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Bharti Airtel (BHARTI IN; Mkt Cap USD28.1b, CMP Rs328, Buy)
Flat QoQ traffic for India business due to seasonality,
RPM decline of only 1% QoQ, lowest in past seven quarters and better than 2-3% decline reported by peers,
EBITDA margin decline in the Africa business to 23.9% v/s estimate of 26.8% mainly due to higher SG&A expenses,
Positive usage elasticity in the Africa business with decline in RPM being offset by MOU increase resulting in flat ARPU QoQ at US$7.4,
Tax rate significantly higher at 25% on consolidated level due to Africa business consolidation and forex gains, Net debt flat QoQ at Rs601b.
We are downgrading our EBITDA estimates by 2-3% and PAT estimates by ~2% to factor-in lower margins. At CMP of Rs328, the stock trades at proportionate EV/EBITDA of 9x FY11E and 7x FY12E. Maintain Buy with a revised target of Rs410/sh based on 8.5x EV/EBITDA for India business and 7x EV/EBITDA for Africa business. Maintain Buy.
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