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Bharti Airtel (BRTI.BO)
Buy Equity Research
Consensus likely bottomed post 1Q; tariff hikes to drive upside, Buy
What's changed
We reiterate our Buy rating on Bharti with a revised price target of Rs460
(from Rs470) after factoring in high interest expenses and taxes. Key
takeaways from 1Q call: 1) Mgmt noted it has readjusted/increased tariffs
in 19 circles where it believes it was in a relatively strong position, and
does not expect regulatory backlash as it is in compliance with regulations
and will answer any potential queries from regulators. 2) Mgmt believes
3G handset penetration is increasing rapidly and should bode well for 3G
growth. Data declined marginally qoq to 14.6% of revenue mainly due to
seasonality. 3) Mgmt stated that capex was more front-loaded (1Q capex:
US$972 mn) given 3G investments in India and improvements to network
quality in Africa. Mgmt therefore has maintained capex guidance (US$1.5
bn/US$400 mn/US$1-1.2 bn for India/towers/Africa). 4) Mgmt believes it is
gaining mkt share in all African markets and expects EBITDA margin to
improve going forward. However, network opex may remain high for the
next two to three quarters as it is improving coverage.
Implications
We reduce our FY12E/FY13E/14E EPS estimates by 6.1%/5.0%/4.8% as we
factor in higher net interest expenses and tax. Our 12-m SOTP-based TP
falls by 2% to Rs460 as we roll forward our price target by three months.
Valuation
We believe Bloomberg consensus estimates have bottomed out post weak
results (at EPS level) and should show an upward trend as tariff hikes are
factored in going forward. While we think Bharti is not expensive at FY13E
EV/EBITDA and P/E of 6.7X/15.0X (vs. Asian telcos avg of 6.1X/15.0X) in the
context of its growth (FY11-14 EPS CAGR: 28%), we prefer Idea (IDEA.BO,
Buy) given better execution, attractive valuations, and a better growth
outlook.
Key risks
Price wars in India; weaker-than-expected KPIs from African operations.
INVESTMENT LIST MEMBERSHIP
Asia Pacific 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
Consensus likely bottomed post 1Q; tariff hikes to drive upside, Buy
What's changed
We reiterate our Buy rating on Bharti with a revised price target of Rs460
(from Rs470) after factoring in high interest expenses and taxes. Key
takeaways from 1Q call: 1) Mgmt noted it has readjusted/increased tariffs
in 19 circles where it believes it was in a relatively strong position, and
does not expect regulatory backlash as it is in compliance with regulations
and will answer any potential queries from regulators. 2) Mgmt believes
3G handset penetration is increasing rapidly and should bode well for 3G
growth. Data declined marginally qoq to 14.6% of revenue mainly due to
seasonality. 3) Mgmt stated that capex was more front-loaded (1Q capex:
US$972 mn) given 3G investments in India and improvements to network
quality in Africa. Mgmt therefore has maintained capex guidance (US$1.5
bn/US$400 mn/US$1-1.2 bn for India/towers/Africa). 4) Mgmt believes it is
gaining mkt share in all African markets and expects EBITDA margin to
improve going forward. However, network opex may remain high for the
next two to three quarters as it is improving coverage.
Implications
We reduce our FY12E/FY13E/14E EPS estimates by 6.1%/5.0%/4.8% as we
factor in higher net interest expenses and tax. Our 12-m SOTP-based TP
falls by 2% to Rs460 as we roll forward our price target by three months.
Valuation
We believe Bloomberg consensus estimates have bottomed out post weak
results (at EPS level) and should show an upward trend as tariff hikes are
factored in going forward. While we think Bharti is not expensive at FY13E
EV/EBITDA and P/E of 6.7X/15.0X (vs. Asian telcos avg of 6.1X/15.0X) in the
context of its growth (FY11-14 EPS CAGR: 28%), we prefer Idea (IDEA.BO,
Buy) given better execution, attractive valuations, and a better growth
outlook.
Key risks
Price wars in India; weaker-than-expected KPIs from African operations.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Coverage View: Neutral
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