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IDirect BhartiAirtel QC Mar16
IDirect BhartiAirtel QC Mar16
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Buy
| 380
12 months
12%
Key Financials
| Crore
Net Sales
EBITDA
Net Profit
EPS (|)
FY14
85,864
27,777
2,773
6.9
FY15
92,135
31,323
5,184
13.0
FY16E
96,520
33,838
5,839
14.6
FY17E
105,346
37,955
6,673
16.7
FY14
48.9
54.8
7.2
2.3
4.6
8.2
FY15
26.1
29.3
6.3
2.2
9.9
11.1
FY16E
23.2
26.0
6.5
2.1
6.3
10.3
FY17E
20.3
22.8
5.6
2.0
9.6
11.6
Valuation summary
P/E
Target P/E
EV / EBITDA
P/BV
RoNW (%)
RoCE (%)
Price Chart
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
550
450
350
250
150
Mar-16
Sep-15
Mar-15
Sep-14
Apr-14
Oct-13
Apr-13
50
Price (R.H.S)
| 339
Nifty (L.H.S)
Research Analyst
Bhupendra Tiwary
bhupendra.tiwary@icicisecurities.com
Sneha Agarwal
sneha.agarwal@icicisecurities.com
Bharti Airtel (Airtel) has entered into a definitive agreement with Videocon
Telecommunications to acquire the right to use spectrum (2*5 MHz
spectrum in the 1800 MHz band) in its six circles of Bihar, Haryana,
Madhya Pradesh, UP (East), UP (West) and Gujarat for a consideration of
| 4428 crore. The move comes in just after Idea Cellular terminated its
spectrum trading agreement with Videocon Telecom for the latter's
Gujarat and UP West circles, signed for a consideration of | 3310 crore.
The abovementioned six circles contribute ~24% to Airtels adjusted
gross revenues and constitute ~32.1% of its total subscriber base. Post
the agreement, Airtel would have an extended high speed data capability
in circles of Bihar, Uttar Pradesh (West) and get additional bandwidth for
the remaining four circles. The pricing of the deal translates to a ~21% (if
we consider the deal price to be inclusive of service tax levy) premium to
the base prices recommended by Trai (recommended at ~| 3205 crore
for these six circles). The premium, we believe, is an offset to the pricing
uncertainty surrounding an auction scenario. The deal will, however,
alleviate the debt levels for Airtel, which were at ~| 78816 crore (as of
Q3FY16). We will, however, include the deal consideration in the
financials once the deal is through. We continue to rate the stock as BUY
with a target price of | 380 based on a DCF based valuation.
Readying itself for big fight with Reliance Jio
Bharti Airtel is already in a sweet spot with regard to the 4G offering with
its first mover advantage. The company has embarked on a huge capex
spree to augment its 4G coverage in India and propped up its capex
spend to | 60,000 crore (over the next three years). This acquisition will
help Airtel further strengthen its spectrum portfolio and help service its
subscribers better with a strong ground ahead of Reliance Jios launch.
Moreover, it also keeps the company better placed ahead of the biggest
auctions in the telecom space.
Exhibit 1: Airtel subscribers, revenue distribution in circles where spectrum is acquired...
Circles
Bihar
Gujarat
Haryana
Madhya Pradesh
UP (East)
UP (West)
Total
ANALYST CERTIFICATION
We /I, Bhupendra Tiwary (MBA), Sneha Agarwal (MBA), Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report
accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s)
or view(s) in this report.
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