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Bharti Airtel Limited is India's largest integrated and the first private telecom services provider
with a footprint in all the 23 telecom circles.
Recent Developments:
US$10b free cash by FY14: Bharti has been impacted by competitive pressures in the
domestic market and uncertainty on Africa acquisition and 3G spectrum payouts. However,
with peak coverage capex and 3G payments through, Bharti's India business is poised to
generate substantial free cash. While the acquired Africa business would remain in an
investment mode, we expect it to be self-sustaining. Bharti is set to enter a period of
sustained high FCF - we expect >US$10b cumulative free cash generation by FY14 and
estimate FCF of Rs28/share in FY12 and Rs37/share in FY13 from India and South Asia.
Domestic business bouncing back: While Bharti has been impacted by high competition,
it has been able to defend domestic revenue market share as well as win back subscribers.
While risk of another price war remains, we expect pricing pressure to be relatively benign.
Bharti would be soon launching 3G services; incremental 3G revenue is likely to contribute
~5% to mobile segment by FY13. We estimate mobile revenue CAGR of 14% over FY10-12
v/s 7% growth in FY10
Turnaround in Africa business would be key: Bharti would soon launch Airtel brand,
finalize outsourcing arrangements (IT outsourcing deal with IBM announced recently) and
complete integration process for Africa business. While there is low risk of negative surprises,
the extent of improvement in cost structure and market elasticity will determine the
achievement of US$5b revenue/US$2b EBITDA target set out for FY13 (we model US$4.4b
revenue/US$1.6b EBITDA).
Valuation & View
We are upgrading our SOTP-based target price to Rs430 - Rs488/share for India & SA
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