Bahrti- Airtel Article

Bharti Airtel B H A R T I I N
TE L E C O M S | I N D I A

From Neutral
NOMURA SINGAPORE LIMITED

Sachin Gupta, CFA [phone] Neeraja Natarajan (Associate)

[e-mail]

BUY

A N C H O R

R E P O R T

Rumble in the jungle
We have reviewed Bharti’s operations in the 15 African countries in which it operates. Apart from learning that Madagascar makes half of the world’s vanilla beans and 4/5 of African gorillas live in Gabon, we observe that Bharti is well positioned to regain share and return to an earnings growth trajectory. We don't underestimate the challenges as Bharti competes with 30 different operators in Africa; rather than the 40% margin by 2013F targeted by management, 32% is our projection. But nor do we expect capex blow-ups, as existing networks can be exploited further to drive usage up. A comparison of network utilisation and costs in Africa versus India shows room for further operational efficiencies. Recent price cuts of 30-40% are also matched by 20-30% termination rate cuts, and this may continue. A somewhat stagnant share price around INR330 doesn't appear to ascribe much value to an African turnaround. We find that domestic business alone, at a 7.5% EPS CAGR scenario over FY10-13F at 14x P/E, implies a INR417 share price – Zain remains earnings and NPV dilutive until then, we estimate. We upgrade Bharti to BUY (from Neutral), with a INR400 PT. While the stock may be volatile on MNP/regulatory newsflow near term, we believe overall domestic trends should be resilient over the coming 12 months. An FY13F P/E of 12.9x is another draw, in our view. In this report, we provide an overview on Bharti’s African businesses, including economic prospects, political trends, and the competitive landscape in each country.

Analysts
Sachin Gupta, CFA [phone] [e-mail] Neeraja Natarajan (Associate)

Closing price on 7 Feb Price target Upside/downside Difference from consensus FY12F net profit (Rsmn)