Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bharti Airtel (BRTI.BO)
Scale Starting to Show
Maintain Buy, target raised to Rs415 (from Rs400) — Our Bharti TP comprises
Rs332/share for domestic business, towerco valued at Rs82/share, Zain at
Rs25/share and cash outgo from spectrum related charges at Rs24. Our TP
increase follows 2-4% EBITDA upgrade over FY12-13E on improvement in
domestic business as we temper down rev/min decline. The DCF value imputes a
FY12E EV/EBITDA of 8.4x.
Africa has started to deliver — We had upgraded Bharti to Buy in Nov of last
year driven entirely by its Africa foray. Initial signs have since been positive – 1)
sub adds have been healthy; 2) revenue growth has revived; and 3) tariff cuts
have generated usage elasticity. Longer-term positives from cost efficiencies
should manifest into healthier margins over the next 6-9 months.
Strong FCF, steady stream of towerco to provide downside support — The
steady stream of towerco over the next 1-2 years as their contribution increases
(15%) should provide a cushion against any adverse impact on the core business.
In addition, the US$3bn FCF expected to be generated in FY12E should also
provide downside support to valuation.
Auction based spectrum allocation should lead to consolidation — We
believe that capital is again becoming important given the government has
announced auction of any further spectrum. New entrants cannot profitably roll-out
in rural areas in the 1800Mhz band with 4.4MHz and do not have the B/S to buy
additional spectrum.
Maintain Buy with Target of Rs415
We have tempered down our estimates for rev/min decline for FY12-13E. Key
reasons for this include:
1. Bharti’s broadly stable rev/min in the last few quarters highlights that it is
focusing on the subscriber quality versus going after the scheme hunting
subscribers (focus on rev/min over volume growth).
2. While it is only initial days, the impact of MNP has been lower than
expected. We however still take some decline in rev/min in FY12E given
the operators that have been hurting from MNP (new entrants/RCOM) are
likely to adopt some tariff related strategy to counter MNP. We assume a 2
paisa decline for FY12E (3 paisa earlier) though it should stabilize once the
MNP impact (over the next 1-2 quarters) gets absorbed.
Bharti's FY12-13E EBITDA is up 2-4% primarily on account of this rev/min
stability.
The core business DCF value of Rs332 imputes FY12E EV/EBITDA at 8.4x
with the towercos value at Rs82/share and value accretion from Zain estimated
at Rs25. We reduce Rs24/share for the cash outgo related to excess spectrum
charges and license renewal.
Bharti Airtel currently lies in the Glamour quadrant of our Value-Momentum map
with strong momentum but relatively weak value scores. The stock has moved
from the Unattractive quadrant to the Glamour quadrant in the past 2 months
indicating an improvement in the momentum scores although valuation still
remains expensive. Compared to its peers in the Telecoms & Media sector,
Bharti Airtel fares worse on the valuation metric but better on the momentum
metric. Similarly, compared to its peers in its home market of India, Bharti Airtel
fares worse on the valuation metric but better on the momentum metric.
From a macro perspective, Bharti Airtel is likely to benefit from falling
Commodity (ex-oil) prices, and a weaker US Dollar.
Bharti Airtel
Valuation
Our target price of Rs415 comprises: (i) Core business value of Rs332 based
on Mar-11E DCF; (ii) We estimate value accretion from Zain at Rs25/share; (iii)
We add the towerco value (100% Infratel + 42% of Indus) at Rs82; and (iv) We
reduce the potential cash outgo (Rs24) related to one-time excess spectrum
charges and license renewal fees. The DCF is based on a WACC of 11.2%, a
terminal growth rate of 3% and beta of 0.8. We prefer DCF as peak capex
burden is behind us and the company should start to generate significant free
cash flows. The domestic business DCF implies FY12E EV/EBITDA of 8.4x,
P/CEPS of 9.0x and P/E of 18.1x.
Risks
Our quantitative risk-rating system, which tracks 260-day share price volatility,
rates Bharti shares as Low Risk. We are comfortable with this for the following
reasons: 1) Bharti has a track record of profitability and execution; and 2)
strong FCF generation notwithstanding the high debt following the Zain
acquisition. Downside risks that could impede the stock from reaching our
target price include: 1) business disruption through tariff pressures; 2) slower
turnaround at Zain; and 3) adverse regulations (low probability in our view).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bharti Airtel (BRTI.BO)
Scale Starting to Show
Maintain Buy, target raised to Rs415 (from Rs400) — Our Bharti TP comprises
Rs332/share for domestic business, towerco valued at Rs82/share, Zain at
Rs25/share and cash outgo from spectrum related charges at Rs24. Our TP
increase follows 2-4% EBITDA upgrade over FY12-13E on improvement in
domestic business as we temper down rev/min decline. The DCF value imputes a
FY12E EV/EBITDA of 8.4x.
Africa has started to deliver — We had upgraded Bharti to Buy in Nov of last
year driven entirely by its Africa foray. Initial signs have since been positive – 1)
sub adds have been healthy; 2) revenue growth has revived; and 3) tariff cuts
have generated usage elasticity. Longer-term positives from cost efficiencies
should manifest into healthier margins over the next 6-9 months.
Strong FCF, steady stream of towerco to provide downside support — The
steady stream of towerco over the next 1-2 years as their contribution increases
(15%) should provide a cushion against any adverse impact on the core business.
In addition, the US$3bn FCF expected to be generated in FY12E should also
provide downside support to valuation.
Auction based spectrum allocation should lead to consolidation — We
believe that capital is again becoming important given the government has
announced auction of any further spectrum. New entrants cannot profitably roll-out
in rural areas in the 1800Mhz band with 4.4MHz and do not have the B/S to buy
additional spectrum.
Maintain Buy with Target of Rs415
We have tempered down our estimates for rev/min decline for FY12-13E. Key
reasons for this include:
1. Bharti’s broadly stable rev/min in the last few quarters highlights that it is
focusing on the subscriber quality versus going after the scheme hunting
subscribers (focus on rev/min over volume growth).
2. While it is only initial days, the impact of MNP has been lower than
expected. We however still take some decline in rev/min in FY12E given
the operators that have been hurting from MNP (new entrants/RCOM) are
likely to adopt some tariff related strategy to counter MNP. We assume a 2
paisa decline for FY12E (3 paisa earlier) though it should stabilize once the
MNP impact (over the next 1-2 quarters) gets absorbed.
Bharti's FY12-13E EBITDA is up 2-4% primarily on account of this rev/min
stability.
The core business DCF value of Rs332 imputes FY12E EV/EBITDA at 8.4x
with the towercos value at Rs82/share and value accretion from Zain estimated
at Rs25. We reduce Rs24/share for the cash outgo related to excess spectrum
charges and license renewal.
Bharti Airtel currently lies in the Glamour quadrant of our Value-Momentum map
with strong momentum but relatively weak value scores. The stock has moved
from the Unattractive quadrant to the Glamour quadrant in the past 2 months
indicating an improvement in the momentum scores although valuation still
remains expensive. Compared to its peers in the Telecoms & Media sector,
Bharti Airtel fares worse on the valuation metric but better on the momentum
metric. Similarly, compared to its peers in its home market of India, Bharti Airtel
fares worse on the valuation metric but better on the momentum metric.
From a macro perspective, Bharti Airtel is likely to benefit from falling
Commodity (ex-oil) prices, and a weaker US Dollar.
Bharti Airtel
Valuation
Our target price of Rs415 comprises: (i) Core business value of Rs332 based
on Mar-11E DCF; (ii) We estimate value accretion from Zain at Rs25/share; (iii)
We add the towerco value (100% Infratel + 42% of Indus) at Rs82; and (iv) We
reduce the potential cash outgo (Rs24) related to one-time excess spectrum
charges and license renewal fees. The DCF is based on a WACC of 11.2%, a
terminal growth rate of 3% and beta of 0.8. We prefer DCF as peak capex
burden is behind us and the company should start to generate significant free
cash flows. The domestic business DCF implies FY12E EV/EBITDA of 8.4x,
P/CEPS of 9.0x and P/E of 18.1x.
Risks
Our quantitative risk-rating system, which tracks 260-day share price volatility,
rates Bharti shares as Low Risk. We are comfortable with this for the following
reasons: 1) Bharti has a track record of profitability and execution; and 2)
strong FCF generation notwithstanding the high debt following the Zain
acquisition. Downside risks that could impede the stock from reaching our
target price include: 1) business disruption through tariff pressures; 2) slower
turnaround at Zain; and 3) adverse regulations (low probability in our view).
No comments:
Post a Comment