Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
While Bharti has outperformed the broader Indian market by ~23% YTD, it
has underperformed by ~7% over the past 8 trading days (as of September 14,
2011). We believe a weakening INR is driving some caution among investors.
The INR has depreciated 7% to 47.67 from the FY11 levels and over 8% since
the one-year low on August 1, 2011. However we note that Bharti hedges its
foreign currency exposure on a rolling 12-month basis and given the nature of
its Fx debt, we don’t believe the Fx move has any meaningful impact on
annual profitability. We reiterate our Overweight rating on the name.
Limited annual fx impact from interest: Out of Bharti’s INR621bn of
debt as of FY11 (~US$13.8bn), 73% or ~US$10bn is denominated in US
dollars. See Table 1 below. Bharti has ~US$9bn of debt relating to is
acquisition of Africa assets on which it pays Libor +195bps. We believe this
warrants ~$235m of annual interest payments which are subject to Fx
volatility of US$ vs. African currencies or even INR. We don’t believe this
has a meaningful impact on Bharti’s annual profitability and estimate it at
0.7% in FY12, 0.4% in FY13.
Debt value: Of Bharti’s INR621bn of debt, 14% is payable in FY12, 18% in
FY13 and the bulk (53%) over 3 years between FY14-FY16. See Table 2
below. A depreciating rupee would increase the liability for Bharti which the
company records as foreign currency translation reserve in its Balance
Sheet, impacting Shareholder equity but not P&L. We estimate the impact
based on recent change in Fx would be ~5% to shareholder equity.
Repayment of debt: In Mid-2010, Bharti had mentioned that no repayment
of the Africa related debt was expected before 2.5 years so we believe that
bulk of FY12 debt is rupee denominated. We believe that the acquisition
financing (~US$9bn) debt maturity is back-end loaded with the initial years
(FY13-FY14) having limited debt liabilities. We also expect Bharti to
employ its rolling hedge strategy and the Fx risk will likely be contained.
Bharti’s hedging policy: Bharti employs forwards, options and swaps to
hedge its Fx exposure. As of FY11, Bharti has hedged INR51.5bn of its loan
exposure. This implies 10% of its total foreign currency loan exposure but
over 25% of the debt due within two years. We believe Bharti hedging
policy is linked to its debt maturity profile. The company manages its
foreign currency risk by hedging transactions on a 12-month rolling forecast.
Reiterate Overweight: Bharti’s Indian operations are on better footing
with tariff increases and potential for regulatory clarity. After about a year of
focused operations in Africa, Bharti’s several efficiency programs are poised
to kick in and the picture in Africa after the next 1-2 quarters looks
promising.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
While Bharti has outperformed the broader Indian market by ~23% YTD, it
has underperformed by ~7% over the past 8 trading days (as of September 14,
2011). We believe a weakening INR is driving some caution among investors.
The INR has depreciated 7% to 47.67 from the FY11 levels and over 8% since
the one-year low on August 1, 2011. However we note that Bharti hedges its
foreign currency exposure on a rolling 12-month basis and given the nature of
its Fx debt, we don’t believe the Fx move has any meaningful impact on
annual profitability. We reiterate our Overweight rating on the name.
Limited annual fx impact from interest: Out of Bharti’s INR621bn of
debt as of FY11 (~US$13.8bn), 73% or ~US$10bn is denominated in US
dollars. See Table 1 below. Bharti has ~US$9bn of debt relating to is
acquisition of Africa assets on which it pays Libor +195bps. We believe this
warrants ~$235m of annual interest payments which are subject to Fx
volatility of US$ vs. African currencies or even INR. We don’t believe this
has a meaningful impact on Bharti’s annual profitability and estimate it at
0.7% in FY12, 0.4% in FY13.
Debt value: Of Bharti’s INR621bn of debt, 14% is payable in FY12, 18% in
FY13 and the bulk (53%) over 3 years between FY14-FY16. See Table 2
below. A depreciating rupee would increase the liability for Bharti which the
company records as foreign currency translation reserve in its Balance
Sheet, impacting Shareholder equity but not P&L. We estimate the impact
based on recent change in Fx would be ~5% to shareholder equity.
Repayment of debt: In Mid-2010, Bharti had mentioned that no repayment
of the Africa related debt was expected before 2.5 years so we believe that
bulk of FY12 debt is rupee denominated. We believe that the acquisition
financing (~US$9bn) debt maturity is back-end loaded with the initial years
(FY13-FY14) having limited debt liabilities. We also expect Bharti to
employ its rolling hedge strategy and the Fx risk will likely be contained.
Bharti’s hedging policy: Bharti employs forwards, options and swaps to
hedge its Fx exposure. As of FY11, Bharti has hedged INR51.5bn of its loan
exposure. This implies 10% of its total foreign currency loan exposure but
over 25% of the debt due within two years. We believe Bharti hedging
policy is linked to its debt maturity profile. The company manages its
foreign currency risk by hedging transactions on a 12-month rolling forecast.
Reiterate Overweight: Bharti’s Indian operations are on better footing
with tariff increases and potential for regulatory clarity. After about a year of
focused operations in Africa, Bharti’s several efficiency programs are poised
to kick in and the picture in Africa after the next 1-2 quarters looks
promising.
No comments:
Post a Comment