CMP:
Rs. 312.05; Buy at current levels.
Medium to Long Term Target: Rs. 345; STOP LOSS: Rs. 287.08; Market
Cap: Rs. 1,18,501.19 Cr; 52 Week High/Low: Rs. 370.60 / Rs. 215.80.
Total
Shares: 379,75,30,096 shares; Promoters : 260,11,27,176 shares –68.49 %; Total
Public holding : 119,64,02,920 shares – 31.51 %; Book Value: Rs. 130.16; Face Value: Rs. 5.00; EPS: Rs. 13.42;
Dividend: 20.00 %; P/E: 23.25 times; Ind. P/E: 24.82; EV/EBITDA: 7.39.
Total
Debt: 69,023.2 Cr; Enterprise Value:
Rs. 1,88,263.89 Cr.
BHARTI AIRTEL LTD: The Company was founded
on July 7, 1995 and is based in New Delhi, India. The company was formerly
known as Bharti Tele-Ventures Limited and changed its name to Bharti Airtel
Limited in April 2006. In January 28, 2002, Company came out with the IPO of
18.35 Cr equity shares of face value of Rs. 10 each at a floor price of Rs. 45.00
per share and raised Rs. 834 Cr. These shares were listed on 15th February
2002 on NSE-BSE at 11 % premium to its issue price of Rs. 45.00. Bharti Airtel
Limited provides telecommunication systems and services in India, south Asia,
and Africa and 20 other countries across rest of Asia and Africa. The company’s Mobile
Services segment offers GSM mobile services; and post-paid, pre-paid, roaming,
Internet, m-commerce, and other value added services. This segment also offers
2G services; 3G services such as mobile TV entertainment, video calls, live
streaming of videos, high definition gaming, as well as Internet access; and 4G
services comprising content, super fast access to high definition video
streaming, multiple chatting, and instant uploading of photos. The company’s
Telemedia Services segment provides voice and data communications through fixed
network and broadband technology for small and medium size business customers. Its
Digital TV Services segment offers digital broadcasting services under the
Direct-to-home platform. The company’s Airtel Business segment provides
end-to-end telecom solutions, such as data and voice, network integration,
managed services, enterprise mobile applications, and digital media to large
enterprise, government, small and medium businesses, and carrier customers. Its
Passive Infrastructure Services segment engages in setting up, operating, and
maintaining wireless communication towers. In addition, the company provides
fixed line voice and data solutions, and high speed broadband Internet services
through direct subscriber line, IPTV, and Direct-To-Home under the Airtel
brand. As of June 30, 2012, it served approximately 257 million customers. In
April 2013, company signed an Indefeasible Right
to Use (IRU) Agreement with Reliance Jio Infocomm Limited (RJIL), a subsidiary
of Reliance Industries Limited (RIL), under which Bharti will provide Reliance
Jio with data capacity on its i2i submarine cable. The
company is compared locally with Idea cellular Ltd, Reliance Communication,
Tata Communication ltd and globally with Vodafone Group Plc. of London,
AT&T Inc. of USA, Verizon Wireless of USA, America Movil of Mexico, MTN
Group of South Africa, China Unicom of China, China Mobile of China, Telenor
Group from Norway, Telefonica of Spain, Orange Telecom of France, T- Mobile of
Germany, Telia Sonera of Sweden, MTS of Russia, VimpelCom of Russia, Sing Tel
of Singapore, Axiata Group Berhad of Malaysia,
Saudi telecom company of Saudi Arabia, Etisalat of UAE.
Investment
Rationale:
Bharti Airtel is amongst top four mobile service providers globally in
terms of subscriber base. It has over 27.1 Cr customers across its operation at the
end of March 2013. Recently on 4th May 2013, Bharti Airtel signed an agreement with Qatar Foundation Endowment under which
Bharti will issue 19,98,70,006 new equity shares at a price of Rs. 340 per
share to QFE representing a shareholding of 5% in the company post issuance.
This investment deal will further strengthen the capital structure and will
provide further flexibility for Bharti to deliver on its growth strategy.
Goldman Sachs advised QFE on the deal. On 23rd April 2013, Reliance
Jio Infocomm Limited (RJIL),
a subsidiary of Reliance Industries Limited (RIL), the only pan India operator
with Broadband Wireless Access (‘BWA’) spectrum across 22 circles capable of
offering fourth generation (4G) wireless services signed a Indefeasible Right to Use (IRU)
Agreement with Bharti Airtel Limited, under which Bharti will provide Reliance
Jio with data capacity on its i2i submarine cable. This i2i connects India to
Singapore. The state of the art cable consists of eight fiber pairs using DWDM,
capable of supporting multiple terabits of capacity per fiber pair. Its landing
points are at Chennai in India and Tuas in Singapore. This high speed link will
enable Reliance Jio & Bharti to extend thier network and service reach to
customers across Asia Pacific region. It will connect both the company’s
directly to the world’s major business hubs and ISPs, thereby, helping the
operator to meet the bandwidth demand and provide ultra-fast data experience to
its customers. Bharti’s data business is picking up in India and Africa, So
increased composition of data in the total business is expected to improve the
Average Rate per User and the Average Rate per Minute. Data consumption
continues to grow 20% every quarter and has reached 24 billion MBs during
Q4FY13 and now contributes around 6.5% of the total mobile revenues as against
5.7% in Q3FY13. The company had 4.35 Cr data (mobile Internet) customers, of
which 64 lakhs used 3G data services.
Outlook and Valuation:
BHARTI AIRTEL’s Data ARPU came in at Rs. 55.00 aided
by average data download of 187 MB per user per month (an increase of 26 MB per
user over previous quarter), and blended data realization rate being stable at
29.27 paisa per MB. Data ARPU of Rs 55 is very low compared to global
standards. So it is expected to see data as the major growth driver in the
quarters ahead. Operational metrics of India thus are set to improve further,
while the Africa would also improve. Thus a margin improvement despite higher
operating expenses could be seen. Regulatory uncertainties
would continue to prevail, but it is believed that overall, the telecom
Industry should be studied in isolation as the regulatory hindrances have
become part of the telecom ecosystem. Nevertheless the short term pressure on
profitability would remain considering the potential regulatory payments that
needs to be made in the form of one time spectrum charges and the penalty due
to 3G roaming arrangement that the company has entered into with other
incumbents (if the TDSAT gives an adverse verdict on this front), especially at
a time when the competitive intensity has again peaked due to which the
operating costs may increase. The fair value of BHARTI AIRTEL comes at Rs. 345.69/share, with the valuation of its investments in
subsidiaries coming at Rs. 183/share. At the current market price of Rs. 312.05 - the stock is trading at 30.59 x FY14E EPS of Rs 10.20/share and at 19.50 x FY15E
EPS of Rs 16.00/share. Based on last quarterly
result and some of the underlying trends, one should not expect significant
changes to domestic operational forecasts but African margins perhaps
need to be scaled back further. Below the EBITDA line, expect more downgrades
due to tax and interest, but hopefully the stock is reaching the end of a long
3-year downgrade cycle, hence the stock could be a buy
at current levels with a medium to long term target of Rs. 345.69.
SOTP valuation (FY2014E)
| BUSINESS SUBSIDIARY | Value per Share(₹) |
|---|---|
| Domestic Business | 289.65 |
| Zain Africa operations (7 x FY14E EV/EBITDA) | 2.00 |
| Bharti Infratel Tower Business (20% disc to CMP) | 54.35 |
| Value of Other Subsidiaries | 183.00 |
| TOTAL VALUE | 529.00 |
| Less: Debt | 183.31 |
| TOTAL VALUE PER SHARE | 345.69 |
| KEY FINANCIALS | FY12 | FY13E | FY14E | FY15E |
|---|---|---|---|---|
| SALES (₹ Crs) | 71,451.00 | 80,311.20 | 87,287.80 | 95,703.90 |
| NET PROFIT (₹ Cr) | 4,259.40 | 2,275.80 | 3,866.30 | 6,077.70 |
| EPS (₹) | 11.20 | 6.00 | 10.20 | 16.00 |
| PE (x) | 28.20 | 52.90 | 31.10 | 19.80 |
| P/BV (x) | 2.40 | 2.40 | 2.20 | 2.00 |
| EV/EBITDA (x) | 7.80 | 7.40 | 6.60 | 5.40 |
| ROE (%) | 8.40 | 4.50 | 7.10 | 10.10 |
| ROCE (%) | 8.40 | 7.30 | 8.20 | 10.20 |
I would buy BHARTI AIRTEL LTD with a price target of ₹ 345.69 for Medium to Long term target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 287.08 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here
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