Bharti: Keep calling

THE COMPASS

The telco is well positioned to launch 3G services and MNP should not hurt it too much.

A couple of telecom stocks came off sharply in Tuesday’s trading session probably because of Communications Minister A Raja’s announcement that mobile number portability (MNP) is now likely by June next year. Not surprisingly, Bharti Airtel, which has been a relative outperformer in the space, came off by just 1.5 per cent. With 3G auctions round the corner, India’s biggest operator, which now has a presence in 364,000 towns and villages, is well positioned to launch 3G services.

Bharti has strong cash flows and lower borrowings than rivals, important in a business that calls for large amounts of capital expenditure. The firm’s free cash flows in 2008-09, for the core business, are estimated at over Rs 3,200 crore which could go up to nearly Rs 7,000 crore next year. The net debt at the end of the current year should be around Rs 7,000 crore. Moreover, unlike Reliance Communications, it is not rolling out a new network and unlike Vodafone or Idea cellular, it already has network in 23 circles.

Despite being the market leader with over 80 million subscribers , Bharti continues to get a fair share of the net subscriber additions; however, from around 28 per cent at present, its share of net additions could come off to 22-23 per cent in 2009-10 with new players entering the market. However, it’s unlikely Bharti will be hurt too much by number portability.

Industry watchers estimate that the telco should add around 2 million subscribers every month next year — it currently adds around 2.6 million. Also, while Bharti’s average revenue per user (arpu) has been coming off — it was Rs 331 in the September quarter — since tariffs have been falling, it nonetheless enjoys higher arpus than those of its peers — RCom’s arpu, for instance, is Rs 271. The minutes of usage at 526 minutes too are way higher than RCom’s at 423 minutes.

Bharti is expected to close 2008-09 with revenues in the region of Rs 39,000 crore, a growth of nearly 45 per cent over 2007-08. The firm’s net profit is expected to grow by about 21 per cent to around Rs 8,100 crore. While the growth in the top line would taper off in 2009-10, the momentum in the net profit growth could be maintained with the tower business starting to chip in.