Bharti remains top pick in Indian telecom sector

“Bharti Airtel (Formerly Bharti Televentures) is

India

‘s largest private sector provider of integrated telecom services, especially wireless. The wireless business accounts for nearly two-thirds of the company’s total revenue. The company is a market leader in wireless services and its wireless operations extend across all 23 domestic circles.”

Potential for margin expansion despite tariff pressures

“Bharti believes that wireless EBITDA margins could expand to ~39-40% over the long term, despite likely continued pressure on revenue per minute, rpm. In 1Q FY07A, Bharti’s wireless margin stood at 36.4%; we forecast margins at ~37% for FY07E and expect that margins will expand further to ~39% in longer term, as scale economies should overcome rpm pressures. Despite the growing cloud of mobile minutes, Bharti expects rpm to remain under pressure due to high competitive intensity in the market and also, some pass through of scale benefits by operators.”

New operator rollouts seem unlikely before end-2007

“Recent newsflow of more wireless operators seeking a pan-India footprint is a dampener from the standpoint of industry structure, but we think any threat to Bharti’s customer and profit leadership is distant. Also, we think any on-the-ground network rollout by new operators is unlikely to commence before end-CY07.”

Reiterate Buy, Bharti remains our top pick

“We forecast Bharti’s earnings to grow at a CAGR of ~48% over FY06A-08E driven primarily by ~61% growth in its wireless subscriber base. At a PE of ~16x Mar ’08 & EV/EBITDA of 9x FY08E, the stock is currently trading near the lower end of its one-year forward PE-band of 18-24x and EV/EBITDA band of ~10-13x. Bharti remains our top pick in the Indian telecom sector. Buy.”

Source- http://www.moneycontrol.com

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