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Research
Bharti Airtel - Diwali Picks 2012 - Microsec
Posted On : 2012-11-14 21:01:57( TIMEZONE : IST )
We rate Bharti Airtel Ltd (Bharti) a 'BUY'. Our rating underpins Bharti's leading position in the Indian telecom space, its ability to generate healthy free cash flows, and emerging regulatory clearance in the sector. However, its high debt levels and expected cash outgo in upcoming auctions impede our optimism a bit.
Leading position in the Indian telecom market bodes well. Bharti with 185.92 Mn subscribers, at the end of September 2012, holds 20.5% subscribers market share in the Indian telecom market. In addition, 91.8% of the company's subscribers were active, which is higher than the industry average of 77.1% and second only to Idea. Furthermore, the higher quality of its subscriber base is represented by far higher share in revenues, where Bharti represented 28.2% of total industry's gross revenues in Q1 FY2013. We believe the leading position in the Indian telecom market coupled with its scale of operations and diversification in other geographies makes the company a better investment bet, over its peers, in the uncertain regulatory environment.
Ability to generate healthy free cash flows provides an edge. During twelve months ended September 2012, Bharti generated operating free cash flows of INR12,256.8 Crores. With capital expenditure cycle in the Indian telecom space peaking, the company may continue to generate such cash flows, going forward. Moreover, strong free cash flows will help the company reduce its debt burden as well as equip Bharti with better liquidity position while entering into 2G spectrum auction.
Emerging regulatory clarity remains positive. The emerging regulatory clarity is likely to be positive for the Indian telecom sector. Bharti, being the leader in the space, will remain the key beneficiary of the same, in our view.
Valuation seems attractive. Bharti is currently trading at EV/EBIDTA of 7.14, which is lower than historical averages. Furthermore, it is trading at discount compared with its peers. We believe that at current valuations, the company is attractively priced and can be a good investment bet from a long term perspective.
