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Bharti Airtel (BHARTI) - Qtr. Update - Dated - July 30, 2014




Axis Capital Limited


31 Jul 2014





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Bharti’s Q1 was marked by another strong innings in India wireless. Company’s balanced strategy led to surprise on volumes and price front, which drove operating leverage. Lower S&M and further improvement in subscriber quality (reflected in lowest churn rate, one-third of peak) contributed to EBITDA margin being the highest in four years (37%). Management remained upbeat on data growth (usage up 17% QoQ). It highlighted that additional spectrum in upcoming auctions will be a welcome development in boosting data growth. Africa continued to be impacted by country-specific factors; it should deliver better growth, going forward, led by data. FY15E capex guidance is increased 10% to USD 2.2-2.4 bn, largely to reflect increased investments in data/fibre optic in Indian operations. Other highlights  India operations: Robust start to the year – In line with our thesis that telcos will aggressively invest in data networks, Bharti invested in additional ~3,300 3G sites in Q1 (~3,100 in Q4), the highest ever incremental 3G rollouts – Management indicated pricing will continue to witness upward trajectory, which is a fallout of improved discipline among telcos and their shift in focus to customer retention from customer acquisition  Valuation: Our revised SoTP-based TP stands at Rs 430 (Rs 387 previously). We have increased the target FY16 EV/E multiple for India operations to 8x (7x earlier) to factor in better-than-expected momentum in data and healthy volume and pricing trends in voice which are driving EBITDA. Our TP is based on (a) Rs 460/sh business value (implied 7.2x FY16E consolidated EV/E) and (b) negative impact of regulatory charges at Rs 30/sh. Maintain BUY with 15% upside from CMP. Upside triggers (not in TP): (a) Uptick in RPM: We do not build in voice price increase going forward in lieu of Reliance Jio’s impending launch, and (b) rupee appreciation At CMP of Rs 373, the stock trades at 28x FY15E EPS of Rs 13 and 21x FY16E EPS of Rs 18. Regards, Priya Rohira (Executive Director – IT & Telecom) priya.rohira@axiscap.in; 91 22 4325 1104 Nivedan Reddy (VP – Telecom) nivedan.reddy@axiscap.in; 91 22 4325 1128

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