Hold Bharti Airtel; target of Rs 940: Angel

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

Broking house, Angel Broking has recommended hold rating on Bharti Airtel with a 12-month target of Rs 940.

 

Angel Broking report on Bharti Airtel:

 

Performance Highlights     

 

Mobile Services Business continues to drive the topline  

 

Bharti Airtel recorded an impressive 58.1% YoY and a strong 9.8% QoQ   growth in its topline for the quarter. This was driven by the Mobile Services   Business, which recorded an outstanding 75.8% YoY and a strong 12.9%   QoQ growth in revenues. In fact, this business accounted for as much as   77.1% of the incremental revenues for the quarter on a YoY basis, while on a   QoQ basis, the contribution was even higher, at 82.5%. This business   accounted for 69.1% of total gross revenues this quarter. The major driver for   this business was the strong growth in subscriber additions, with Bharti   adding a net of 5.2mn subscribers during Q4FY2007, the highest-ever in any   quarter in the history of the company. This was the case, even as the average   revenues per user (ARPUs) declined to Rs 406 per user per month, lower by 8.1% YoY and 4.9% QoQ. This was not unexpected, given the fact that a  majority of the users added would be from the 'B' and 'C' circles, where usage   would be lower. This can also be borne out by the fact that as much as 97.3% of Bharti's incremental subscriber additions during the quarter were from the   pre-paid segment and this segment now forms 88.5% of the company's total   subscriber base, up from 82.7% at the end of FY2006.   As regards the other segments of the company, the Broadband & Telephone   Services (B&T) Business clocked a strong 47.3% YoY growth, the Enterprise   Services (Carriers) Business grew at 36.1% YoY, while Enterprise Services   (Corporates) grew at 25.2% YoY. The company lost around Rs 60cr of   revenues due to the roaming charge cut made during the quarter.     

 

No let-up in margin expansion 

 

Due to scale benefits, Bharti recorded a 411 bps YoY and a 73bps QoQ   margin expansion. The company saw continued cost leverage, as subscriber   additions remained strong, leading to lower unit costs per subscriber.     

 

Net profits rocket up on margin expansion  

 

Due to the strong margin expansion seen, Bharti's net profits powered ahead   by as much as 98.3% YoY.  

 

Outlook and Valuations

 

Bharti has slightly under-performed our topline estimates for FY2007 by 1.3%, while on the bottomline front, the performance has been above our estimates by 6.4%. The company has comfortably outperformed our EBITDA margin estimates by around 133bps. Going forward, we expect Bharti Airtel to record a 41.3% CAGR in topline between FY2007 and FY2009, while the bottomline CAGR is expected to come in at around 44.6%. We expect operating leverage to drive a strong 350bps margin expansion over this period.

 

At the CMP, the stock traded at a P/E of 17.6x FY2009E EPS of Rs 47.0. We have a HOLD recommendation on the stock, with a 12-month Target Price of Rs 940.