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SECTOR: TELECOM
Bharti Airtel
Out of turbulence
Shobhit Khare (Shobhit.Khare@MotilalOswal.com); Tel: +91 22 3982 5428 Nirav Poddar (Nirav.Poddar@MotilalOswal.com); Tel: +91 22 3982 5444
Bharti Airtel
Contents
Page No. US$10b free cash by FY14 ............................................................................... 4-6 Domestic business bouncing back ................................................................. 7-14 Turnaround in Africa business would be key ............................................... 15-18 Regulatory uncertainty, MNP, high gearing/forex exposure pose challenges ............................................................................................. 19-20 Raising price target to Rs430; maintain Buy .............................................. 21-23 Financials and valuation ............................................................................... 24-25
20 September 2010
SECTOR: TELECOM
Bharti Airtel
BSE SENSEX S&P CNX BLOOMBERG REUTERS
19,595
5,885
BHARTI IN
BRTI.BO
Rs358
Buy
Y/E MARCH
2009
2010
2011E
2012E
Out of turbulence
US$10b free cash by FY14: Bharti has been impacted by competitive pressures in the domestic market and uncertainty on Africa acquisition and 3G spectrum payouts. However, with peak coverage capex and 3G payments through, Bharti's India business is poised to generate substantial free cash. While the acquired Africa business would remain in an investment mode, we expect it to be self-sustaining. Bharti is set to enter a period of sustained high FCF - we expect >US$10b cumulative free cash generation by FY14 and estimate FCF of Rs28/ share in FY12 and Rs37/share in FY13 from India and South Asia. Domestic business bouncing back: While Bharti has been impacted by high competition, it has been able to defend domestic revenue market share as well as win back subscribers. While risk of another price war remains, we expect pricing pressure to be relatively benign. Bharti would be soon launching 3G services; incremental 3G revenue is likely to contribute ~5% to mobile segment by FY13. We estimate mobile revenue CAGR of 14% over FY10-12 v/s 7% growth in FY10. Turnaround in Africa business would be key: Bharti would soon launch Airtel brand, finalize outsourcing arrangements (IT outsourcing deal with IBM announced recently) and complete integration process for Africa business. While there is low risk of negative surprises, the extent of improvement in cost structure and market elasticity will determine the achievement of US$5b revenue/US$2b EBITDA target set out for FY13 (we model US$4.4b revenue/US$1.6b EBITDA). Regulatory uncertainty, MNP, high gearing/forex exposure pose challenges: The final policy on government levies and 2G spectrum allocation is awaited and remains an overhang. While competitive intensity has declined, there could be aggressive marketing by new GSM entrants post MNP implementation (in 3QFY11). Bharti's relatively high gearing at net debt/equity of 1.4x and net debt/annualised EBITDA of 3.4x makes it vulnerable to potential interest rate increases and forex fluctuations. Assuming ~US$10b forex exposure, Bharti gets impacted by Rs2.6/share for every Re1 depreciation in INR v/s USD. Raising price target to Rs430; maintain Buy: We upgrade our SOTPbased target price to Rs430 - Rs488/share for India & SA business (8.7x FY12E EBITDA; 15% discount to average 5-year EV/EBITDA of 10.2x) plus Rs84/share for Africa business (7x proportionate FY12E EBITDA) less Rs141/share FY12E net debt of Rs533b. Our valuation implies a negative value of Rs55/share for the Africa business. Bharti trades at an EV of ~9.4x FY11E and ~7.3x FY12E proportionate EBITDA. Maintain Buy.
Net Sales (Rs b) EBITDA (Rs b) NP (Rs b) EPS (Rs) EPS Growth (%) BV/Share P/E (x) P/BV (x) EV/EBITDA (x) EV/Sales (x) RoE (%) RoCE (%)
KEY FINANCIALS
369.6 151.7 84.7 22.3 26.4 83.0 16.0 4.3 9.4 3.9 31.4 26.6
418.5 167.6 89.8 23.7 5.9 117.9 15.1 3.0 8.2 3.3 23.6 18.9
600.9 214.7 69.4 18.3 -22.7 137.1 19.6 2.6 9.1 3.2 14.4 10.0
716.3 269.3 86.3 22.7 24.3 157.2 15.7 2.3 7.0 2.6 15.5 8.9
Shares Outstanding (m) Market Cap. (Rs b) Market Cap. (US$b) Past 3 years Sales Growth (%) Past 3 years NP Growth (%) Dividend Payout (%) Dividend Yield (%)
STOCK DATA
52-W High/Low Range (Rs) Major Shareholders (as of June 2010) Promoter Domestic Inst Foreign Others Average Daily Turnover Volume ('000 shares) Value (Rs million) 1/6/12 Month Rel. Performance (%) 1/6/12 Month Abs. Performance (%)
STOCK PERFORMANCE (1 YEAR)
Bharti Airtel 520 440 360 280 200 Sep-09 Dec-09 Mar-10
Sensex - Rebased
Jun-10
Sep-10
20 September 2010
Bharti Airtel
-80
-64
-58
FY11E
FY12E
FY13E
FY14E
42 37
28 22
FY11E
FY12E
FY13E
FY14E
Source: Company/MOSL
20 September 2010
Bharti Airtel
FY11: US$14b investment in high growth potential areas FY11 is a year of significant investments for Bharti, which is pursuing two key growth drivers: (1) geographical expansion to Africa by acquiring Zain Africa at an EV of US$10.7b, and (2) securing 3G/BWA spectrum in 16/22 circles for a consideration of ~US$3.3b. Till FY10, Bharti had been primarily focusing on growing in the domestic market and had been operating near FCF breakeven levels for several years. We expect Bharti's consolidated capex/sales to decline from 20-22% in FY10/FY11 to ~16% in FY12 and 1012% in FY13/14. Bharti's capital employed has increased by more than 100% due to Zain Africa acquisition and 3G spectrum payments. With investments already made in two high growth areas, Bharti is poised for a growth sequel, led by data in the domestic market and relative under-penetration and usage elasticity in Africa.
BHARTI: CAPITAL EMPLOYED JUMPS >100% ON ZAIN AFRICA ACQUISITION/3G SPECTRUM PAYOUT (RS B)
Capital Employed
YoY (%)
106
67
33 602
1,239
1,353 9
FY09
FY10
FY11E
FY12E
Capex - Africa
Capex/Sales (%)
Capex intensity headed sharply lower due to minimal coverage capex, benefits from tower sharing, and 3G spectrum
48
51 38 37 35 20 22 16 31 12 64 FY13E 35 10 58 FY14E
314 281
89 FY07
138 FY08
140 FY09
83 FY10
94 FY11E
80 FY12E
Bharti (ex-Africa)
Bharti Africa
68
89
109
43 193 205
128
160
178
FY10
FY11E
FY12E
FY13E
FY14E
Source: Company/MOSL
20 September 2010
Bharti Airtel
BHARTI: EXPECT REVENUE CAGR OF 16% OVER FY11E-13; AFRICA TO CONSTITUTE ~24% (RS B)
Bharti (ex-Africa)
716 601
Bharti Africa
803
893
233 204
175
129
418
418
472
541
598
660
FY10
FY11E
FY12E
FY13E
FY14E
BHARTI: EXPECT EBITDA CAGR OF 20% OVER FY11E-13; AFRICA TO CONSTITUTE ~20% (RS B)
Bharti (ex-Africa)
269
Bharti Africa
311
348
93 76
215 168
56
35 235 254
168
180
213
FY10
FY11E
FY12E
FY13E
FY14E
Bharti (ex-Africa)
Bharti Africa
Consolidated
40
38
39 38
39 37 39
40 39
36 32 28
FY10
FY11E
FY12E
FY13E
FY14E
Bharti (ex-Africa)
Consolidated 35.5
We expect Africa acquisition to be dilutive in FY11 and FY12, marginally accretive in FY13
29.9 26.0 23.7 21.9 22.7 18.3 FY10 FY11E FY12E FY13E 29.5
32.4
FY14E
Source: Company/MOSL
20 September 2010
Bharti Airtel
Adjusted Gross Revenue (Rsb) 200 9 6 2 0 0 -5 4 205 205 204 195 206 215
154
160 4
171 7
1QFY08
2QFY08
3QFY08
4QFY08
1QFY09
2QFY09
3QFY09
4QFY09
1QFY10
2QFY10
3QFY10
4QFY10
19 18
Bharti
Idea
RCOM
Vodafone-India
15
Double digit QoQ traffic growth for GSM incumbents in last two quarters
12 101010 10
11 8 7 7 9 6
10 8 6 4
11 10 10 6 2 3 1 7 5
14 13 13 9 5
13 10 10
1QFY09
2QFY09
3QFY09
4QFY09
1QFY10
2QFY10
Source: TRAI/Company/MOSL
1QFY11
20 September 2010
Bharti Airtel
0.53
0.47
Source: Company/MOSL
Bharti is going strong Bharti reached its peak subscriber and AGR market share (~25% and 34%, respectively) in 3QFY09. In the six subsequent quarters, while Bharti's subscriber share has declined ~350bp to ~22% largely due to multi-SIM usage/subscriber duplication, its AGR market share has remained almost steady at 33%+. This is commendable, given the hyper competition and tariff wars, in our view. We believe that the worst is behind in terms of competitive intensity. Sustaining market share should not be difficult for Bharti.
BHARTI: SUBSCRIBER AND AGR MARKET SHARE
AGR market share (%) 33.4 33.8 33.4 33.2 32.9 33.3
29.8
29.9
31.2
Steady 33%+ market share
23.6
24.1
24.2
24.6
25.0
25.1
24.3
24.3
23.7
1QFY08
2QFY08
3QFY08
4QFY08
1QFY09
2QFY09
3QFY09
4QFY09
1QFY10
2QFY10
3QFY10
4QFY10
Source: TRAI/MOSL
On-net calls constitute ~55% of local traffic - advantage incumbents TRAI data indicates that intra-network (on-net) calls constitute ~55% of the local traffic in India. High on-net share is due to attractive tariff plans and regional dominance of operators. Currently, termination charges are fixed at Rs0.2/min, which is significant given the RPM of Rs0.44-0.45/min. We believe that high on-net traffic gives a key incumbency advantage to Bharti.
1QFY11
20 September 2010
Bharti Airtel
Incumbents like Bharti have a significant advantage given high on-net calling
53% 51%
53%
53%
53%
54%
55%
56%
57%
57%
58%
58%
2QFY07
3QFY07
4QFY07
1QFY08
2QFY08
3QFY08
4QFY08
1QFY09
2QFY09
3QFY09
4QFY09
1QFY10
2QFY10
3QFY10
Source: TRAI/MOSL
Rural penetration remains low; Bharti leads in coverage While the urban penetration in India has crossed 100%, rural penetration still remains low at <25%. Bharti has a strong market share of rural subscribers and would be a key beneficiary of potential increase in rural wireless penetration given its advantage of superior distribution and coverage. With urban areas already being saturated (penetration in excess of 100%), the wireless industry expects further subscriber net addition from rural areas. Bharti would be a key beneficiary as it has been maintaining a strong rural market share of ~25% (more than its overall subscriber market share of 21.5%). Bharti has also been witnessing an upward trend in rural subscriber mix. Bharti covers ~84% of India's population with a distribution network spanning ~1.5m outlets.
RURAL PENETRATION REMAINS LOW
64 9
66 11
74
81
87
95
103
11
14
15
17
20
23
1QFY09
2QFY09
3QFY09
4QFY09
1QFY10
2QFY10
3QFY10
4QFY10
584
427
216 71 1QFY09
224 91 2QFY09
254
280
301
330
361
393
93 3QFY09
112 4QFY09
126 1QFY10
142 2QFY10
165 3QFY10
191 4QFY10
Source: TRAI/MOSL
4QFY10
20 September 2010
Bharti Airtel
Rural subscribers
48
38
37.7
1QFY10
2QFY10
3QFY10
4QFY10
Source: TRAI/MOSL
3G to be a growth driver in the medium term Bharti has won 3G spectrum in 13/22 circles across India and expects to launch commercially by the end of 2010. We expect 3G to be a significant growth driver over the medium-term given low VAS revenue share and broadband penetration in India. Non-voice revenue for Indian wireless operators constitutes only 10-13% of the mix v/s 25-30% in developed markets with 3G. GSM operators like Bharti, Vodafone and Idea have been showing strong growth in non-voice revenue over the past several quarters. We expect growth to accelerate post the launch of 3G services.
NON-VOICE REVENUE AT 10-13%
45
Indian non-voice revenues are low due to lack of 3G services, spectrum constraints, and lower maturity of subscribers
AT&T (US) Vodafone-Europe China Unicom Vodafone-Asia Pac and Middle East Vodafone-Africa and Central Europe MTN-South Africa Idea Bharti Vodafone Essar
NON-VOICE REVENUE AS % OF WIRELESS REVENUE (%)
Source: Company/MOSL
20 September 2010
10
Bharti Airtel
Bharti's 3G footprint covers 65-70% of its revenue/subscriber base Bharti has won 3G spectrum in 13/22 circles and BWA spectrum in 4/22 circles for a total outlay of ~Rs156b. Bharti's 3G footprint covers ~70% of its revenue base and ~65% of its subscriber base. Among the metro and A circles, Bharti did not secure 3G spectrum in Kolkata, Maharashtra and Gujarat circles. However, it has won BWA (broadband wireless access) spectrum in Kolkata and Maharashtra.
BHARTI: DETAILS OF 3G AND BWA SPECTRUM WON 3G WINNING PRICE (RSB) BWA AGGREGATE 3G+BWA AGR 1QFY11 (RS B) AGR SUBSSUBS MKT SHARE (%) AGR SUBS-
WINNING PRICE
Delhi Mumbai Kolkata Maharashtra Gujarat A.P. Karnataka T.N. (incl. Chennai) Kerala Punjab Haryana U.P. (W) U.P. (E) Rajasthan M.P. W.B. & A&N H.P. Bihar Orissa Assam N.E. J&K Aggregate (Rs b) No. of circles
33.2 32.5 5.2 9.2 13.7 31.2 14.6 3.3 5.1 3.2 1.2 0.4 2.0 0.4 0.4 0.3 156.1 16.0
15.4
3.3 5.1 3.2 1.2 0.4 2.0 0.4 0.4 0.3 123.0 13.0
33.1 4.0
6.3 2.8 1.5 3.2 2.3 7.9 8.5 6.8 1.5 3.2 0.7 1.7 4.3 4.8 3.0 2.0 0.7 5.5 1.9 1.3 0.8 0.9 71.5
39.6 21.2 27.6 20.0 19.3 42.0 52.8 34.0 15.9 38.5 17.2 17.5 30.0 49.7 30.6 29.4 45.3 49.8 41.6 36.5 35.0 36.9 33.3
6.8 3.2 2.9 7.1 5.8 14.1 13.4 11.5 3.2 5.1 1.6 4.8 10.3 10.9 7.4 6.6 1.4 12.3 4.8 2.6 1.6 1.9 139.2
21.3 10.7 16.2 14.9 16.2 28.0 32.5 19.4 12.5 22.5 9.9 13.9 20.6 30.4 21.4 22.8 25.0 29.6 27.7 27.2 27.6 39.8 21.5
8.8 3.9
4.9 2.3
Source: DoT/MOSL
While 3G will take time to ramp-up, we expect incremental 3G revenue to contribute ~5% of Bharti's mobile revenue in India by FY13. Increase in 3G subscriber base and higher data usage should result in higher ARPU although voice ARPU is likely to continue declining. Including 3G, we expect ARPU to start increasing as subscriber addition slows and data revenues pick-up.
3G REVENUE TO MOBILE REVENUE TREND
10.1%
4.8% 2.5%
FY12E
FY13E
FY14E
Source: Company/MOSL
20 September 2010
11
Bharti Airtel
ARPU uplift to be led by lower incremental subscriber additions and contribution from data
215
212
FY11E
FY12E
FY13E
FY14E
Source: Company/MOSL
Balance sheet constraints might prevent irrational pricing Significant tariff pressures, new rollouts, 3G spectrum payments and acquisitions (Bharti) have resulted in increase in leverage for most operators. The top-4 operators (Bharti, Idea, RCom, and Vodafone) have an estimated gearing >3x on a net debt/EBITDA basis. We believe that high gearing would prevent operators from pricing aggressively.
4.5
2.2 1.5 1.2 1.0 0.8 N.A. Tata Teleservices Uninor Bharti Idea RCom Vodafone
Source: Company/MOSL
20 September 2010
12
Bharti Airtel
New greenfield entrants facing significant challenges In January 2008, the government issued new licences to greenfield operators like Uninor, Sistema, Etisalat, Videocon, S Tel and Loop Telecom. The new entrants have together garnered just ~2.5% subscriber market share and even lower revenue market share on a pan-India basis. We continue to believe that greenfield operators are unviable and industry consolidation is the only option in the medium term.
MONTHLY NET SUBSCRIBER ADDITIONS BY NEW ENTRANTS (M)
Uninor 1.5
Sistema Shyam
Etisalat
Videocon
S Tel
1.0
0.5
0.0
Source: TRAI/MOSL
Case study: Uninor - cash loss of Rs55b in CY10 Uninor's reported financials and guidance confirm our thesis. The company has been the most visible and aggressive player amongst the new entrants. However, Uninor has been facing significant customer churn even in the initial phase (within six months) and is currently reporting an ARPU of Rs85/month on active subscribers and Rs50/month on reported subscriber base - a 60-80% discount to Bharti's current ARPU of Rs215/month.
UNINOR: ESTIMATED ARPU (RS/MONTH)
Greenfield operators have been unable to make a significant dent in the market despite aggressive discounts
53
50
1QCY10
2QCY10
Source: Company/MOSL
According to the guidance from parent Telenor, Uninor is likely to incur an EBITDA loss of Rs35b-39b and capex of Rs16b-20b in CY10. This implies aggregate cash loss of ~Rs55b in CY10. While CY10 is the first year of commercial rollout for Uninor, we believe a turnaround would be challenging, given low tariffs and significant discounts being offered by Uninor.
20 September 2010
13
Bharti Airtel
Capex (Rsb)
7.0
7.6
5.6
8.5
2.7
Case study: Sistema Shyam - EBITDA loss of US$80-85m per quarter Sistema Shyam provides CDMA based mobile services under the MTS brand in 12 circles and is planning to launch in three more circles by the year end. Among the greenfield operators, Sistema was the first to do a commercial rollout due to readily available spectrum in the CDMA band. Sistema currently has a subscriber base of ~5.6m implying a subscriber market share of less than 1% on a pan-India basis. The company is incurring an EBITDA loss of US$80-85m per quarter while the current revenue run-rate is ~US$23m. Current mobile ARPU of ~Rs80 is at a 60% discount to market leader Bharti Airtel.
SISTEMA SHYAM: QUARTELY FINANCIALS (US$M)
Revenue
OIBDA* 599 14
7 437
10
-28 176
-30 333
-80 4QCY09
-85 2QCY10
4QCY08
1QCY09
2QCY09
3QCY09
Source: Company/MOSL
15 12 87 77 79 -3
4QCY08
1QCY09
2QCY09
3QCY09
4QCY09
1QCY10
2QCY10
Source: Company/MOSL
20 September 2010
14
Bharti Airtel
Zain Africa acquisition would be 12-16% EPS dilutive for FY11 and FY12, but could be EPS neutral by FY13, as the Africa business reaches breakeven
Achievement of management targets in FY13 would imply an EPS accretion of ~16% in FY13 v/s 1% in our base case projections
20 September 2010
15
Bharti Airtel
We assume ARPU of US$6.6/month in FY11 (v/s US$7.4/month reported by Bharti in 1QFY11), US$5.7/month in FY12 (down 15%), and US$4.7/month in FY13 (down 18%). We assume EBITDA margin of 28% in FY11 (v/s 29% in CY09). We factor in margin recovery of 400bp in FY12 to 28% and 500bp in FY13 to 37%, as benefits of efficiency improvements kick-in. The sharp margin improvement assumption for FY13 reflects (1) management guidance, (2) efficiency improvement from outsourcing/network sharing etc, and (3) operating leverage. We assume a capex of US$850m in FY11 (v/s US$1.1b in CY09 and Bharti's guidance of ~US$800m), US$750m in FY12 and US$650m in FY13.
5.0
We factor in a 1-year delay in achievement of US$5b revenue/ US$2b EBITDA by Bharti Africa
3.4 2.0 1.6 1.1 1.1 0.9 0.8 1.2 0.8 0.7 0.7
2.0 1.4
CY08
CY09
FY11E
FY12E
FY13E
FY14E
33.6 29.4
32.0 27.7
37.0
40.1
CY08
CY09
FY11E
FY12E
FY13E
FY14E
123
75
61 48 45 39 35 35 33 33 23 23 19 17
16 Niger
14 DRC
Zambia
Ghana
Burkina Faso
Nigeria
Tanzania
Uganda
Madagascar
Kenya
Sierra Leone
Chad
Aggregate
Source: Company/MOSL
Malawi
20 September 2010
16
Bharti Airtel
72
69
67
65
62 51 51 46 45 40 39 35 24 14 9 Ghana
4.2 Uganda
Congo B
Zambia
Gabon
Chad
Burkina Faso
DRC
Tanzania
Madagascar
Uganda
Nigeria
5.0 Kenya
Niger
Sierra Leone
24.5
Malawi
12.7
9.9
9.9
8.7
8.5
7.8
7.3
7.3
7.2
6.8
6.1
5.2 Tanzania
DRC
Zambia
Burkina Faso
Overall (est)
Nigeria
Ghana
Chad
Niger
480
Bharti (Africa)
COST SAVING LEVERS FOR AFRICA BUSINESS
Bharti (India)
Source: Company/MOSL
Madagascar
Congo Brazzaville
Malawi
Sierra Leone
Kenya
4.6
20 September 2010
17
Bharti Airtel
Others 33%
Nigeria 35%
Others 27%
Nigeria 36%
Tanzania 7%
Zambia 8%
Source: Company/MOSL
CY09 ZAIN AFRICA EBITDA MIX (%) CY09 ZAIN AFRICA CAPEX MIX (%)
Chad 5%
Others 31%
Nigeria 41%
Zambia 6% Kenya 6%
Tanzania 9%
Gabon 9%
Zambia 12%
Malaw i 6%
Ghana 10%
Source: Company/MOSL
20 September 2010
18
Bharti Airtel
Potential implementation of TRAI recommendations could imply Rs45b one-time liability for 'excess spectrum'
One-time payout for spectrum allocation beyond 6.2MHz for GSM operators Hike in annual spectrum charges (linked to revenues) Significant payouts for spectrum (linked to 3G auction winning price) and return of spectrum allocated in 800MHz (CDMA) and 900 MHz (GSM) on license renewal Phased decline in license fee from 6-10% currently (circle-wise) to a uniform 6% by FY14 (charged as a percentage of AGR) Tightening of rollout obligations Linking of spectrum allocation beyond start-up spectrum to rollout obligations (v/s subscriber base currently) De-linking of future licenses with spectrum
One-time liability of ~Rs45b for Bharti EBITDA margin impact of ~110bp Payout of ~Rs150b for Bharti on license renewal for a period of ten years
Margin accretion of 100-200bp for Bharti by FY14 Increase in capex outlay of new entrants More investment in rural coverage required in order to get incremental spectrum allocation Further interest by new pan-India licensee unlikely Source: TRAI/MOSL
20 September 2010
19
Bharti Airtel
Implementation of mobile number portability remains an overhang Mobile number portability (MNP) has been delayed a number of times since December 2009. It is now likely to be implemented in 3QFY11. MNP implementation could drive increase in subscriber churn and higher subscriber retention costs, as operators will target high ARPU subscribers of competitors, especially in the post-paid segment. Post-paid subscribers (comprising 4% of total subscribers) constitute 17% of total revenue in the GSM segment. Post-paid ARPU is 4.5x pre-paid ARPU. Key retention measures apart from potentially better tariff structure would be (1) 3G presence and (2) improved service quality.
POST-PAID V/S PRE-PAID ARPU POST-PAID/PRE-PAID REVENUE MIX
Post-paid ARPU (Rs/month) Pre- paid ARPU (Rs/ month) 600 584
559
543
539
530
530
503
17
143 2QFY10
83
459
196
215
240
17 1QFY09
19 2QFY09
18 3QFY09
18 4QFY09
19 1QFY10
19
20 3QFY10
20 4QFY10
2QFY10
Source: TRAI/MOSL
20 September 2010
20
Bharti Airtel
India business (incl. towers) Africa business FY12 net debt Total Value Shares o/s (b) CMP (Rs) Upside (%)
213 56
100 80
213 45
8.7 7.0
3.79
COMPARATIVE VALUATIONS CMP (RS) RATING MCAP (US$B) EV (US$B) FY10 P/E (X) FY11E FY12E FY10 EV/EBITDA (X) FY11E FY12E FY10 EV/SALES (X) FY11E FY12E
358 78 166
FY10
FY11E
FY11E
5.9 -22.7 24.3 2.0 -53.4 27.5 -20.7 -77.4 43.6 Source: Company/MOSL
20 September 2010
21
Bharti Airtel
500 275 50 Mar-05 Nov-05 Nov-08 Jun-06 Jan-07 Feb-10 Jun-09 Aug-07
740
565 26x 22x Average 17.9x 14x 10x 40 Mar-05 Nov-05 Nov-08 Feb-10 Jun-06 Jan-07 Jun-09 Aug-07 Sep-10
EV/EBITDA (X) CY10 CY11
Bharti trading broadly in line with its 5-year average P/E of ~18x
390
215
GLOBAL COMPARATIVE VALUATIONS (%) MKT CAP (US$B) REVENUE GR. (%) CY10 CY11 EBITDA GR. (%) CY10 CY11
China Mobile AT&T Vodafone Group Telefonica America Movil Verizon NTT DOCOMO France Telecom China Unicom MTN Group Bharti Airtel Zain Mobile telesystems Partner Comm Average
11 1 3 0 18 -1 0 -15 9 7 44 -24 39 5 5
6 1 8 3 16 1 10 0 9 11 19 -3 14 -4 7
Apr-08
8 4 -3 -4 16 0 0 -11 1 6 28 -20 34 9 4
3 4 5 3 16 3 9 0 11 11 25 -1 16 -4 7
4.6 4.4 5.4 5.2 8.6 8.2 6.0 5.8 7.6 6.5 5.4 5.2 4.4 4.0 5.0 5.1 5.0 4.5 4.7 4.2 9.4 7.3 7.0 7.1 4.4 3.8 4.8 5.0 5.8 5.5 Source: Bloomberg/MOSL
Sep-10
Apr-08
20 September 2010
22
Bharti Airtel
KEY ASSUMPTIONS FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E FY14E
Domestic mobile business to constitute 55-60% of Bharti's consolidated revenue and EBITDA
Mobile - India Subs (m) 20 37 YoY (%) 78 90 Average subs (m) 14 28 YoY (%) 65 91 Netadds per month (m) 0.7 1.5 YoY (%) 92 104 Total mobile traffic (b min) 70 153 YoY (%) 100 118 ARPU (Rs/month) 476 427 YoY (%) -8 -10 MOU 405 461 YoY (%) 21 14 Mobile RPM (Rs) 1.17 0.93 YoY (%) -24 -21 Mobile EBITDA margin (%) 36.1 37.7 Mobile Capex (Rs b) 42 72 Mobile Capex/sales (%) 50 51 Mobile - Africa Subs (m) YoY (%) Netadds per month (m) ARPU (US$/month) YoY (%) Capex (US$ b) Capex/Sales (%) Passive Infrastructure Indus Towers Towers (000s) Cellsites (000s) Tenancy ratio (x) Sharing revenue per operator per month (Rs EBITDA margin (%) Bharti Infratel Towers (000s) Cellsites (000s) Tenancy ratio (x) Sharing revenue per operator per month (Rs EBITDA margin (%) Revenue mix (%) Mobile (India & SA) 64 68 Telemedia 12 11 Enterprise 25 21 Passive infrastructure 0 0 Africa 0 0 EBITDA mix (%) Mobile (India & SA) 66 69 Telemedia 8 7 Enterprise 26 23 Passive infrastructure 0 0 Africa 0 0 Capex mix (%) Mobile (India & SA) 66 80 Telemedia 21 10 Enterprise 14 15 Passive infrastructure 0 0 Africa 0 0
128 36 111 42 2.8 6 610 28 249 -23 459 -10 0.54 -15 38.7 34 10
160 26 144 30 2.7 -3 843 38 215 -14 488 6 0.44 -19 35.8 53 14 43 1 0.7 7.3 0.85 25
178 11 169 18 1.5 -45 991 18 212 -2 488 0 0.43 -2 36.3 41 9 68 60 2.1 5.7 -22 0.75 20
193 8 186 10 1.2 -20 1108 12 215 1 498 2 0.43 -1 35.5 35 7 89 30 1.7 4.7 -18 0.66 15
205 6 199 7 1.0 -17 1187 7 223 4 498 0 0.45 4 33.4 30 6 109 23 1.7 4.2 -10 0.75 15
35 37 33 3 3 2 3 4 4 21 16 16 30 33 38 Source: Company/MOSL
20 September 2010
23
Bharti Airtel
Revenues
369,615
418,472
600,932
716,295
802,929
892,561
Change (%)
Total Expenses EBITDA
36.8
217,937 151,678
13.2
250,839 167,633
43.6
386,260 214,672
19.2
447,042 269,252
12.1
491,954 310,975
11.2
544,779 347,782
% of Gross Sales
Depn. & Amortization EBIT Net finance cost Other Income PBT Tax
41.0
47,581 104,097 11,613 589 93,073 6,615
40.1
62,832 104,800 178 468 105,090 13,453
35.7
101,826 112,846 27,999 1,049 85,897 16,843
37.6
125,764 143,489 35,665 1,218 109,042 22,713
38.7
135,112 175,863 30,148 1,348 147,063 31,658
39.0
140,165 207,616 22,932 1,486 186,171 47,585
Rate (%)
Minority Interest Adjusted PAT
7.1
1,759 84,699
12.8
1,870 89,767
19.6
-357 69,411
20.8
74 86,255
21.5
1,980 113,424
25.6
3,933 134,653
Share Capital Additional Paid up Capital Reserves Net Worth Loans Minority Interest Other Liabilities Deferred Tax Liability Capital Employed
Gross Block Less : Depreciation Net Block Other Non-Current Assets Curr. Assets Inventories Debtors Cash & Bank Balance Short-term investments Other Current Assets Curr. Liab. & Prov. Creditors Other Current Liabilities Net Curr. Assets Appl. of Funds
603,221 153,722 449,499 10,370 144,079 963 28,528 11,145 38,010 65,434 152,377 89,317 63,060 -8,299 451,570
761,040 218,521 542,519 30,736 137,685 484 35,711 25,323 52,362 23,805 108,819 107,702 1,117 28,866 602,121
1,587,440 316,441 1,270,998 57,361 139,324 2,023 48,783 31,362 19,820 37,336 228,651 225,688 2,963 -89,327 1,239,033
1,702,989 440,432 1,262,557 57,732 240,769 2,273 55,597 81,362 59,218 42,319 208,193 204,988 3,205 32,576 1,352,865
1,797,266 573,434 1,223,832 58,112 383,079 2,614 62,149 131,362 139,218 47,736 220,841 217,385 3,456 162,238 1,444,181
1,889,928 712,719 1,177,210 58,502 585,759 2,949 68,972 221,362 239,218 53,257 232,649 228,935 3,714 353,110 1,588,822
E: MOSL Estimates
20 September 2010
24
Bharti Airtel
Basic (Rs) EPS Cash EPS Book Value DPS Payout %(Incl.Div.Taxes) Valuation (x) P/E Cash P/E EV/EBITDA EV/Sales Price/Book Value Dividend Yield (%) Profitability Ratios (%) RoE RoCE Turnover Ratios Debtors (Days) Asset Turnover (x) Leverage Ratio Net Debt/Equity (x) 0.2 0.1 1.1 0.9 0.5 0.2 28 1.14 31 1.01 30 0.79 28 0.66 28 0.75 28 0.88 31.4 26.6 23.6 18.9 14.4 10.0 15.5 8.9 17.5 10.2 17.6 10.6 16.0 10.3 9.4 3.9 4.3 0.0 15.1 8.9 8.2 3.3 3.0 0.3 19.6 7.9 9.1 3.2 2.6 0.5 15.7 6.4 7.0 2.6 2.3 0.6 12.0 5.5 5.6 2.2 1.9 0.8 10.1 4.9 4.5 1.7 1.6 1.0 22.3 34.9 83.0 0.0 0.0 23.7 40.2 117.9 1.0 4.2 18.3 45.1 137.1 1.8 10.0 22.7 55.9 157.2 2.3 10.0 29.9 65.5 184.7 3.0 10.0 35.5 72.4 218.0 3.5 10.0
CASH FLOW STATEMENT Y/E MARCH 2009 2010 2011E 2012E 2013E
Op.Profit/(Loss) bef Tax Other Income Interest Paid Direct Taxes Paid (Inc)/Dec in Wkg. Cap. CF from Op.Activity
E: MOSL Estimates
20 September 2010
25
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