Recommendation: Buy
CMP = Rs 915
Price target: Rs 1,100
Key points:
- The net revenues of Bharti Airtel grew by 12.3% qoq and by 45% yoy to Rs 7,819.1 crore during Q4FY2008. The revenue growth was much ahead of the consensus estimate and driven by robust sequential growth of 14.4% and 9.3% in the mobile service business and the non-mobile service business respectively.
- The operating profit margin (OPM) declined by 100 basis points qoq to 41.6% during the quarter, largely due to an increase in the operating expenses resulting from the transfer of passive infrastructure (network towers) to its subsidiary, Bharti Infratel. Moreover, the downward revision in the tariffs to Rs1 a minute for all pre-paid schemes in January and higher sales & marketing expenses also dented the overall profitability. The operating profit grew by 9.7% qoq and by 45.1% yoy to Rs 3,251.8 crore.
- The interest expenses (net of interest income) jumped sharply to Rs 215.7 crore (up from Rs 81 crore in Q3) largely due to Rs 147.2 crore of losses related to forex fluctuations and mark-to-market losses on the company's derivative exposure. On the other hand, the depreciation charge declined by 6.5% qoq to Rs 970.2 crore (again due to the transfer of passive infrastructure to Bharti Infratel). Consequently, the earnings jumped by 7.6% qoq and by 36.9% yoy to Rs 1,852.9 crore.
- In terms of new developments, the company inducted $1.35 billion from private equity investors in Bharti Infratel, valuing the subsidiary at $10-12.5 billion. It has received additional spectrum in seven circles and is eligible in six more circles as per the new norms. In terms of regulations, the Telecommunication Regulatory Authority of India (TRAI) announced the phasing out of access deficit charges and introduced guidelines for sharing of active network infrastructure during the quarter.
- At the current market price the stock trades at 20.3x FY2009 and 16.7x FY2010 estimated earnings.
- I maintain Buy call on the stock with a price target of Rs 1,100.
