>BHARTI AIRTEL: Any slippage in Africa however carries the maximum downside

■ Have expectations finally moderated? – Consensus has continued to miss and moved down. Bharti has clearly under delivered over the last 8-9 qtrs. That’s a problem but at the stock level it’s been compounded by the fact that the expectations have tended to be very high, reflected in the 3-5% downgrade in EBITDA and 26-41% in EPS for FY12/13 in the last 12 months. We believe, looking at Street estimates 9 quarters ahead and our own proprietary model, that it is no longer the case.


■ But what could still be at risk? – We think its rev/min and tower tenancy. Continuing price arbitrage could undermine the 2p increase in rev/min that the market is currently factoring in. We also believe that the tenancy, assumed to increase to 2.5x, could be on the higher side. If these risks were to materialize - there could be a 4-7% downside to consensus.


■ Where are expectations high but not at risk? – That’s in Africa where expectations are of a 3-4% increase in topline per quarter which, barring the odd quarter, the company has managed to deliver. This is backed by a 9% increase in EBITDA margins – reasonable given the likely increase in network utilization and benefits of cost control. Any slippage in Africa however carries the maximum downside.


■ Which segments have some cushion? – Expectations from other businesses – fixed line and enterprise look fine in our view with a 2-4% increase in topline per quarter accompanied with reasonable margins.


■ Where are we vs. consensus – We are 4-7% below on EBITDA and there could possibly be some downgrades but we believe the 10% underperformance since Feb (16% YTD) prices in the negatives. Market has got too attuned to look at surprises on the downside; any upside surprise should result in material outperformance and that could come from 1) faster-than-expected reversal in rev market losses and 2) wireless
margin expansion.


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