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).