Buy Bharti Airtel; target of Rs 1000: DSP ML

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Buy Bharti Airtel; target of Rs 1000: DSP ML

DSP Merrill Lynch is bullish on Bharti Airtel and has recommended buy rating on the stock with a target of Rs 1000.

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ALSO READ News and Notices about Bharti Airtel See interviews with Bharti Airtel Management See what other Experts & Brokerages are saying about Bharti Airtel See previous Results of Bharti Airtel Bharti Airtel BSE | NSE 25/05/12 Are Mutual Funds betting on Bharti Airtel?

DSP Merrill Lynch is bullish on Bharti Airtel and has recommended buy rating on the stock with a target of Rs 1000.

DSP Merrill Lynch report on Bharti Airtel:

Price target raised to Rs 1000 (21% upside)

We have raised our price target for Bharti to Rs1000/sh (versus Rs850 earlier). Our PO places Bharti at the upper end of its historical trading range at a PE of ~23.5x Mar '09E & EV/EBITDA of ~13x FY09E. On our PO, Bharti will rank broadly on par with the current growth-adjusted valuations of GEM wireless majors, for significantly higher-than-average RoE. We think the wireless market in India is at least 6-12 mths away from changes in competitive landscape; meanwhile, Bharti should reap strong gains thru scale management & deepening network reach.

Concerns on capex guidance & tariffs appear exaggerated

Investor concerns post results relate to 2 issues: 1) sharp increase in the Co's capex guidance to ~US$3.3-3.5bn in FY08E vs capex of ~US$2bn in FY07; 2) media reports about the government wanting lower mobile tariffs. We think the concerns are exaggerated. The capex guidance is ~10% higher than anticipated but aggressive tower rollout & strengthening of optic backhaul should boost Bharti's competitive lead, esp. as we move towards a 3G environment. Tariffs are already falling & gov't intervention seems unlikely, except on international roaming.

4Q highlights - jump in wireless, fall in non-wireless

Headline PAT for 4Q stood at Rs13.5bn, up 98% YoY & 11% QoQ. Mobility margins surprised with a 150bps QoQ rise to ~39.1% despite recent cuts in roaming tariffs. Mgt. indicated that continued scale benefits should sustain margins. Non-wireless margins fell 250bps QoQ to ~35.4% due to promotional launch of Bharti's calling cards in the US; Co expects margins to recover.

Earnings tweaked up by 4-6%

Factoring 4Q FY07 trends, we have raised earnings by ~6% for FY08E & 4% for FY09E. Our numbers offer room for upside, esp. margins in the non-wireless biz.