the rise in data ARPU has allowed telcos to offset pricing
pressure from voice, and given Bharti’s reasonably sticky high ARPU
subscribers and post-paid subscribers, the company should be a key
beneficiary of take-up in data. We expect ARPUs to decline in the low
single-digit range from FY12F-FY13F but we also factor in the early
benefits from data. Overall, we raise our estimates 1-4% and our price
target to Rs344. Maintain NEUTRAL.
 Africa, the next major catalyst
For Bharti, operational trends in the Africa business is the next major
catalyst, but we believe it could take another 12 months to assess the
real opportunity or risks. In the meantime, the financial burden of this
transaction on domestic cashflow looks limited, as no principal needs
to be repaid on the loan for 2.5 years. We assume margins will
recover from 29% in December 2009 to 38% by FY13F.
 Valuations not inexpensive; NEUTRAL maintained
With lessening regulatory/ competition concerns, the telcos are on the
radar again and rallying in line with the market. YTD, we note Bharti is
up 15% vs the Sensex’s 14%. However, at the current multiple of 16x
FY12F earnings, the stock is not inexpensive, even though broader
momentum could boost the shares. Positive regulatory developments
such as favourable M&A policies, operational improvement in Africa
as well as progress on 3G/data could all be catalysts, in our view.