Analysts remain bullish on Bharti Airtel

Sunil Mittal-controlled Bharti Airtel, which is also India’s largest telecom player, remains analysts’ top pick in the telecom space. The company, on Tuesday, entered into a definitive agreement with the Warid Group to fully acquire Warid Congo SA. Currently, Warid is the third largest telco in Congo with around one million customers. The deal will make the Indian telecom giant the biggest telecom player in Congo.
 
At the bourses, the stock lost ground in Tuesday’s session – slipping 1.5% on the National Stock Exchange (NSE) to Rs 359 levels in an overall weak market, as compared to 0.6% fall in the benchmark indices (S&P BSE Sensex and the CNX Nifty).

 
Meanwhile, the company had reported a 10% year-on-year (5% sequentially) growth in revenues in the September quarter to Rs 21,324 crore. The consolidated revenue growth was mainly driven by a 16% y-o-y revenue growth in Africa (in rupee terms) and 6% growth in India.
 

According to Daljeet Singh Kohli, Head of Research, IndiaNivesh Securities, some of the positives from the recent results included: (1) lower volume de-growth (in total minutes of usage) relative to Idea (2.7% v/s around 5.7% decline in volume at Idea), (2) margin expansion, (3) revenue ahead of our expectation; and (4) Africa business demonstrating 7.2% total MoU growth followed by increase in ARPU after many quarter of the de-growth.

 
Bullish stance
 
Point out analysts at Nomura Research: “Bharti is starting to surpass market expectations (IDEA consistently does this, but we are now seeing Bharti surprise too in the past one – two quarters). However, there is still a lot of volatility on items below the EBIT line. For one, Bharti management continues to downplay forex losses, but these have stayed consistently high in the past few quarters.”
 
“In addition, we also note that volatility around investment income/losses has been more pronounced in the past 2 quarters. In our recent marketing meetings in the US, we saw investor interest in Bharti given that it has been a laggard, while operational trends seem to be improving. A more consistent and improved earnings performance should see it closing the valuation gap to peers. Maintain ‘BUY’ with a target price of Rs 360,” they add.

 
José Martins Soares, an analyst at Espirito Santo believes that for the telecom industry, data is likely to grow in excess of 50% y-o-y over the next few years as internet and Smartphone penetration improves. In context of the above they like Bharti Airtel. “Despite the limited upside potential on the back of a recent price increase, we rate Bharti Airtel BUY (FV of Rs 354),” he says in a recent report.
 
Points out an analyst at Sharekhan Research: “For the telecom operators, the performance of the Q2FY2014 results vindicates our stance that the overall business environment continues to improve, with data being the next leg of growth for revenues as well as the margin. Thus continuing with our stance, we largely maintain our estimates for Bharti. Our earnings per share (EPS) for FY2014 and FY2015 are Rs 11.2 and Rs 15.3, respectively. We maintain our Hold rating with a price target of Rs 395 (valued at 7.5x FY2015 EV/EBITDA).”

 
“Going forward we expect domestic regulatory environment getting conducive, consolidation in sector resulting in higher (revenue per minute) RPM and gradual recovery in Airtel Africa unit. Maintain Buy,” says Rikesh Parikh, vice president – institution corporate broking, Motilal Oswal Securities.