Bharti Airtel – Event Update – Nirmal Bang

Bharti Airtel (BAL) has entered into an agreement with Qatar Foundation Endowment (QFE) to issue 199.9mn new equity shares to the latter, representing a post-issue equity stake of 5% for QFE. The preferential allotment will be made to QFE at a price of Rs340 per share, amounting to a total consideration of Rs68bn (US$1.26bn).

Post equity issuance, BAL's share capital will get diluted by 5.3%. This will enable the telecommunications major to strengthen its balance sheet, with its net debt-equity ratio falling from 1.0x pre-issuance to 0.8x post-issuance, and the net debt-EBITDA ratio declining from 2.0x pre-issuance to 1.7x post-issuance, in FY14E. However, regulatory headwinds remain a bugbear, while revenue per minute (RPM) growth is yet to materialise. Africa growth is below expectations and we expect this to be a headwind for FY14 revenue growth.

Current stock valuation, at 4.9x FY15E EV-EBITDA, is not demanding. We have retained our Hold rating on the stock with an unchanged target price of Rs344 despite increase in cash and subsequent reduction in net debt, owing to the equity dilution of 5.3%. We have increased our FY14E/FY15E net profit estimates by 7.1%/11.6%, respectively, on lower net interest payment owing to higher interest earned due to cash infusion. However, EPS estimate upgrades are lower at 1.8%/6%, respectively, owing to the equity dilution.

Source : Equity Bulls

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