Sell Bharti Airtel: Anand Rathi Securities

India is generating significant FCF (we est. US$350-400m per quarter) which, combined with Bharti’s deep execution capabilities, can be utilized in similar emerging markets, as per Bharti management. The attractiveness of Zain Africa (ZA) lies in: (1) large aggregate population of 470m, with low penetration (36%) and >7% GDP growth; (2) Low competition, and strong market position of ZA, which is #1 in 10 of the 15 markets; (3) High tariffs reflected in ARPM of US$0.07, and low MOU of <100/month; (4) Opportunities for cost optimization given lower margins. Leverage would remain reasonable (Consol. Debt/EBITDA<=2x), even with 100% debt financing, but mgmt also expressed aversion to high debt levels and therefore, did not rule out the possibility equity raising, which may either be done at Bharti Airtel level or tower-co level. We believe the US$3.2bn decline in Bharti’s market cap since Feb 11, adequately reflects the risk of value erosion from Zain. We however, maintain Sell, given lack of ST catalysts, "says Anand Rathi Securities report.

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