Bharti Airtel Cluster: Apple
Green Recommendation: Buy Price target: Rs780 Current
market price: Rs625
Ringing loud and
clear
Key points
Leading
explosive growth in wireless telephony: Bharti Airtel Ltd
(BAL) has been in the forefront of the wireless telecom revolution
and led the growth in this segment. Its total subscriber base has
grown at a CAGR of 74.5% over FY2004-06, helping it further
consolidate its leadership position in the segment. BAL is
expected to continue with the growth momentum and show a 45.7%
growth in its mobile subscriber base during FY2006-09E.
Most cost
efficient player: BAL has managed to constantly improve its
overall profitability through innovative and pioneering
initiatives like the outsourcing of non-core activities (eg
network expansion and management, billing and customer call
centre), the introduction of high-margin low-denomination coupons
and the cost saving electronic re-charging system for the pre-paid
customers. Consequently, it has been able to continuously improve
its overall profitability despite the competition-led pricing
pressures.
Non-voice
value-added services: Given its focus on value-added services
and other non-voice revenue generating opportunities, the company
has been able to report a healthy average revenue of around Rs1
per minute of usage, much higher than that of most of its peers.
The contribution of the non-voice revenues has grown to 10.5% of
the total mobile revenues in H1FY2007 and is expected to reach
13.5-14% by FY2009.
Attractive
valuation: The consolidated revenues and earnings of BAL are
estimated to grow at a CAGR of 35.1% and 45.7% respectively over
FY2006-09. At the current market price the scrip trades at 21.6x
FY2008E earnings and 17x FY2009E earnings. We recommend buying BAL
with a one-year price target of Rs780 (24x rolling four quarters
forward estimated
earnings).
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