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Bharti Airtel Ltd.
C learing the foreign currency maze
Event: US$ has appreciated against key Bharti’s operating currencies
Indian Rupee and other key African currencies have depreciated against USD in
the quarter (table 5). Given Bharti’s significant foreign currency (FX) exposure,
there have been concerns on the impact of FX movement on Bharti’s financials.
The stock has been down 4% in the last 5 trading sessions.
Impact: P&L hit can be Rs4.6b in 2Q; B/S impact likely to be minimal
As of Mar’11, Bharti had gross debt of Rs621b, 84% of which had FX exposure.
We estimate that impact of FX transaction losses to be Rs4.6b on 2QFY12 P&L.
However, we caution that these are preliminary estimates and can change with Sep
ending FX rate. Also, we have not factored any gains/losses from derivative
positions in our estimates.
Action: Reiterate Buy with a PT of Rs530
We note adjustments due to FX movement are temporal in nature and can reverse
once rupee appreciates. Our India economist, Philip Wyatt, expects year end USD
INR exchange rate to be Rs45. Given Bharti’s dominant position in the sector, we
believe any weakness in stock due to concerns of FX movement presents an
opportunity. Fundamentally, operating business environment continues to improve
with emergence of pricing power and easing in competitive intensity.
Valuation: Our PT is SoTP based; Bharti is our top-pick
We value India/SA operations at Rs453, Indus & Bharti Infratel at Rs99, Africa
operations at Rs10. We also incorporate a regulatory charge of Rs32. Bharti has
underperformed Idea by 31% YTD.
Bharti Airtel Ltd.
With a pan-India presence, Bharti Airtel is the largest mobile operator in the
country and recorded a revenue market share of 31.5% in Q4 FY10. The
broadband and telephone group provides services in 100 cities, while the
enterprise services group has two sub-units: carriers (long-distance services) and
corporate services. All services are provided under the Airtel brand. Singapore
Telecom owns a 32.04% stake. Bharti Airtel acquired an 80% stake in Zain
Africa in 2010 at an EV of US$10.7bn.
Statement of Risk
Irrational competition among the operators, the shortage of frequency spectrum
and over-bidding during the 3G spectrum auction are the key risks facing all the
operators at the industry level.
We believe Bharti faces execution risk in light of the rapid growth of India's
mobile subscriber base. The company recently announced a shift in strategy and
will focus on overseas acquisitions as another means of creating shareholder
value. While Bharti's management has historically had good discipline when it
comes to investing capital, we believe there is a risk of Bharti overpaying for
acquisitions, given that there are typically multiple bidders in most transacti
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Bharti Airtel Ltd.
C learing the foreign currency maze
Event: US$ has appreciated against key Bharti’s operating currencies
Indian Rupee and other key African currencies have depreciated against USD in
the quarter (table 5). Given Bharti’s significant foreign currency (FX) exposure,
there have been concerns on the impact of FX movement on Bharti’s financials.
The stock has been down 4% in the last 5 trading sessions.
Impact: P&L hit can be Rs4.6b in 2Q; B/S impact likely to be minimal
As of Mar’11, Bharti had gross debt of Rs621b, 84% of which had FX exposure.
We estimate that impact of FX transaction losses to be Rs4.6b on 2QFY12 P&L.
However, we caution that these are preliminary estimates and can change with Sep
ending FX rate. Also, we have not factored any gains/losses from derivative
positions in our estimates.
Action: Reiterate Buy with a PT of Rs530
We note adjustments due to FX movement are temporal in nature and can reverse
once rupee appreciates. Our India economist, Philip Wyatt, expects year end USD
INR exchange rate to be Rs45. Given Bharti’s dominant position in the sector, we
believe any weakness in stock due to concerns of FX movement presents an
opportunity. Fundamentally, operating business environment continues to improve
with emergence of pricing power and easing in competitive intensity.
Valuation: Our PT is SoTP based; Bharti is our top-pick
We value India/SA operations at Rs453, Indus & Bharti Infratel at Rs99, Africa
operations at Rs10. We also incorporate a regulatory charge of Rs32. Bharti has
underperformed Idea by 31% YTD.
Bharti Airtel Ltd.
With a pan-India presence, Bharti Airtel is the largest mobile operator in the
country and recorded a revenue market share of 31.5% in Q4 FY10. The
broadband and telephone group provides services in 100 cities, while the
enterprise services group has two sub-units: carriers (long-distance services) and
corporate services. All services are provided under the Airtel brand. Singapore
Telecom owns a 32.04% stake. Bharti Airtel acquired an 80% stake in Zain
Africa in 2010 at an EV of US$10.7bn.
Statement of Risk
Irrational competition among the operators, the shortage of frequency spectrum
and over-bidding during the 3G spectrum auction are the key risks facing all the
operators at the industry level.
We believe Bharti faces execution risk in light of the rapid growth of India's
mobile subscriber base. The company recently announced a shift in strategy and
will focus on overseas acquisitions as another means of creating shareholder
value. While Bharti's management has historically had good discipline when it
comes to investing capital, we believe there is a risk of Bharti overpaying for
acquisitions, given that there are typically multiple bidders in most transacti
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