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Bharti Airtel Impressive Q3 FY2010 – Buy

January 25, 2010

Some of they things to observe from Bharti Airtel’s Q3 FY 2010 results are – RPM declined 8% qoq to Rs0.52 vs. our estimate of 11%,
implying lower than estimated impact of tariff cuts in 3QFY10, Capex
declined 26% qoq to Rs16.9 bn. Enterprise/ Telemedia revenues declined 4% QoQ.

Continued increase in Network Operation expenses poses downside risk to margins. Continued increase in SG&A expenses poses downside risk to margins. Airtel DTH segment results reported for the first time and EBITDA loss of Rs2.5bn in 3Q.

Bharti management on the earnings calls itself guided that the current round of irrational pricing will continue for another two quarters and noted that entry of two new players in the market would further intensify the ongoing tariff war.

According to Goldman Sachs, Bharti Airtel is expected to report an EPS of Rs 23.52 and Rs 25.54 for fy10 & fy11 respectively. Goldman Sachs has set a target price of Rs 390 on Bharti Airtel.

According to Motilal Oswal, Bharti trades at EV/ EBITDA of 7.4x FY11E and 6.2x FY12E; and P/E of 13.7x FY11E on EPS expectations of 24 and 23.5 respectively.

As per, HDFC Securities, the stock is trading at 13.1x FY10E EPS of Rs.24.6 and 15x FY11E EPS of Rs.21.4 at the CMP of Rs.330.5.

ICICI Group, one of the largest holders of Bharti Airtel is optimistic in its projections of its EPS – Rs 25.5 and Rs 27.5 for FY10 and FY11 respectively with a target price of Rs 383.

Credit Suisse, upgraded the stock to NEUTRAL from Underperform with a very conservative EPS expectations of Rs 22 and Rs 20 for FY10 and FY11 respectively and a target price of Rs 320.

Bharti Airtel is expected to report an EPS of Rs 24.23 and Rs 25.23 for fy10 & fy11 respectively with a target of Rs 390 set by BOFA Merrill.

According to Morgan Stanley, expect an EPS of Rs 23.18 and Rs 22.23 for fy10 & fy11 respectively with a target of Rs 351.

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