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Africa recovery on track; regulatory concerns remain
Management seems not worried about mobile number portability and suggested that with completion of pan-India
coverage post 2005, Bharti has been focusing on the usage and retention architecture. In our view, its competition is way
behind on these fronts. Given the dual SIM phenomenon, subscriber based metrics are no longer so relevant, and Bharti in
particular has been focusing on revenue earning subscribers.
3G costs will be incremental for the company given the mix of 900 and 1800 MHz spectrum in most of the circles. Bharti
has an edge, with a higher proportion of subscribers with 3G enabled handsets (12% of subscribers vs. 6% for the rest of
the sector). Present 3G tariffs in line with global tariff plans.
It is very confident that group aspirations of USD5bn revenue and USD2bn EBITDA by FY13e will be achieved. Revenue
growth over the past two quarters, usage elasticity and margin improvement suggest positive momentum. Big challenges in
Africa centre on passive infrastructure and human capital. With global contracts, Bharti has better rates than competition.
Initiatives on cross pollination of employees will help create sustainable local talent.
Sector consolidation has already started, with minutes flowing back from new entrants to the incumbents. Incremental
fines/spectrum payments will see further deterioration in the business case of new entrants.
Valuation and risks
We value the India business at INR403 using a mix of DCF (WACC 12%, CoE 12%, cost of debt 10.5%) and PE at 15x
FY12e EPS. We value the Africa business at -INR33. Our target price is INR370, implying 16.9x FY12e EPS and 12.3x
FY13e EPS. The stock is currently trading at 15.1x FY12e EPS and 7.3x FY12e EV/EBITDA.
We expect EPS to increase 36% in FY12e and 38% in FY13e, driven by improvement in its African operations and a pick
up in 3G data customers. The key upside risk would be faster-than-estimated margin improvement in Africa and
accelerated enrolment of subscribers for 3G services.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Africa recovery on track; regulatory concerns remain
Management seems not worried about mobile number portability and suggested that with completion of pan-India
coverage post 2005, Bharti has been focusing on the usage and retention architecture. In our view, its competition is way
behind on these fronts. Given the dual SIM phenomenon, subscriber based metrics are no longer so relevant, and Bharti in
particular has been focusing on revenue earning subscribers.
3G costs will be incremental for the company given the mix of 900 and 1800 MHz spectrum in most of the circles. Bharti
has an edge, with a higher proportion of subscribers with 3G enabled handsets (12% of subscribers vs. 6% for the rest of
the sector). Present 3G tariffs in line with global tariff plans.
It is very confident that group aspirations of USD5bn revenue and USD2bn EBITDA by FY13e will be achieved. Revenue
growth over the past two quarters, usage elasticity and margin improvement suggest positive momentum. Big challenges in
Africa centre on passive infrastructure and human capital. With global contracts, Bharti has better rates than competition.
Initiatives on cross pollination of employees will help create sustainable local talent.
Sector consolidation has already started, with minutes flowing back from new entrants to the incumbents. Incremental
fines/spectrum payments will see further deterioration in the business case of new entrants.
Valuation and risks
We value the India business at INR403 using a mix of DCF (WACC 12%, CoE 12%, cost of debt 10.5%) and PE at 15x
FY12e EPS. We value the Africa business at -INR33. Our target price is INR370, implying 16.9x FY12e EPS and 12.3x
FY13e EPS. The stock is currently trading at 15.1x FY12e EPS and 7.3x FY12e EV/EBITDA.
We expect EPS to increase 36% in FY12e and 38% in FY13e, driven by improvement in its African operations and a pick
up in 3G data customers. The key upside risk would be faster-than-estimated margin improvement in Africa and
accelerated enrolment of subscribers for 3G services.
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