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Bharti Airtel Limited
Geared Up for Growth
What's Changed
Price Target Rs410.00 to Rs450.00
EPS F2012, F2013E +3%, +6%
Investment conclusion: We reiterate our Overweight
call on Bharti and raise our price target by 10% to Rs450.
We highlight three key factors: 1) Bharti turns FCF
positive in F1Q12; 2) it is one of the fastest-growing
large cap telco companies; and 3) the valuation is
appealing, especially on a P/Cash EPS (net profits plus
depreciation) basis. We see three catalysts: 1) strong
quarterly results (we expect 6% sequential growth; 2)
traffic growth returning in Africa; and 3) reduced rate of
tariff decline in the domestic business and hence faster
revenue growth.
FCF positive from F1Q12: We estimate Bharti will turn
from being FCF negative of 45% in F2011 due to the
investments in Zain, 3G, and broadband license fee to
13% FCF positive in F2014. Net debt to EBITDA should
move from 3x to 1.1x during the same period.
One of the fastest-growing large-cap telcos: We
expect Bharti to have ~300mn subs by F2014 and
strong CAGR over F2011-14 of 12% in subs, 14% in
revenue, 19% in EBITDA, and 25% in profit.
Valuation appealing: Bharti trades at 14x F2013E
earnings and 6.2x EBITDA, about 10% above it Asian
peers. Cash flow (PAT+ Depreciation) is over 2.5x its
profit; hence its P/CEPS is 40% lower than its P/E at
5.8x, a 10% discount to Asian peers. Compared to the
Indian Sensex, Bharti trades at a premium 25% profit
growth and on a P/CEPS basis it is 30% cheaper against
the Sensex’s 8.4x (F2013).