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COMPANY UPDATE
Bharti Airtel (BRTI.BO)
Neutral
Fine-tune estimates to factor in more pronounced 2Q seasonality
What's changed
We reduce our 2QFY11 Bharti wireless revenue and EBITDA estimates by
2.6%/5.3% to factor in more pronounced impact of seasonality after
analyzing Idea’s results (IDEA.BO, Buy, Oct 27: Rs67.45) (Bharti reports on
Nov 10). We now believe the impact of seasonality will be higher than our
expectations due to 1) a larger proportion of revenues are coming from
rural areas; and 2) as a higher proportion of subs have migrated to per sec
billing from per min billing (making the impact more severe with lower
MOU/sub). We note that our overall 2QFY11E net profit estimate is 5.1%
below Bloomberg consensus.
More headwinds ahead: With MNP expected to be rolled out in a phased
manner from Nov 1, we expect Bharti’s 5%-8% earnings at risk (but believe
any impact would likely be spread over a few quarters). We believe we are
more negative than the market on potential negative impact from TRAI
recos (particularly on 900 MHz refarming) and have included a negative
impact of Rs14/per share in our target price.
We reduce our FY11E/FY12E/FY13E revenue and EBITDA estimates by
around 1% mainly due to lower-than-expected numbers from the wireless
division. As a result, our FY11E/FY12E/FY13E EPS estimates are lowered by
1.8%/1.2%/0.9% to Rs17.16/Rs21.19/Rs28.23. Our FY11E/FY12E net profit
estimates are 6%/5% below Bloomberg consensus. Our target price
accordingly is cut by 1.4%.
Valuation
We reiterate our Neutral rating and revise our 12-month SOTP-based
target price to Rs345 (from Rs350). Bharti is trading at a FY11E
proportionate EV/EBITDA and P/E of 8.7X /17.6X (vs. Asian telco average of
6.5X and 15.5X, respectively).
Key risks
Upside: Faster growth from wireless division; turnaround of Africa assets.
Downside: Price wars re-emerge; no margin improvements from Africa.
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