BUY Bharti Airtel - Time for Waka Waka! - Macquarie Research,

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Bharti Airtel
Time for Waka Waka!
Event
 We hosted our South Africa telecom analyst, Martin Dullaart, for a conference
call with investors, to help gain his perspective on Bharti‟s African business.
Martin shared his experience from having covered major African stocks (such
as MTN Group (MTN SJ, R135.32, Outperform, TP: R170.00)) and key
highlights from his recent management interactions and visits to individual
micro-markets. Separately today, we are also adding Bharti Airtel to the Asia
MarQuee Buy list, highlighted in a separately published note.
Impact
 Strong growth potential in Africa. Martin expects blended penetration in 2G
voice in Africa to rise from around 60% currently to 85% by 2015. He seems
excited about prospects for data/3G penetration. In Nigeria for instance, he
expects contribution of data to revenues for MTN to rise from 4% to 8%.
 Nigeria holds the key: Within Bharti‟s African business, he believes that
Nigeria is „the‟ most lucrative and, hence, an important market for Bharti – with
population of 150m, ~55% penetration and US$8–9 ARPU. Bharti holds the #3
position (18% share) – behind MTN (46%) and Globacom (21%). Etisalat is the
#4 (and fast-growing) player (9.5%). While there are eight operators, Martin
does not see this as a concern. This is because four players hold CDMA (not
GSM) licenses. Given the high cost of CDMA handsets, he thinks consolidation
is likely to lead to the eventual emergence of only one player.
 East Africa ‘price war’ unlikely to spill over to the west: Martin highlighted
the lack of excess network capacity in Nigeria – and west Africa in general.
He believes this would drive rational pricing trends – unlike some east African
countries like Kenya, Tanzania and Uganda. In Kenya specifically, he believes
that Bharti‟s price cuts are unsustainable due to high interconnect rates.
 Positive surprise on capex likely … but won’t be sustained: Martin noted
MTN‟s capex deployment in Africa has been slow in the last few months due to
supply chain issues at a vendor (Ericsson). He believes this may also impact
Bharti, leading to lower-than-expected capex this year. This would, however,
revert to a (normalised) higher level next year. Martin also expects that Bharti
will take the lead in tower sharing in Nigeria and that MTN‟s reluctance will
eventually be overcome. This could help lower costs for all players.
Earnings and target price revision
 No change.
Price catalyst
 12-month price target: Rs483.00 based on a Sum of Parts methodology.
 Catalyst: News on operating metrics (ARPM/ tariffs/ 3G), new telecom policy.
Action and recommendation
 We maintain an Outperform rating on Bharti, one of our top global sector
picks and we think a good defensive play. Africa remains one of our key
concerns. Individual line items may remain volatile, but the overall trend from
the physical market and quarterly results remains one of „steady progress.‟