>BHARTI AIRTEL (ICICI DIRECT)

Lower ADC denting ARPU…
Bharti reported Q1FY10 results which were a tad above our estimates. Top line grew by 1.2% QoQ and 17.2% YoY to Rs 9941.6 crore (I-direct estimates Rs 10253.6 crore). EBITDA stood at Rs 4151.8 crore at 41.8%. EBITDA margins improved by 24 bps QoQ and 103 bps YoY to 41.8% led by reduction in termination charges from Rs .30 to Rs .20 (effective from 1st Apr ’09). PAT margins stood at 25.3% as against 22.8% in the last quarter. The company posted a PAT of Rs 2516.7 crore versus our expectation of Rs 2334.6 crore.

Highlight of the quarter
The company crossed 100 million subscriber mark in Q1FY10, ending the quarter with 102 million subscribers. It added 8.4 million subscribers during The quarter with majority of them being from rural India. ARPU declined by 8.8% to Rs 278 primarily due to reduction in termination initiated charges by DoT from Rs 0.30/minute and Rs 0.20/minute (effective from 1st Apr ’09). The reduction of ADC resulted in a negative impact of Rs 12 on the ARPU. During the quarter, the company added 10 bn minutes on its network. Total minutes stood at 140 bn minutes at the end of quarter.

Valuations
We value the company using the SOTP method. Ascribing a value of Rs 786 to the core businesses, Rs 48 to Infratel and Rs 75 to Indus contribution, we have arrived at a target price of Rs 909/share. Our target price for Airtel discounts the FY10E EPS of Rs 51.7 by 17.6x and FY11E EPS of Rs 61.2 by 14.8x. We upgrade the stock to PERFORMER from HOLD. The company has got an approval for stock split in ratio of 1:2. In case of stock split the effective
target price would be Rs 455.

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