Credit Suisse: buy Bharti Airtel- Strong position in the market to sustain

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Bharti Airtel Ltd

(BRTI.BO / BHARTI IN)

FOCUS LIST STOCK

Strong position in the market to sustain

■  Main investment thesis: The Indian telecom sector is seeing a phase of

reduced competition with tariff aggressors feeling the fatigue. Incumbents

like Bharti Airtel with a strong network are able to regain market share.

Strong growth with stable pricing should also lead to a recovery of margins

that were lost during the height of the competitive intensity in FY3/10. Post

its acquisition of Zain’s African operations in mid 2010, Bharti is facing initial

integration challenges and margin pressures, which we expect to last for

another couple of quarters. However, we believe that starting mid-2011, the

company’s various initiatives should start generating margin improvements.

This should lead to a consolidated EBITDA CAGR of 26% between FY11-13.

■  India exposure and plans: Bharti has the largest network in the country

with 110,000-plus base stations covering above 85% of the population. With

a revenue share of 31% and subscriber share of 22%, Bharti has retained its

market leadership despite the heavy influx of competition in recent times. In

addition, Bharti has a strong hold even in rural and semi-urban markets. The

company’s market share in rural areas is about 300 bp higher than its

national average and derives 39% of its subscriber base from these markets..

■  Impact of survey findings: Bharti came out as the most popular operator in

our survey (30% of respondents), in line with its leading market share

position. One key finding in our survey was the strong role played by network

coverage in the choice of an operator (80% of respondents). In general,

parameters based on coverage and service quality were found to be more

important that pricing factors. In addition, we observe higher growth

expectations and optimism in smaller cities. A superior network coverage

and higher penetration in semi-urban/rural markets, will help Bharti

consolidate its leadership position, in our view.