Buy Bharti Airtel
Published on Monday, November 9th, 2009 at 11:54 AMAuthor: insightt95in (170 Articles)
Bharti Airtel
BUY
Price: Rs320 Target Price (Sept 2010): Rs360
Accumulate for the long haul
* Maintain BUY, TP lowered to Rs360: We continue to advise investors to
accumulate BRTI with a 12-month horizon on bouts of price weakness over
the next six-month period as competition intensity peaks and impact of
per-second billing on wireless revenues/margins manifest in 2HFY10
results. Our revised SOTP-based 12-mth TP for BRTI comprises DCF-based
value of its core business (Rs295/sh) and fair value of its holding in Indus
Towers (Rs65/sh). On our FY11E estimates, at Rs360, BRTI would trade at
15.5x P/E and 8.7x EV/EBITDA.
* BRTI’s latest prepaid offerings yield a blended ARPM of ~Rs0.47:
As most operators, including BRTI, now offer similar priced unbundled per
second billing option to subs, propensity to switch operators and/or usage
of multiple SIMs for price arbitrage appears significantly reduced until
another bout of sharp tariff cuts manifest. By our calculations, BRTI’s 50-
60p/min and 1p/sec prepaid offerings are likely to yield a blended ARPM of
~Rs0.47 (prepaid/postpaid blended ARPM was Rs0.56 in 2QFY10).
* What’s changed: Besides incorporating 2QFY10 financials and revised
FY10E capex outlook, in view of BRTI’s latest tariff plans and sustained
pressure on ARPMs over the next six months, we lower our FY10E/11E/12E
EPS forecast for BRTI by 5.5%/8.4%/7.3% respectively. We now expect
BRTI’s EPS to stagnate in FY10E/FY11E (up merely 3%/2% YoY) before
rising ~15% in FY12E; implied FY10E-12E EBITDA/EPS CAGR is 8.5%/8%.
* BRTI remains best in class, to maintain 20%-plus RoE: We believe
BRTI’s long-term earnings catalysts and differentiators are intact – (1)
Margin sustenance due to inherent economies of scale and an integrated
business model, (2) FCF generation, balance sheet size and low leverage
provides flexibility in investment decisions (3G/BWA bidding, augmenting
non-wireless business) and corporate actions (M&A, share buybacks etc.).
Investment Summary – Accumulate, TP Rs360
We continue to advise investors to accumulate Bharti Airtel (BRTI) with a 12-
month horizon on likely bouts of price weakness over the next six months as
competition intensity (tariff wars, new launches) peaks and impact of persecond
billing on wireless revenues/margins manifest in 2HFY10 earnings.
Incorporating BRTI’s 2QFY10 financials, revised FY10E capex outlook, potential
dip in ARPM from recent prepaid offerings and high probability of sustained
pressure on realizations in the next few quarters, we lower our FY10E/11E/12E
EPS forecast for BRTI by 5.5%/8.4%/7.3% respectively (Exhibits 4,5). By our
calculations, BRTI’s Airtel Advantage (50-60p/min) plan and Airtel Freedom
(1p/sec) plan for prepaid customers are likely to yield a blended (voice + data)
ARPM of Rs0.47 (Exhibits 8-10); BRTI’s prepaid/postpaid combined ARPM was
Rs0.56 in 2QFY10.
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