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MOSL: BHARTI AIRTEL (Buy) - Strong performance in India Mobile & Africa - Upgrade EBITDA, PAT and TP




Motilal Oswal Securities Ltd.


01 Nov 2013





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Bharti Airtel (BHARTI IN, Mkt Cap USD23.5b, CMP INR359, Buy) Shobhit Khare (Shobhit.Khare@MotilalOswal.com) / Anil Shenoy (Anil.Shenoy@MotilalOswal.com) Bharti’s 2QFY14 EBITDA grew 19.9% YoY and 4.4% QoQ to INR68.3b v/s our estimate of INR64.4b, driven by better than expected performance in India mobile as well as Africa. Proforma PAT grew 13.5% YoY but declined 23% QoQ to INR5.46b due to one-offs. All YoY comparisons are adjusted for one-time interconnect income booked in 2QFY13. One off times included 1) forex loss of INR 3.4b due to INR depreciation and 2) MTM investment loss of INR2.08b (vs average gain of INR1.9b in preceding four quarters). Reported PAT of INR5.12b also included INR343m net impact of a charge arising from a new regulatory levy in one of its international operations. Consolidated revenue grew 13.4% YoY and 5.2% QoQ to INR213.2b. India mobile revenue declined 2.1% QoQ (traffic -2.7%, RPM flat) to INR114b. EBITDA grew 1.1% QoQ to INR38b v/s our estimate of INR34.1b. Post two consecutive quarters of EBITDA decline, Africa EBITDA grew 6.4% QoQ to USD301m (v/s our estimate of USD291m) on 5.4% QoQ revenue growth (~7% QoQ traffic increase; ~1% RPM decline). EBITDA margin improved ~25bp QoQ to 26.9%. Consolidated net debt grew 4% QoQ to INR609b. Capex was ~INR21.4b. 1HFY14 capex stood at USD752m. Capex guidance for FY14 is USD2-2.2b. We now model spectrum payment of INR90b for FY15 and INR70b for FY16. We are upgrading EBITDA by 2.5-3.5%, led by India mobile as well as Africa, and consolidated PAT by 18-20%. We expect 15% EBITDA CAGR over FY13-16. The stock trades at proportionate EV/EBITDA of 7.7x FY14E and 6.4x FY15E. Maintain Buy with a revised target price of INR465 (INR445 earlier) based on 8.5x FY15E EV/EBITDA (v/s 9x earlier) for India (ex-tower business), 6x FY15E EV/EBITDA for Africa business, 15% discount to market value for stake in Bharti Infratel, and INR98b (INR24/share) potential spectrum liability for FY16/17.

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