Bharti Airtel outperformer: Macquarie Research

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Bharti Airtel outperformer: Macquarie Research

Macquarie Research is bullish on Bharti Airtel and has recommended an outperform rating on the stock.

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Bharti Airtel BSE | NSE 28/05/12 Are Mutual Funds betting on Bharti Airtel?

Macquarie Research is bullish on Bharti Airtel and has recommended an outperform rating on the stock. 

The Macquarie Research report on Bharti

Target price raised to Rs750, upside of 20%:

"We are upgrading our revenue and EPS estimates for Bharti due to upward revision in our India subscriber forecast numbers as well as better-than-expected ARPU levels witnessed by Bharti in the past two quarters." 

We expect the subscriber base to reach 400m by March 2010:

"Net-adds in India crossed the six million mark in September 2006. We believe the netadds rate is set to accelerate further in coming months on account of: 1) Aggressive coverage expansion by operators; 2) BSNL's plan to increase capacity by 60m lines starting early 2007; and 3) Easing up of spectrum constraints by 2008." 

Bharti likely to retain leadership of the Indian wireless space:

"We estimate 92.7m wireless subscribers for Bharti in March 2010 (compared to our earlier estimate of 80.5m), implying a CAGR of 47.5% and a 23.2% share of the Indian wireless market. We believe Bharti will remain the wireless revenue leader among Indian telcos well into FY10E riding on its pan-India presence, improving penetration, high ARPUs and execution excellence."

EBITDA margin is likely to expand significantly:

"We project EBITDA margin to increase to 41.4% in FY09E, led by higher top line growth, and to improve gradually every year going forward as economies of scale and network efficiencies are realised. The margin expansion will likely result from: 1) Lower access and interconnection charges due to higher proportion of onnetwork calls; 2) Revenue mix change in favour of high-margin wireless and enterprise services business; 3) Non-mobility businesses increasingly contributing to the bottom line; and 4) Improving capex" efficiencies."

Earnings revision

"Our EPS estimates stand revised upwards by 13.1% for FY07E, 24.9% for FY08E and 24% for FY09E to Rs21, Rs30.9 and Rs 41.2 respectively."

Price catalyst

"12-month price target: Rs750.00 based on a DCF methodology.  Catalyst: 1) Completion of network expansion in all urban centres in the next 12 months; 2) Successful ramp-up of the fixed wireless phones business; 3) Sequential EBITDA margin improvements; and 4) Capex and opex savings from network infrastructure sharing." 

Action and recommendation 

"We retain our Outperform on Bharti: This is based on the solid earnings momentum in coming quarters. We strongly believe that Bharti will outperform its Asian peer group and the Indian broad market over the next 12 months. Bharti remains a high quality, low risk Indian wireless play."