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Falling capex intensity, stable pricing in India and growth in profitability of the Africa business are
transforming the outlook for Bharti. We expect the company to repay US$4bn debt over the next
three years and expand ROE to 15.2% in FY14 (an EPS CAGR of 18% over FY11-14F). We
initiate at Buy.
Structural improvement in India – price stability and decline in churn rate
We expect Bharti’s India and South Asia FY11-14F revenue and EBITDA CAGRs to grow 11.9%
and 14.6%, respectively, driven by: 1) a minutes of use CAGR of 13%; 2) stable revenue per
minute; and 3) incremental 3G data revenue. We expect non-voice revenue (including 3G) to
grow from 14.6% in 1QFY12 to 16.2% of mobile revenue in FY14. EBITDA margin expansion will
be driven by decline in churn rate and network utilization improvement.
Can it replicate success in Africa? Early signs visible in 47.4% yoy minute growth
Bharti’s current Africa minutes of use (MoU) is equivalent to its India MoU in FY06. Can Bharti
replicate its success in India during FY06-09, when it achieved mobile MoU and revenue CAGRs
of 90% and 54%? Bharti’s Africa EBITDA has grown at a quarterly CAGR of 9.2% for the last
three quarters, driven by 47.4% yoy MoU growth to 16.3bn in 1Q. While we expect an Africa
EBITDA CAGR of 28% for FY11-14, led by EBITDA margin expansion to 31% by FY14 (+600bp
from 1QFY12), there could be upside from higher MoU growth.
We expect a re-rating led by synchronized profitable growth across geographies
Bharti’s stock has been de-rated due to the dual impact of competition in India and leveraged
acquisition in Africa. With the worst now behind the company, we expect synchronized profitable
growth across geographies to lead to a valuation re-rating. We expect an FY11-14 EPS CAGR of
18% led by: 1) EBITDA CAGR of 17.1% to US$7.4bn in FY14F 2) lower capex intensity to 17.9%
of revenue in FY14F, and 3) lower interest cost due to a fall in net debt by US$4bn to US$9.4bn
in FY14F.
We initiate with a Buy rating and target price of Rs475
Our target price of Rs475 is based on SOTP valuation. We discount our SOTP-based FV of
March 2013 by six months to derive the 12-month target price. Our target price implies an
EV/EBITDA multiple of 7.8x FY13F and 6.7x FY14F.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Falling capex intensity, stable pricing in India and growth in profitability of the Africa business are
transforming the outlook for Bharti. We expect the company to repay US$4bn debt over the next
three years and expand ROE to 15.2% in FY14 (an EPS CAGR of 18% over FY11-14F). We
initiate at Buy.
Structural improvement in India – price stability and decline in churn rate
We expect Bharti’s India and South Asia FY11-14F revenue and EBITDA CAGRs to grow 11.9%
and 14.6%, respectively, driven by: 1) a minutes of use CAGR of 13%; 2) stable revenue per
minute; and 3) incremental 3G data revenue. We expect non-voice revenue (including 3G) to
grow from 14.6% in 1QFY12 to 16.2% of mobile revenue in FY14. EBITDA margin expansion will
be driven by decline in churn rate and network utilization improvement.
Can it replicate success in Africa? Early signs visible in 47.4% yoy minute growth
Bharti’s current Africa minutes of use (MoU) is equivalent to its India MoU in FY06. Can Bharti
replicate its success in India during FY06-09, when it achieved mobile MoU and revenue CAGRs
of 90% and 54%? Bharti’s Africa EBITDA has grown at a quarterly CAGR of 9.2% for the last
three quarters, driven by 47.4% yoy MoU growth to 16.3bn in 1Q. While we expect an Africa
EBITDA CAGR of 28% for FY11-14, led by EBITDA margin expansion to 31% by FY14 (+600bp
from 1QFY12), there could be upside from higher MoU growth.
We expect a re-rating led by synchronized profitable growth across geographies
Bharti’s stock has been de-rated due to the dual impact of competition in India and leveraged
acquisition in Africa. With the worst now behind the company, we expect synchronized profitable
growth across geographies to lead to a valuation re-rating. We expect an FY11-14 EPS CAGR of
18% led by: 1) EBITDA CAGR of 17.1% to US$7.4bn in FY14F 2) lower capex intensity to 17.9%
of revenue in FY14F, and 3) lower interest cost due to a fall in net debt by US$4bn to US$9.4bn
in FY14F.
We initiate with a Buy rating and target price of Rs475
Our target price of Rs475 is based on SOTP valuation. We discount our SOTP-based FV of
March 2013 by six months to derive the 12-month target price. Our target price implies an
EV/EBITDA multiple of 7.8x FY13F and 6.7x FY14F.
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