Buy Bharti Airtel; target of Rs 980: Angel

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

Broking house, Angel Stock Broking is bullish on Bharti Airtel and has recommended buy rating on the stock with a 12 months target of Rs 980.

 

Angel Stock Broking report on Bharti Airtel:

 

Key Highlights

 

Stronger visibility of growth, aided by further favourable regulatory initiatives:

 

Bharti's Airtel's monthly subscriber additions have consistently improved in FY2007, with each month witnessing a higher number of additions than the previous month, with the exception of February 2007, which is in any case a shorter month. The TRAI move to cut the industry access deficit charge (ADC) by 38% in FY2008 is also another positive, which will drive increased minutes of use.   

 

Upgrades in topline estimates:

 

We have upgraded our topline forecasts for Bharti for FY2007, FY2008 and FY2009 by 1.9%, 2.3% and 1.0% respectively, as the company's reported ARPUs have fallen lesser than our estimates, as also stronger-than-anticipated performance of the other business segments, viz. Broadband & Telephone (B&T) and the Enterprise business.   

 

Margin expansion stronger-than anticipated:

 

Bharti's EBITDA margins have increased at a significantly faster-than-expected rate and in 9MFY2007, have soared to 39.7% (up 233bps YoY) on the back of strong operating leverage. We have raised our margin estimates for FY2007, FY2008 and FY2009 by 100bps, 290bps and 410bps respectively, leading to a strongly beneficial impact on the bottomline.   

 

EPS upgrades:

 

For FY2007, FY2008 and FY2009, we have raised our EPS forecasts by 8.2%, 14.1% and 15.8% respectively on account of operating leverage benefits, leading to free cash flow generation earlier than expected.

 

Valuation

 

At the CMP, the stock trades at a P/E of 15.8x FY2009E EPS and an EV per subscriber of USD 342.6 on our FY2009E subscriber estimates. We maintain a 'Buy' on the stock with a revised 12-month target price of Rs 980.