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Bharti Airtel
Detailed Report
SECTOR: TELECOM
Out of turbulenceShobhit Khare (Shobhit.Khare@MotilalOswal.com); Tel: +91 22 3982 5428
Nirav Poddar (Nirav.Poddar@MotilalOswal.com); Tel: +91 22 3982 5444
Bharti Airtel
220 September 2010
Contents
Page No.
US$10b free cash by FY14 ............................................................................... 4-6
Domestic business bouncing back ................................................................. 7-14
Turnaround in Africa business would be key ............................................... 15-18
Regulatory uncertainty, MNP, high gearing/forex exposurepose challenges ............................................................................................. 19-20
Raising price target to Rs430; maintain Buy .............................................. 21-23
Financials and valuation ............................................................................... 24-25
Bharti Airtel
STOCK DATA
52-W High/Low Range (Rs) 467/230
Major Shareholders (as of June 2010) (%)
Promoter 45.4
Domestic Inst 8.8
Foreign 39.5
Others 6.2
Average Daily Turnover
Volume ('000 shares) 9,942.6
Value (Rs million) 3,212.8
1/6/12 Month Rel. Performance (%) 5/8/-35
1/6/12 Month Abs. Performance (%) 13/20/-17
KEY FINANCIALS
Shares Outstanding (m) 3,793.9
Market Cap. (Rs b) 1,357.8
Market Cap. (US$b) 29.0
Past 3 years Sales Growth (%) 31.2
Past 3 years NP Growth (%) 28.2
Dividend Payout (%) 4.2
Dividend Yield (%) 0.3
Y/E MARCH 2009 2010 2011E 2012E
Net Sales (Rs b) 369.6 418.5 600.9 716.3
EBITDA (Rs b) 151.7 167.6 214.7 269.3
NP (Rs b) 84.7 89.8 69.4 86.3
EPS (Rs) 22.3 23.7 18.3 22.7
EPS Growth (%) 26.4 5.9 -22.7 24.3
BV/Share 83.0 117.9 137.1 157.2
P/E (x) 16.0 15.1 19.6 15.7
P/BV (x) 4.3 3.0 2.6 2.3
EV/EBITDA (x) 9.4 8.2 9.1 7.0
EV/Sales (x) 3.9 3.3 3.2 2.6
RoE (%) 31.4 23.6 14.4 15.5
RoCE (%) 26.6 18.9 10.0 8.9
STOCK PERFORMANCE (1 YEAR)
SECTOR: TELECOM
320 September 2010
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 SOTP-
based 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.
Rs358 BuyBSE SENSEX S&P CNX BLOOMBERG REUTERS19,595 5,885 BHARTI IN BRTI.BO
200
280
360
440
520
Sep-09 Dec-09 Mar-10 Jun-10 Sep-10
Bharti Airtel Sensex - Rebased
Bharti Airtel
420 September 2010
US$10b free cash by FY14
Bharti has been impacted by competitive pressures in the domestic market and uncertaintyon Africa acquisition and 3G spectrum payouts. However, with peak coverage capex and3G 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 tobe 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 inFY12 and Rs37/share in FY13 from India and South Asia.
FCF generation to be strong
We believe that Bharti is entering a phase of strong FCF generation in its domestic business,as peak coverage capex is behind, enhanced tower sharing has supported capex savings,and acquisition of 3G spectrum in 13 circles will enhance capacity in the urban centers.We believe FCF would be a key metric for Bharti, going forward. We expect Bharti'sIndia and South Asia business (excluding the 3G spectrum payments and Africa businessacquisition) to generate FCF of Rs22/share in FY11 and Rs28/share in FY12.
BHARTI: FCF (EX-AFRICA BUSINESS AND 3G SPECTRUM OUTLAY)
Significant FCF generation
as growth rebounds and
peak capex behind
Bharti's domestic operations
to generate FCF of ~Rs28/
share in FY12E
BHARTI: FCF/SHARE (EX-AFRICA BUSINESS AND 3G SPECTRUM OUTLAY) - RS
Source: Company/MOSL
178 187 204 218
-94 -80 -64 -58
84 107140 161
FY11E FY12E FY13E FY14E
OCF (Rsb) Capex ex-3G payment (Rsb) FCF (Rsb)
22
28
37
42
FY11E FY12E FY13E FY14E
Bharti Airtel
520 September 2010
FY11: US$14b investment in high growth potential areas
FY11 is a year of significant investments for Bharti, which is pursuing two key growthdrivers: (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. TillFY10, Bharti had been primarily focusing on growing in the domestic market and hadbeen operating near FCF breakeven levels for several years. We expect Bharti'sconsolidated capex/sales to decline from 20-22% in FY10/FY11 to ~16% in FY12 and 10-12% in FY13/14. Bharti's capital employed has increased by more than 100% due to ZainAfrica acquisition and 3G spectrum payments. With investments already made in two highgrowth areas, Bharti is poised for a growth sequel, led by data in the domestic market andrelative under-penetration and usage elasticity in Africa.
BHARTI: CAPITAL EMPLOYED JUMPS >100% ON ZAIN AFRICA ACQUISITION/3G SPECTRUM PAYOUT (RS B)
Investing for growth -
significant increase in
capital employed
Capex intensity headed
sharply lower due to
minimal coverage capex,
benefits from tower sharing,
and 3G spectrum
Bharti Africa
constitutes ~20% of
mobile subscriber base
BHARTI: CAPEX TO DECLINE GOING FORWARD (RS B)
BHARTI: TOTAL SUBSCRIBER BASE OF ~250M BY FY12 (M)
Source: Company/MOSL
338 452602
1,239 1,353
67
106
9
34 33
FY08 FY09 FY10 FY11E FY12E
Capital Employed YoY (%)
89 138 140 83 94 80 64 58
3735
31 35
48
38
20 2216
12 10
51
FY
07
FY
08
FY
09
FY
10
FY
11E
FY
12E
FY
13E
FY
14E
Capex - India & SA Capex - Africa Capex/Sales (%)
128160 178 193 205
4368
89109
FY10 FY11E FY12E FY13E FY14E
Bharti (ex-Africa) Bharti Africa
128
203
246281
314
Bharti Airtel
620 September 2010
BHARTI: EXPECT REVENUE CAGR OF 16% OVER FY11E-13; AFRICA TO CONSTITUTE ~24% (RS B)
BHARTI: EXPECT EBITDA CAGR OF 20% OVER FY11E-13; AFRICA TO CONSTITUTE ~20% (RS B)
BHARTI: AFRICA MARGINS TO REACH ~40% BY FY14 (%)
Revenue growth to be
driven by Africa, 3G,
and rural markets
Expect EBITDA CAGR of
17% over FY11-14
Africa margins to improve;
domestic margins to be
maintained
We expect Africa acquisition
to be dilutive in FY11 and
FY12, marginally accretive
in FY13
BHARTI: ZAIN AFRICA ACQUISITION TO BE EPS DILUTIVE IN FY11/FY12 (RS)
Source: Company/MOSL
418 472 541 598 660
129175
204233
FY10 FY11E FY12E FY13E FY14E
Bharti (ex-Africa) Bharti Africa
168 180213 235 254
35
5676
93
FY10 FY11E FY12E FY13E FY14E
Bharti (ex-Africa) Bharti Africa
3938 39 39
28
32
37
40
3638
40
39
FY10 FY11E FY12E FY13E FY14E
Bharti (ex-Africa) Bharti Africa Consolidated
32.4
35.5
29.526.0
21.923.7
29.9
22.7
18.3
FY10 FY11E FY12E FY13E FY14E
Bharti (ex-Africa) Consolidated
418
601
716803
893
168
215
269311
348
Bharti Airtel
720 September 2010
Domestic business bouncing back
While Bharti has been impacted by high competition in the domestic business, it has beenable to defend revenue market share as well as win back subscribers and traffic. Whilerisk 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% of mobile revenue by FY13. We estimate mobile revenue CAGR of 14% over FY10-12 v/s 7% growth in FY10.
Back to growth
After a lean patch in CY09, Indian wireless revenue growth has bounced back during thelast two quarters. In CY09, revenue growth was impacted by a spate of new launches inthe GSM market starting with RCom (January 2009) and accentuated by "per second"plans launched by Tata DOCOMO and "Simply Reliance" plans by RCom in 2Q/3Q FY10.
Over the last two quarters, traffic growth for incumbents has improved to double digits(QoQ), led by usage elasticity as well as re-capturing traffic share/subscribers from newentrants. We note that the growth over the past two quarters also has a one-off component,as it was likely propelled by higher discounting in the market.
RCom, which had been relatively aggressive in driving down the pricing, cut the discountedminutes on its network by almost 50% during 1QFY11. The revenue per minute for thefour major private operators - Bharti, Idea, RCom, and Vodafone - has now converged atRs0.44-0.45.
AGR GROWTH HAS PICKED UP
Sharp rebound in AGR
growth after four
lean quarters
Double digit QoQ traffic
growth for GSM incumbents
in last two quarters
INCUMBENTS REPORTED ROBUST TRAFFIC GROWTH (%)
Source: TRAI/Company/MOSL
0 0 0
0
447
8 9
2
-5
6
154 160 171 185 184 184200 205 205 204 195 206 215
1QF
Y08
2QF
Y08
3QF
Y08
4QF
Y08
1QF
Y09
2QF
Y09
3QF
Y09
4QF
Y09
1QF
Y10
2QF
Y10
3QF
Y10
4QF
Y10
1QF
Y11
QoQ AGR grow th (%) Adjusted Gross Revenue (Rsb)
8
2
7
13
10
19
1110 10
3
1514 13
10 10
7
4
11
1
5 5
1
8 910
6
9
13
10
67
10
18
10
6
12
1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11
Bharti Idea RCOM Vodafone-India
Bharti Airtel
820 September 2010
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 marketshare has remained almost steady at 33%+. This is commendable, given the hypercompetition and tariff wars, in our view. We believe that the worst is behind in terms ofcompetitive intensity. Sustaining market share should not be difficult for Bharti.
BHARTI: SUBSCRIBER AND AGR MARKET SHARE
RPM HAS LARGELY CONVERGED; TRAJECTORY FLATTENING (RS)
Current RPM at
Rs0.44-0.45; MNP is
a threat to pricing
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 trafficin India. High on-net share is due to attractive tariff plans and regional dominance ofoperators. Currently, termination charges are fixed at Rs0.2/min, which is significant giventhe RPM of Rs0.44-0.45/min. We believe that high on-net traffic gives a key incumbencyadvantage to Bharti.
Bharti has maintained
revenue market share
despite hyper competition
0.40
0.47
0.53
0.60
0.66
2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11
Bharti Idea RCOM Vodafone-India
22.923.724.324.324.224.123.823.6
25.125.024.6
22.1 21.7
33.332.933.233.433.4
32.731.2
29.929.829.8
28.2
33.834.0
1QF
Y08
2QF
Y08
3QF
Y08
4QF
Y08
1QF
Y09
2QF
Y09
3QF
Y09
4QF
Y09
1QF
Y10
2QF
Y10
3QF
Y10
4QF
Y10
1QF
Y11
Subscriber market share (%) AGR market share (%)
Steady 33%+ market share
Bharti Airtel
920 September 2010
Source: TRAI/MOSL
Rural penetration remains low; Bharti leads in coverage
While the urban penetration in India has crossed 100%, rural penetration still remains lowat <25%. Bharti has a strong market share of rural subscribers and would be a keybeneficiary of potential increase in rural wireless penetration given its advantage of superiordistribution and coverage.
With urban areas already being saturated (penetration in excess of 100%), the wirelessindustry expects further subscriber net addition from rural areas. Bharti would be a keybeneficiary as it has been maintaining a strong rural market share of ~25% (more than itsoverall subscriber market share of 21.5%). Bharti has also been witnessing an upwardtrend in rural subscriber mix. Bharti covers ~84% of India's population with a distributionnetwork spanning ~1.5m outlets.
RURAL PENETRATION REMAINS LOW
Incumbents like Bharti have
a significant advantage
given high on-net calling
INTRA-NETWORK (ON-NET) TRAFFIC CONSTITUTES ~55% OF LOCAL CALLS
RURAL INDIA CONSTITUTES ~33% OF INDIA'S OVERALL WIRELESS SUBSCRIBER BASE
Significant headroom for
rural penetration to move up
Source: TRAI/MOSL
51%
53% 53% 53% 53%54%
55%56%
57% 57%58% 58% 58%
55%55%
2QF
Y07
3QF
Y07
4QF
Y07
1QF
Y08
2QF
Y08
3QF
Y08
4QF
Y08
1QF
Y09
2QF
Y09
3QF
Y09
4QF
Y09
1QF
Y10
2QF
Y10
3QF
Y10
4QF
Y10
8795
103112
9 11 11 14 15 17 20 23
8174
6664
1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10
Urban w ireless penetration (%) Rural w ireless penetration (%)
71 91 93 112 126 142 165 191
224 254280 301
330361
393
216
1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10
Rural subscribers (m) Urban subscribers (m)
287 315347
392427
472525
584
Bharti Airtel
1020 September 2010
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 commerciallyby the end of 2010. We expect 3G to be a significant growth driver over the medium-termgiven low VAS revenue share and broadband penetration in India.
Non-voice revenue for Indian wireless operators constitutes only 10-13% of the mix v/s25-30% in developed markets with 3G. GSM operators like Bharti, Vodafone and Ideahave 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%
Bharti leads in rural
coverage, with ~50m rural
subscribers
BHARTI: RURAL SUBSCRIBERS CONSTITUTE ~38% OF OVERALL MIX
Indian non-voice revenues
are low due to lack of 3G
services, spectrum
constraints, and lower
maturity of subscribers
Non-voice revenue mix
showing an uptrend
NON-VOICE REVENUE AS % OF WIRELESS REVENUE (%)
Source: Company/MOSL
34
38
43
48
33.034.8
36.437.7
1QFY10 2QFY10 3QFY10 4QFY10
Rural subscribers Rural subscribers (% of total)
1012
13
15
17
17
28
29
29
29
3045
Vodafone Essar
Bharti
Idea
MTN-South Africa
Vodafone-Africa and Central Europe
Vodafone-Asia Pac and Middle East
China Unicom
Vodafone-Europe
AT&T (US)
China Mobile
Verizon (US)
NTT-DOCOMO (Japan)
7
9
11
13
1QF
Y09
2QF
Y09
3QF
Y09
4QF
Y09
1QF
Y10
2QF
Y10
3QF
Y10
4QF
Y10
1QF
Y11
Idea Bharti Vodafone Essar
Bharti Airtel
1120 September 2010
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 totaloutlay of ~Rs156b. Bharti's 3G footprint covers ~70% of its revenue base and ~65% of itssubscriber base. Among the metro and A circles, Bharti did not secure 3G spectrum inKolkata, Maharashtra and Gujarat circles. However, it has won BWA (broadband wirelessaccess) spectrum in Kolkata and Maharashtra.
BHARTI: DETAILS OF 3G AND BWA SPECTRUM WON
3G WINNING BWA AGGRE- AGR AGR SUBS- SUBS AGR SUBS-
PRICE WINNING GATE 1QFY11 MARKET CRIBERS MKT COVERAGE CRIBERS
(RSB) PRICE 3G+BWA (RS B) SHARE JUL-10 SHARE IN 3G COVE-
(RSB) PRICE (RSB) (%) (M) (%) CIRCLES (%) RAGE
Delhi 33.2 33.2 6.3 39.6 6.8 21.3 8.8 4.9
Mumbai 32.5 32.5 2.8 21.2 3.2 10.7 3.9 2.3
Kolkata 5.2 5.2 1.5 27.6 2.9 16.2
Maharashtra 9.2 9.2 3.2 20.0 7.1 14.9
Gujarat 2.3 19.3 5.8 16.2
A.P. 13.7 13.7 7.9 42.0 14.1 28.0 11.0 10.1
Karnataka 15.8 15.4 31.2 8.5 52.8 13.4 32.5 11.8 9.6
T.N. (incl. Chennai) 14.6 14.6 6.8 34.0 11.5 19.4 9.5 8.3
Kerala 1.5 15.9 3.2 12.5
Punjab 3.3 3.3 3.2 38.5 5.1 22.5
Haryana 0.7 17.2 1.6 9.9
U.P. (W) 5.1 5.1 1.7 17.5 4.8 13.9 2.3 3.4
U.P. (E) 4.3 30.0 10.3 20.6
Rajasthan 3.2 3.2 4.8 49.7 10.9 30.4 6.8 7.8
M.P. 3.0 30.6 7.4 21.4
W.B. & A&N 1.2 1.2 2.0 29.4 6.6 22.8 2.8 4.7
H.P. 0.4 0.4 0.7 45.3 1.4 25.0 1.0 1.0
Bihar 2.0 2.0 5.5 49.8 12.3 29.6 7.7 8.8
Orissa 1.9 41.6 4.8 27.7
Assam 0.4 0.4 1.3 36.5 2.6 27.2 1.7 1.9
N.E. 0.4 0.4 0.8 35.0 1.6 27.6 1.1 1.1
J&K 0.3 0.3 0.9 36.9 1.9 39.8 1.3 1.3
Aggregate (Rs b) 123.0 33.1 156.1 71.5 33.3 139.2 21.5 69.7 65.4
No. of circles 13.0 4.0 16.0
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 higherdata usage should result in higher ARPU although voice ARPU is likely to continuedeclining. Including 3G, we expect ARPU to start increasing as subscriber addition slowsand data revenues pick-up.
3G REVENUE TO MOBILE REVENUE TREND
Incremental 3G revenue to
constitute ~5% of mobile
revenue by FY13
Source: Company/MOSL
4.8%
10.1%
2.5%
FY12E FY13E FY14E
Bharti Airtel
1220 September 2010
ARPU uplift to be led by
lower incremental
subscriber additions and
contribution from data
3G LAUNCH LIKELY TO BRING IN MEANINGFUL ARPU UPLIFT
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.
FY11E NET DEBT/EBITDA (X)
195
223
199201
209
215212
215
FY11E FY12E FY13E FY14E
2G ARPU (Rs/ month) ARPU incl. 3G (Rs/ month)
FY11E NET DEBT/EQUITY (X)
2.2
1.51.2
1.0
0.8
TataTeleservices
Uninor Bharti Idea RCom Vodafone
N.A.
4.5 4.3
3.22.8
RCom Vodafone Idea Bharti TataTeleservices
Uninor
-ve/marginal EBITDA
-ve EBITDA
Source: Company/MOSL
Bharti Airtel
1320 September 2010
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 togethergarnered just ~2.5% subscriber market share and even lower revenue market share on apan-India basis. We continue to believe that greenfield operators are unviable and industryconsolidation is the only option in the medium term.
MONTHLY NET SUBSCRIBER ADDITIONS BY NEW ENTRANTS (M)
Most operators have
stretched balance sheets
Greenfield operators have
been unable to make a
significant dent in the
market despite aggressive
discounts
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 themost visible and aggressive player amongst the new entrants. However, Uninor has beenfacing significant customer churn even in the initial phase (within six months) and is currentlyreporting an ARPU of Rs85/month on active subscribers and Rs50/month on reportedsubscriber base - a 60-80% discount to Bharti's current ARPU of Rs215/month.
UNINOR: ESTIMATED ARPU (RS/MONTH)
Source: Company/MOSL
According to the guidance from parent Telenor, Uninor is likely to incur an EBITDA lossof 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, webelieve a turnaround would be challenging, given low tariffs and significant discountsbeing offered by Uninor.
0.85
0.48
0.01
0.84
0.10
-0.5
0.0
0.5
1.0
1.5
Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10
Uninor Sistema Shyam Etisalat Videocon S Tel
50
85
53
92
1QCY10 2QCY10
Mobile ARPU - reported subs Mobile ARPU - active subs
Bharti Airtel
1420 September 2010
7.0 7.6 8.5
-37
28.5
5.6 2.7
18
-35.5
-13.2 -11.2
-55CY09 1QCY10 2QCY10 CY10G
EBITDA loss (Rsb) Capex (Rsb) Simple FCF (Rsb)
UNINOR: SIGNIFICANT CASH BURN
Source: Company/MOSL
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 circlesand is planning to launch in three more circles by the year end. Among the greenfieldoperators, Sistema was the first to do a commercial rollout due to readily available spectrumin the CDMA band. Sistema currently has a subscriber base of ~5.6m implying a subscribermarket share of less than 1% on a pan-India basis. The company is incurring an EBITDAloss of US$80-85m per quarter while the current revenue run-rate is ~US$23m. Currentmobile ARPU of ~Rs80 is at a 60% discount to market leader Bharti Airtel.
SISTEMA SHYAM: QUARTELY FINANCIALS (US$M)
4 5 714
-28-41
-71-80 -77
-85
1723
10
-30
619
437
176
599
531
633
333
4QCY08 1QCY09 2QCY09 3QCY09 4QCY09 1QCY10 2QCY10
Revenue OIBDA* Total debt
186
131102
7977
262
87
1215
22
3029
-3
4QCY08 1QCY09 2QCY09 3QCY09 4QCY09 1QCY10 2QCY10
Implied ARPU (Rs/month) QoQ decline (%)
* Operating Income Before Depreciation and Amortization Source: Company/MOSL
SISTEMA SHYAM: IMPLIED ARPU (RS)
Source: Company/MOSL
Bharti Airtel
1520 September 2010
Turnaround in Africa business would be key
Bharti would soon launch Airtel brand, finalize outsourcing arrangements (IT outsourcingdeal with IBM announced recently) and complete the integration process for Africa business.While there is low risk of negative surprises, the extent of improvement in cost structureand market elasticity will determine the achievement of US$5b revenue/US$2b EBITDAtarget set out for FY13 (we model US$4.4b revenue/US$1.6b EBITDA).
Africa business: key highlights
Zain's Africa business was on a declining trend during CY09, as indicated by (1)stagnant subscriber base, (2) decline in market share (from ~37% to ~30%), and (3)decline in EBITDA margin from 34% in CY08 to 29% in CY09 (22% in 4QCY09).
We believe Bharti would be investing in network and branding so as to put the businessback on the growth path.
Outsourcing initiatives and scale efficiencies are likely to start contributing to marginseffective FY12 and could result in a big delta in FY13 (~500bp margin improvement inthe base case).
Zain Africa acquisition would be 12-16% EPS dilutive for FY11 and FY12, but couldbe EPS neutral by FY13, as the Africa business reaches breakeven.
Bharti would be exposed to currency fluctuations. While its operating cash flowswould be in African currencies, its debt/capex liabilities would be largely denominatedin US$.
Historically, most of the currencies in Bharti's 15 countries of operations in Africahave exhibited a depreciating trend vis-à-vis the US$.
Bharti is targeting significant performance improvement for Africa business
During CY09, Zain Africa reported revenue of US$3.7b (down 12%), EBITDA ofUS$1.1b (down 23%), and capex of US$1.1b (down 44%).
As of December 2009, Zain had a subscriber base of ~42m (up 3%); CY09 ARPU isestimated at US$7.3/month (down 30%).
Although Bharti has not given a formal guidance, its CEO-International, Mr ManojKohli has announced a target of 100m subscribers, US$5b revenue and US$2b EBITDAfrom Africa in FY13.
Our FY13 estimates factor in a subscriber base of 89m, revenue of US$4.4b, andEBITDA of US$1.6b from Africa.
Achievement of management targets in FY13 would imply an EPS accretion of ~16%in FY13 v/s 1% in our base case projections.
Key assumptions for Africa business
Increase in subscriber base from 36m in June 2010 to 43m in March 2011, 68m inMarch 2012 and 89m in March 2013.
This implies a monthly net addition run rate of 0.68m during FY11, 2.1m in FY12, and1.7m in FY13.
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
Bharti Airtel
1620 September 2010
We factor in a 1-year delay
in achievement of US$5b
revenue/ US$2b EBITDA by
Bharti Africa
Margin improvement to be
led by operating leverage
and cost cutting initiatives
Bharti estimates real
penetration of ~20% due to
dual SIM usage
5.0
2.0
3.73.4
3.84.44.2
1.41.1 0.9 1.2
1.62.0
1.10.8 0.8
0.70.7
CY08 CY09 FY11E FY12E FY13E FY14E
Revenue (US$b) EBITDA (US$b) Capex (US$b)
33.629.4
37.0
27.7
32.0
40.1
CY08 CY09 FY11E FY12E FY13E FY14E
123
7561
48 45 39 35 35 33 3323 23 19 17 16 14
Gab
on
Con
goB
razz
aville
Gha
na
Ken
ya
Nig
eria
Sie
rra
Leon
e
Uga
nda
Agg
rega
te
Zam
bia
Tan
zani
a
Bur
kina
Fas
o
Mad
agas
car
Cha
d
Mal
awi
Nig
er
DR
C
We assume ARPU of US$6.6/month in FY11 (v/s US$7.4/month reported by Bhartiin 1QFY11), US$5.7/month in FY12 (down 15%), and US$4.7/month in FY13 (down18%).
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) operatingleverage.
We assume a capex of US$850m in FY11 (v/s US$1.1b in CY09 and Bharti's guidanceof ~US$800m), US$750m in FY12 and US$650m in FY13.
BHARTI (ZAIN) AFRICA: REVENUE, EBITDA AND CAPEX TRENDS
BHARTI (ZAIN) AFRICA: EBITDA MARGIN LIKELY TO IMPROVE (%)
CY09 MOBILE PENETRATION ACROSS BHARTI'S AFRICA FOOTPRINT (%)
Source: Company/MOSL
Bharti Airtel
1720 September 2010
Low market share in
Nigeria, Kenya, and Ghana
Most countries have an
ARPU less than US$10/
month
Bharti expects to exploit
usage elasticity in Africa
72 69 67 65 6251 51 46 45
40 39 3524
149
Mal
awi
Zam
bia
Nig
er
Cha
d
Gab
on
Bur
kina
Fas
o
Con
go B
Sie
rra
Leon
e
DR
C
Mad
agas
car
Tan
zani
a
Uga
nda
Nig
eria
Ken
ya
Gha
na
12.79.9 9.9 8.7 8.5 7.8 7.3 7.3 7.2 6.8 6.1 5.2 5.0 4.6 4.2
24.5
Gab
on
Con
goB
razz
aville
Cha
d
Nig
er
Zam
bia
Mal
awi
DR
C
Ove
rall
(est
)
Bur
kina
Fas
o
Sie
rra
Leon
e
Nig
eria
Gha
na
Tan
zani
a
Ken
ya
Mad
agas
car
Uga
nda
103
480
Bharti (Africa) Bharti (India)
COST SAVING LEVERS FOR AFRICA BUSINESS
Source: Company/MOSL
CY09 MARKET SHARE FOR ZAIN AFRICA (%)
CY09 ARPU FOR ZAIN AFRICA (US$)
AFRICA MOU PER SUBSCRIBER MUCH LOWER THAN INDIA (MINUTES/MONTH)
OPEX CAPEX
Network, IT, BPO
outsourcing
leveraging Bharti's
scale
2G+3G
equipment
procurement
Passive
Infrastructure
sharing
Passive
Infrastructure
sharing
Bharti Airtel
1820 September 2010
Ghana10%
Nigeria41%
Others31%
Zambia6%
Kenya6% Malaw i
6%
Nigeria37%
Zambia12%
Malaw i6%
Chad5%
Gabon9%
Tanzania9%
Niger7%
DRC6%
Congo Braz-zaville
5%
Others4%
Others33%
Nigeria35%
Tanzania12%
DRC8%
Zambia7%
Kenya5%
DRC9%
Nigeria36%
Congo Brazzaville
6%
Zambia8%
Tanzania7%
Gabon7%
Others27%
CY09 ZAIN AFRICA SUBSCRIBER MIX (%) CY09 ZAIN AFRICA REVENUE MIX (%)
Source: Company/MOSL
CY09 ZAIN AFRICA EBITDA MIX (%) CY09 ZAIN AFRICA CAPEX MIX (%)
Source: Company/MOSL
Bharti Airtel
1920 September 2010
Regulatory uncertainty, MNP, high gearing/forex exposurepose challenges
The final policy on government levies and 2G spectrum allocation is awaited and remainsan overhang. While competitive intensity has declined, there could be aggressive marketingand promotion by new GSM entrants post MNP implementation (by the end of 2010).Bharti's relatively high gearing at net debt/equity of 1.4x and net debt/annualized EBITDAof 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 Re1depreciation in the INR/USD rate.
Potential implementation of TRAI recommendations: low probability, highimpact event
In May 2010, the telecom regulator (TRAI) issued recommendations on licensing conditionsand 2G spectrum allocations. Most of the recommendations were negative for incumbentslike Bharti. Key negatives if the recommendations are accepted would be: Rs45b (Rs12/share) one-time liability for 'excess spectrum' Hike in annual spectrum charges (~100bp impact) Potential payout of ~Rs150b (Rs40/share) on licence renewal Surrender of 900MHz spectrum for re-farming
The positive outcome of the recommendations would be the proposed phased decline inlicence fee. The government is currently reviewing the recommendations; we see lowprobability of these recommendations being implemented in their current form.
SUMMARY OF TRAI RECOMMENDATIONS
RECOMMENDATIONS LIKELY IMPACT
One-time payout for spectrum allocation beyond One-time liability of ~Rs45b for Bharti
6.2MHz for GSM operators
Hike in annual spectrum charges (linked to revenues) EBITDA margin impact of ~110bp
Significant payouts for spectrum (linked to 3G auction Payout of ~Rs150b for Bharti on license
winning price) and return of spectrum allocated in renewal for a period of ten years
800MHz (CDMA) and 900 MHz (GSM) on license
renewal
Phased decline in license fee from 6-10% currently Margin accretion of 100-200bp for Bharti
(circle-wise) to a uniform 6% by FY14 (charged by FY14
as a percentage of AGR)
Tightening of rollout obligations Increase in capex outlay of new entrants
Linking of spectrum allocation beyond start-up More investment in rural coverage required in
spectrum to rollout obligations (v/s subscriber order to get incremental spectrum allocation
base currently)
De-linking of future licenses with spectrum Further interest by new pan-India licensee
unlikely
Source: TRAI/MOSL
Potential implementation
of TRAI recommendations
could imply Rs45b one-time
liability for 'excess spectrum'
TRAI recommendations
negative for GSM
incumbents
Bharti Airtel
2020 September 2010
Implementation of mobile number portability remains an overhang
Mobile number portability (MNP) has been delayed a number of times since December2009. It is now likely to be implemented in 3QFY11. MNP implementation could driveincrease in subscriber churn and higher subscriber retention costs, as operators will targethigh ARPU subscribers of competitors, especially in the post-paid segment. Post-paidsubscribers (comprising 4% of total subscribers) constitute 17% of total revenue in theGSM segment. Post-paid ARPU is 4.5x pre-paid ARPU. Key retention measures apartfrom potentially better tariff structure would be (1) 3G presence and (2) improved servicequality.
POST-PAID V/S PRE-PAID ARPU POST-PAID/PRE-PAID REVENUE MIX
POST-PAID SUBSCRIBER BASE STAGNANT AT ~20M
Source: TRAI/MOSL
600 584 559 543 539 530 530 503
204 189 192162181
113124143
1QF
Y09
2QF
Y09
3QF
Y09
4QF
Y09
1QF
Y10
2QF
Y10
3QF
Y10
4QF
Y10
Post-paid ARPU (Rs/month)Pre- paid ARPU (Rs/ month)
17
83
Post paid revenue (% of total)Pre paid revenue (%of total)
196 215240
279309
349401
459
17 19 18 18 19 19 20 20
1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10
Post paid subscribers (m) Pre paid subscribers (m)
Post-paid ARPU
at ~4.5x pre-paid
Post-paid base constitutes
~4% of GSM subscribers
Bharti Airtel
2120 September 2010
Raising price target to Rs430; maintain Buy
We are upgrading our SOTP-based target price to Rs430 - Rs488/share for India & SAbusiness (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/shareFY12E net debt of Rs533b. We no longer assign separate valuation for tower companies,as Bharti's consolidated financials under IFRS now capture EBITDA contribution fromIndus Towers (42% stake). Our valuation implies a negative value of Rs55/share for theAfrica business. Bharti trades at an EV of ~9.4x FY11E and ~7.3x FY12E proportionateEBITDA. Maintain Buy.
SOTP VALUATION: FAIR VALUE OF RS430 PER SHARE, 20% UPSIDE
FY12 EBITDA OWNER+ PROPOR- EV/EBITDA FAIR VALUE/SH
(RSB) SHIP TIONATE (X) VALUE
(%) EBITDA (RS B)
India business (incl. towers) 213 100 213 8.7 1,848 488
Africa business 56 80 45 7.0 314 84
FY12 net debt 533 141
Total Value 1,629 430
Shares o/s (b) 3.79
CMP (Rs) 358
Upside (%) 20
Source: MOSL
COMPARATIVE VALUATIONS
CMP RATING MCAP EV P/E (X) EV/EBITDA (X) EV/SALES (X)
(RS) (US$B) (US$B) FY10 FY11E FY12E FY10 FY11E FY12E FY10 FY11E FY12E
Bharti * 358 Buy 29.0 41.6 15.1 19.6 15.7 8.2 9.4 7.3 3.3 3.4 2.8
Idea 78 Buy 5.5 8.0 25.3 54.3 42.6 9.0 10.1 7.5 2.5 2.5 2.0
RCom 166 Buy 7.3 13.9 7.0 31.2 21.7 6.9 9.6 7.8 2.4 3.1 2.6
ROIC (%) ROE (%) EBITDA MARGIN (%) NET DEBT/EBITDA (X) NET DEBT/EQUITY (X)
FY10 FY11E FY12E FY10 FY11E FY12E FY10 FY11E FY12E FY10 FY11E FY12E FY10 FY11E FY12E
Bharti 22.0 11.9 10.5 23.6 14.4 15.5 40.1 35.7 37.6 0.1 2.8 2.0 0.1 1.1 0.9
Idea 7.0 5.2 5.8 7.6 4.1 5.0 27.4 24.4 27.3 1.9 3.2 2.2 0.6 1.0 0.8
RCom 6.3 3.9 4.0 12.6 2.8 3.9 35.5 32.3 33.4 2.5 4.5 3.5 0.5 0.8 0.7
CAPEX/SALES (%) SALES GR. (%) EBITDA GR. (%) EPS (RS) EPS GR. (%)
FY10 FY11E FY12E FY10 FY11E FY12E FY10 FY11E FY12E FY10 FY11E FY12E FY10 FY11E FY12E
Bharti 19.9 45.2 16.1 13.2 43.6 19.2 10.5 28.1 25.4 23.7 18.3 22.7 5.9 -22.7 24.3
Idea 26.5 64.5 15.3 22.7 23.4 15.7 20.2 9.9 29.6 3.1 1.4 1.8 2.0 -53.4 27.5
RCom 18.7 63.6 12.7 -3.0 -5.9 14.2 -15.1 -14.3 18.2 23.7 5.3 7.7 -20.7 -77.4 43.6
* Proportionate EV/EBITDA and EV/sales Source: Company/MOSL
Bharti Airtel
2220 September 2010
BHARTI: ONE-YEAR FORWARD EV/EBITDA BAND
BHARTI: ONE-YEAR FORWARD P/E BAND
Bharti trading at ~25%
discount to its 5-year
average EV/EBITDA
Bharti trading broadly in
line with its 5-year average
P/E of ~18x
GLOBAL COMPARATIVE VALUATIONS (%)
MKT CAP REVENUE GR. (%) EBITDA GR. (%) EV/EBITDA (X)
(US$B) CY10 CY11 CY10 CY11 CY10 CY11
China Mobile 205 11 6 8 3 4.6 4.4
AT&T 166 1 1 4 4 5.4 5.2
Vodafone Group 133 3 8 -3 5 8.6 8.2
Telefonica 107 0 3 -4 3 6.0 5.8
America Movil 101 18 16 16 16 7.6 6.5
Verizon 90 -1 1 0 3 5.4 5.2
NTT DOCOMO 75 0 10 0 9 4.4 4.0
France Telecom 56 -15 0 -11 0 5.0 5.1
China Unicom 36 9 9 1 11 5.0 4.5
MTN Group 31 7 11 6 11 4.7 4.2
Bharti Airtel 29 44 19 28 25 9.4 7.3
Zain 20 -24 -3 -20 -1 7.0 7.1
Mobile telesystems 17 39 14 34 16 4.4 3.8
Partner Comm 3 5 -4 9 -4 4.8 5.0
Average 5 7 4 7 5.8 5.5
Source: Bloomberg/MOSL
6x
8x
Average 10.2x
12x
14x
16x
50
275
500
725
950
Mar
-05
Nov
-05
Jun-
06
Jan-
07
Aug
-07
Apr
-08
Nov
-08
Jun-
09
Feb
-10
Sep
-10
10x
14x
Average 17.9x
26x
22x
40
215
390
565
740
Mar
-05
Nov
-05
Jun-
06
Jan-
07
Aug
-07
Apr
-08
Nov
-08
Jun-
09
Feb
-10
Sep
-10
Bharti Airtel
2320 September 2010
KEY ASSUMPTIONS
FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E FY14E
Mobile - India
Subs (m) 20 37 62 94 128 160 178 193 205
YoY (%) 78 90 67 52 36 26 11 8 6
Average subs (m) 14 28 50 78 111 144 169 186 199
YoY (%) 65 91 79 57 42 30 18 10 7
Netadds per month (m) 0.7 1.5 2.1 2.7 2.8 2.7 1.5 1.2 1.0
YoY (%) 92 104 41 29 6 -3 -45 -20 -17
Total mobile traffic (b min) 70 153 285 475 610 843 991 1108 1187
YoY (%) 100 118 86 67 28 38 18 12 7
ARPU (Rs/month) 476 427 366 325 249 215 212 215 223
YoY (%) -8 -10 -14 -11 -23 -14 -2 1 4
MOU 405 461 479 508 459 488 488 498 498
YoY (%) 21 14 4 6 -10 6 0 2 0
Mobile RPM (Rs) 1.17 0.93 0.77 0.64 0.54 0.44 0.43 0.43 0.45
YoY (%) -24 -21 -17 -17 -15 -19 -2 -1 4
Mobile EBITDA margin (%) 36.1 37.7 39.2 31.0 38.7 35.8 36.3 35.5 33.4
Mobile Capex (Rs b) 42 72 108 65 34 53 41 35 30
Mobile Capex/sales (%) 50 51 50 21 10 14 9 7 6
Mobile - Africa
Subs (m) 43 68 89 109
YoY (%) 1 60 30 23
Netadds per month (m) 0.7 2.1 1.7 1.7
ARPU (US$/month) 7.3 5.7 4.7 4.2
YoY (%) -22 -18 -10
Capex (US$ b) 0.85 0.75 0.66 0.75
Capex/Sales (%) 25 20 15 15
Passive Infrastructure
Indus Towers
Towers (000s) 95 103 111 120 126 132
Cellsites (000s) 141 176 211 252 290 330
Tenancy ratio (x) 1.48 1.71 1.90 2.10 2.30 2.50
Sharing revenue per operator per month (Rs 000s) 28.1 26.7 25.6 24.9
EBITDA margin (%) 32.2 36.8 37.8 39.4
Bharti Infratel
Towers (000s) 28 31 33 36 38 40
Cellsites (000s) 37 50 60 73 84 97
Tenancy ratio (x) 1.34 1.62 1.80 2.00 2.20 2.40
Sharing revenue per operator per month (Rs 000s) 37.2 35.7 33.9 32.6 31.6
EBITDA margin (%) 35.4 46.2 44.4 45.4 46.0 47.4
Revenue mix (%)
Mobile (India & SA) 64 68 71 65 68 55 54 53 54
Telemedia 12 11 9 7 7 5 5 4 4
Enterprise 25 21 18 18 9 6 6 6 5
Passive infrastructure 0 0 2 9 15 13 12 12 12
Africa 0 0 0 0 0 19 22 23 23
EBITDA mix (%)
Mobile (India & SA) 66 69 71 58 75 61 57 54 51
Telemedia 8 7 10 9 9 7 6 6 5
Enterprise 26 23 17 23 7 5 4 4 4
Passive infrastructure 0 0 2 9 14 15 15 15 15
Africa 0 0 0 0 0 16 21 24 27
Capex mix (%)
Mobile (India & SA) 66 80 78 46 41 40 35 37 33
Telemedia 21 10 7 10 12 4 3 3 2
Enterprise 14 15 15 15 14 3 3 4 4
Passive infrastructure 0 0 0 26 14 16 21 16 16
Africa 0 0 0 0 0 28 30 33 38
Source: Company/MOSL
ARPU and RPM declines to
get arrested in FY12
Domestic mobile business to
constitute 55-60% of
Bharti's consolidated
revenue and EBITDA
Bharti Airtel
2420 September 2010
Financials and valuation (Consolidated)
INCOME STATEMENT (RS MILLION)
Y/E MARCH 2009 2010 2011E 2012E 2013E 2014E
Revenues 369,615 418,472 600,932 716,295 802,929 892,561
Change (%) 36.8 13.2 43.6 19.2 12.1 11.2
Total Expenses 217,937 250,839 386,260 447,042 491,954 544,779
EBITDA 151,678 167,633 214,672 269,252 310,975 347,782
% of Gross Sales 41.0 40.1 35.7 37.6 38.7 39.0
Depn. & Amortization 47,581 62,832 101,826 125,764 135,112 140,165
EBIT 104,097 104,800 112,846 143,489 175,863 207,616
Net finance cost 11,613 178 27,999 35,665 30,148 22,932
Other Income 589 468 1,049 1,218 1,348 1,486
PBT 93,073 105,090 85,897 109,042 147,063 186,171
Tax 6,615 13,453 16,843 22,713 31,658 47,585
Rate (%) 7.1 12.8 19.6 20.8 21.5 25.6
Minority Interest 1,759 1,870 -357 74 1,980 3,933
Adjusted PAT 84,699 89,767 69,411 86,255 113,424 134,653
BALANCE SHEET (RS MILLION)
Y/E MARCH 2009 2010 2011E 2012E 2013E 2014E
Share Capital 18,982 18,988 18,988 18,988 18,988 18,988
Additional Paid up Capital 74,106 56,499 56,499 56,499 56,499 56,499
Reserves 210,857 346,453 412,145 488,539 590,777 713,125
Net Worth 303,945 421,940 487,632 564,026 666,264 788,612
Loans 118,801 101,898 643,939 673,721 653,359 663,982
Minority Interest 10,704 25,285 32,337 32,410 34,390 38,324
Other Liabilities 10,564 45,018 58,220 64,723 70,980 77,495
Deferred Tax Liability 7,556 7,980 16,905 17,984 19,188 20,409
Capital Employed 451,570 602,121 1,239,033 1,352,865 1,444,181 1,588,822
Gross Block 603,221 761,040 1,587,440 1,702,989 1,797,266 1,889,928
Less : Depreciation 153,722 218,521 316,441 440,432 573,434 712,719
Net Block 449,499 542,519 1,270,998 1,262,557 1,223,832 1,177,210
Other Non-Current Assets 10,370 30,736 57,361 57,732 58,112 58,502
Curr. Assets 144,079 137,685 139,324 240,769 383,079 585,759
Inventories 963 484 2,023 2,273 2,614 2,949
Debtors 28,528 35,711 48,783 55,597 62,149 68,972
Cash & Bank Balance 11,145 25,323 31,362 81,362 131,362 221,362
Short-term investments 38,010 52,362 19,820 59,218 139,218 239,218
Other Current Assets 65,434 23,805 37,336 42,319 47,736 53,257
Curr. Liab. & Prov. 152,377 108,819 228,651 208,193 220,841 232,649
Creditors 89,317 107,702 225,688 204,988 217,385 228,935
Other Current Liabilities 63,060 1,117 2,963 3,205 3,456 3,714
Net Curr. Assets -8,299 28,866 -89,327 32,576 162,238 353,110
Appl. of Funds 451,570 602,121 1,239,033 1,352,865 1,444,181 1,588,822
E: MOSL Estimates
Bharti Airtel
2520 September 2010
Financials and valuation (Consolidated)
RATIOS
Y/E MARCH 2009 2010 2011E 2012E 2013E 2014E
Basic (Rs)
EPS 22.3 23.7 18.3 22.7 29.9 35.5
Cash EPS 34.9 40.2 45.1 55.9 65.5 72.4
Book Value 83.0 117.9 137.1 157.2 184.7 218.0
DPS 0.0 1.0 1.8 2.3 3.0 3.5
Payout %(Incl.Div.Taxes) 0.0 4.2 10.0 10.0 10.0 10.0
Valuation (x)
P/E 16.0 15.1 19.6 15.7 12.0 10.1
Cash P/E 10.3 8.9 7.9 6.4 5.5 4.9
EV/EBITDA 9.4 8.2 9.1 7.0 5.6 4.5
EV/Sales 3.9 3.3 3.2 2.6 2.2 1.7
Price/Book Value 4.3 3.0 2.6 2.3 1.9 1.6
Dividend Yield (%) 0.0 0.3 0.5 0.6 0.8 1.0
Profitability Ratios (%)
RoE 31.4 23.6 14.4 15.5 17.5 17.6
RoCE 26.6 18.9 10.0 8.9 10.2 10.6
Turnover Ratios
Debtors (Days) 28 31 30 28 28 28
Asset Turnover (x) 1.14 1.01 0.79 0.66 0.75 0.88
Leverage Ratio
Net Debt/Equity (x) 0.2 0.1 1.1 0.9 0.5 0.2
CASH FLOW STATEMENT (RS MILLION)
Y/E MARCH 2009 2010 2011E 2012E 2013E 2014E
Op.Profit/(Loss) bef Tax 151,678 167,633 214,672 269,252 310,975 347,782
Other Income 589 468 1,049 1,218 1,348 1,486
Interest Paid -11,613 -178 -27,999 -35,665 -30,148 -22,932
Direct Taxes Paid -4,359 -29,761 -34,892 -22,713 -31,658 -47,585
(Inc)/Dec in Wkg. Cap. -22,672 26,518 112,162 -26,529 7,575 7,636
CF from Op.Activity 113,623 164,680 264,992 185,563 258,091 286,387
(inc)/Dec in FA + CWIP -143,426 -155,852 -830,305 -117,322 -96,387 -93,543
(Pur)/Sale of Investments 10,142 -14,282 32,597 -39,398 -80,000 -100,000
CF from Inv.Activity -133,285 -170,134 -797,708 -156,720 -176,387 -193,543
Issue of Shares -3,640 27,617 -3,754 0 0 0
Inc/(Dec) in Debt 21,738 -16,903 542,041 29,782 -20,362 10,622
Other Financing Activities 5,933 8,917 470 -8,624 -11,340 -13,465
CF from Fin.Activity 24,031 19,632 538,757 21,158 -31,702 -2,843
Inc/(Dec) in Cash 4,368 14,178 6,039 50,000 50,000 90,000
Add: Opening Balance 6,777 11,145 25,323 31,362 81,362 131,362
Closing Balance 11,145 25,323 31,362 81,362 131,362 221,362
E: MOSL Estimates
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