>BHARTI AIRTEL: FY12 Annual Report

Key Highlights:
 While Africa business proforma revenue growth at aggregate level remained strong at ~25% in INR terms (~19% in USD terms) in FY12, there was significant divergence in the performance at the individual country-level. As per our proforma estimates, Bharti Africa witnessed ~35%+ USD revenue growth in Sierra Leone, Ghana, Uganda, and DRC (together contribute 18% of Africa revenue). However, proforma revenue growth is estimated to be single-digit/negative for Chad, Niger, Seychelles, Madagascar, Kenya, Malawi and Congo B (together constitute 21% of Africa revenue).

 Gross debt remains largely USD denominated (70%) followed by INR (19%) and other currencies (11%). Debt schedule indicates relatively high re-payment in FY13 with 28% of overall gross debt (INR193b) having maturity period of less than one year. However leverage remains relatively comfortable with FY12 net debt/EBITDA at 2.75x.

 Only ~9% of the overall borrowings for Bharti are at a fixed rate implying that interest rates remain key earnings variable. Every 1% increase in USD (INR) interest rate would have impacted Bharti's FY12 PBT by INR4.8b (INR1b).

 Earnings sensitivity to exchange rate remains high as well with adverse impact of INR4.6b on FY12 PBT (7%) for a 5% appreciation in USD assuming all other variables remained constant.

 Contingent liabilities have increased significantly during FY12 largely due to increased tax-related disputes. Contingencies increased 81% YoY to INR55.5b in FY12.

 We expect 14% EBITDA CAGR for Bharti over FY12-14E. The stock trades at EV/EBITDA of 6.5x FY13E and 5.3x FY14E.

 Maintain Buy with a target price of INR370 based on 7.5x FY14 EV/EBITDA for India & SA business, 5x EV/EBITDA for Africa business and INR142b impact for potential regulatory outlay.

To read report in detail: BHARTI AIRTEL