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Bharti Airtel (BRTI.BO)
Buy Equity Research
African Safari Part 2: Sound strategy; slow but steady execution
What's changed
Following our recent visits to Nigeria/Kenya and conversations with
industry participants in other Bharti Africa markets, we have more comfort
and clarity on Bharti’s strategy on distribution, network enhancement,
pricing and believe that Bharti has made significant improvements in each
of these areas since our last visit in Aug 2010. We consider Bharti’s
strategy to be sound but believe that macro headwinds and slight slippage
in execution vs. our earlier expectations are near-term risks. In this report
we discuss: 1) detailed strategy of Bharti on distribution, network, pricing
and outsourcing in Africa; 2) why Bharti is seeing more elasticity vs. other
African operators; 3) what is needed to achieve Bharti’s FY13 revenue/
EBITDA target of US$5 bn/US$2 bn; 4) key changes in the Nigeria/Kenya
markets since our last visit, and 5) impact of near-term macro head-winds
lead by inflation and other new key risks.
Implications
We increase our FY13E/FY14E revenues (FY12E marginally) to reflect better
growth at Nigeria and estimated benefits from distribution expansion and
network improvement. Our Africa EBITDA margin for FY13E increases to
37.3% (vs. 34.9%) due to better than expected benefits from outsourcing in the
longer-run. Our consolidated EPS increase by 5%/6% for FY13E/14E. As a
result, our 12-m SOTP based price target increases by 6% to Rs 435.
Valuation
We believe the India business continues to remain the key stock price driver
for Bharti and consider African business to be a longer-term value enhancer.
We think “Africa turnaround” catalyst is still a few quarters away, but expect
India business to continue to do well, supported by potential contribution from
3G revenues (still not reflected in consensus estimates, in our view). Our
FY13E/FY14E estimates are 9%/17% above Bloomberg consensus.
Key risks
Irrational pricing, execution risks and no margin improvement in Africa.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Asia Pacific Conviction Buy List
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bharti Airtel (BRTI.BO)
Buy Equity Research
African Safari Part 2: Sound strategy; slow but steady execution
What's changed
Following our recent visits to Nigeria/Kenya and conversations with
industry participants in other Bharti Africa markets, we have more comfort
and clarity on Bharti’s strategy on distribution, network enhancement,
pricing and believe that Bharti has made significant improvements in each
of these areas since our last visit in Aug 2010. We consider Bharti’s
strategy to be sound but believe that macro headwinds and slight slippage
in execution vs. our earlier expectations are near-term risks. In this report
we discuss: 1) detailed strategy of Bharti on distribution, network, pricing
and outsourcing in Africa; 2) why Bharti is seeing more elasticity vs. other
African operators; 3) what is needed to achieve Bharti’s FY13 revenue/
EBITDA target of US$5 bn/US$2 bn; 4) key changes in the Nigeria/Kenya
markets since our last visit, and 5) impact of near-term macro head-winds
lead by inflation and other new key risks.
Implications
We increase our FY13E/FY14E revenues (FY12E marginally) to reflect better
growth at Nigeria and estimated benefits from distribution expansion and
network improvement. Our Africa EBITDA margin for FY13E increases to
37.3% (vs. 34.9%) due to better than expected benefits from outsourcing in the
longer-run. Our consolidated EPS increase by 5%/6% for FY13E/14E. As a
result, our 12-m SOTP based price target increases by 6% to Rs 435.
Valuation
We believe the India business continues to remain the key stock price driver
for Bharti and consider African business to be a longer-term value enhancer.
We think “Africa turnaround” catalyst is still a few quarters away, but expect
India business to continue to do well, supported by potential contribution from
3G revenues (still not reflected in consensus estimates, in our view). Our
FY13E/FY14E estimates are 9%/17% above Bloomberg consensus.
Key risks
Irrational pricing, execution risks and no margin improvement in Africa.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Asia Pacific Conviction Buy List
Coverage View: Neutral
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