Thursday, January 21, 2010


Bharti enjoys significant first mover & scale advantages:
Bharti, thanks to its management’s vision has been a big believer in the potential of the Indian mobile market that led the company to invest earlier than its rivals in a nationwide network. This has led to Bharti having a much superior scale vs. its competitors. There is significant operating leverage as we believe 52% of the operating costs in the mobile business are fixed (please refer to table 1).

Positioned to emerge stronger

Bharti’s cost focus implies that it is likely to emerge stronger
We believe Bharti management is currently taking appropriate steps to optimize the cost structure further with a view to protect margins in a low pricing power environment. We think consolidation is inevitable in the Indian mobile sector over the next 2-3 years and some pricing power is likely to return. Bharti should emerge as the major beneficiary of any consolidation in the Indian mobile sector.

Quarterly results are likely to be uninspiring
Given the price war in the Indian mobile sector the quarterly performance of Bharti is likely to be adversely impacted over the next 4-8 quarters. For Q3FY10, we expect consolidated revenues to grow 0.8% qoq to Rs99.2bn, EBITDA to decline 5.8% to Rs39.0bn. Mobile revenue to decline 2.5% qoq to Rs78.9bn, and mobile EBITDA to decline 8.4% qoq to Rs23.7bn. We expect voice rev/min to decline from Rs0.51 to Rs0.47/min.

Maintain Buy rating and SoTP based PT of Rs450
3G licensing related developments may act as a dampener for Bharti stock price. We believe this could create attractive buying opportunities in Bharti stock on this potential weakness.

To read the full report: BHARTI AIRTEL