Telecommunication BHARTI AIRTEL

Bharti underperformed substantially over the last 12 months. This was because of concerns such as declining average revenue per user (ARPU), possible loss of market share, uncertainty on Africa acquisition and 3G spectrum payouts.

The 3G rollout would support and eventually improve ARPUs over the next few years as Bharti can offer 3G to 65-70 per cent of its revenue/subscriber base. The concerns over loss of market share are overshadowed by the increase in subscriber base— the September additions for Bharti were 2 million, taking the total subscriber base to 143 million, a 29 per cent share.

Bharti would launch Airtel in Africa, finalise outsourcing arrangements (IT outsourcing deal with IBM has been announced) and complete integration process for the African business, which would be self sustaining.

Lastly, with peak coverage capex and 3G payments through, Bharti’s India business would generate substantial free cash. A Part of it could be used to reply its Rs 60.000 crore. Consolidated debt, The company‘s measure to address the negatives are likely to see returns on equity (ROE) Rise in FY12 and beyond after   bottoming out in FY11. The markets should start factoring in the estimated improvement in fundamentals over the next year.

 We have a sum of the parts valuation (SOTP)-based target price of Rs.430, which consists of RS.488 per share for India & South Africa businesses plus RS.84 per share for Africa business.