Financial

Accounting Project
on Bharti Airtel

By : Pratik, Manoj,
Suneeta,
Shailendra, Amol,
Hemang,
Omkar and Sagar.

Our Vision & Promise

By 2015 Airtel will be the
most loved brand, enriching
the lives of millions.
"Enriching lives means putting the
customer at the heart of everything
we do. We will meet their needs
based on our deep understanding
of their ambitions, wherever they
are. By having this focus we will
enrich our own lives and those of
our other key stakeholders. Only
then will we be thought of as
exciting, innovation, on their side
and a truly world class company."

Weightage
7th Largest
Company by
Market
Capitalisatio
n
Having
5.54%
weightage
on Sensex

Important parameter of Financial analysis:-

It was analysed by Business Line, Money Control & The Economics Times
Stocks with the large Promoter Holding (50%-80%) clearly out-performed

Shareholding Pattern(%)
9

17

45
23

Indian
Promoter
Foreign
Promoter
FII's

World of Bharti

Market Capitalisation
M Cap (Rs in Mn)

l
e
t
r
i
A
i
t
r
a
Bh

Bharti Airtel
Idea Cellular
R Com
Tata Comm

Source: Company data, Bloomberg

Bharti Total Subscriber Bas

350

314
281

300
221

250

246

200
150

Bharti Africa
Bharti (Ex-Africa)

128

100
50
0

FY 10

FY 11

FY 12

FY 13

FY 14

NON-VOICE REVENUE As % OF WIRELESS REVENUE

45

NTT-DOCOMO (Japan)

30

Verizon (US)

29

China Mobile

29

AT&T (US)

29

Vodafone-Europe

28

China Unicom

27

Bharti

17

Vodafone-Asia Pac and Middle East

Vodafone-Africa and Central Europe

17

13
Idea
10
Vodafone Essar
0 10 20 30 40 50

NON-VOICE REVENUE
As % OF WIRELESS
REVENUE

Return on Invested
Capital
13

14
12

11.7
9.8

9.5

10
8

6.1

6.1
4.9

4.0

3.5

4
2
0

2011

2012

2013

RoIC Comparison with

competitors

Bhar
ti
Idea
Rco
m

DEBT/EQUITY
RATIO

1.2
1.2
1

0.9 0.9

0.9

0.9
0.8

0.7

0.8
0.6

0.5

0.4
0.2
0

2011
2012
2013
Decline in Debt is very positive for
Bharti

0.7

Bha
rti
Idea

Valuation & TGT Price

We initiate with a Buy rating and 12-month target price of
Rs 540/- We derive our target price from our analysis.
Risks to our central scenario
Key risks to our target price and rating are:
Higher impact than we expected due to one-time spectrum fees and spectrum
renewal Charges
Lower tariffs than we expected
Lower minute market share performance than we expected
Higher competition than we expected, leading to higher marketing and
subscriber acquisition costs

So the revised price target is Rs 510

OUT
OF
TURBULE
NCE

ES Bharti is out of Turbulenc

US$10b free cash by FY14
Bharti has been impacted by competitive pressures in the
domestic market and uncertainty on 3G spectrum payouts.
However, with peak coverage capex and 3G payments through,
Bharti's India business is poised to generate substantial free
cash.
While the acquired Africa business would remain in an
investment mode, we expect it to
be self-sustaining. Bharti is set to enter a period of sustained
high FCF - we expect >US$10b cumulative free cash
generation by FY14 and estimate FCF of Rs28/share in FY12
and Rs37/share in FY13 from India and South Asia.

FCF generation to be strong

We believe that Bharti is entering a phase of strong FCF generation in its

domestic business, as peak coverage capex is behind, enhanced tower sharing
has supported capex savings, and acquisition of 3G spectrum in 13 circles will
enhance capacity in the urban centers.
We believe FCF would be a key metric for Bharti, going forward. We expect
Bharssti's India and South Asia business (excluding the 3G spectrum payments
and Africa business acquisition) to generate FCF of Rs28/share in FY12 and
FCF
Rs37/share in FY13.
50
40

FCF

30
20
10
0

2011

2012

2013

2014

Back to growth
After a lean patch in CY09, Indian wireless revenue growth has bounced back
during the last two quarters. In CY09, revenue growth was impacted by a spate
of new launches in the GSM market starting with RCom (January 2009) and
accentuated by "per second plans launched by Tata DOCOMO and "Simply
Reliance" plans by RCom in 2Q/3Q FY10.

QoQ AGR Growth

250
200
150
100
50
0

Bharti is going strong

Bharti reached its peak subscriber and AGR market share (~25% and 34%
respectively) in 3QFY09. In the six subsequent quarters, while Bharti's
subscriber share has declined ~350bp to ~22% largely due to multi-SIM
usage/subscriber duplication, its AGR market share has remained almost
steady at 33%+.

Rural penetration remains low; Bharti leads in coverage

While the urban penetration in India has crossed 100%, rural penetration still
remains low at <25%. Bharti has a strong market share of rural subscribers and
would be a key beneficiary of potential increase in rural wireless penetration
given its advantage of superior distribution and coverage.
120
100
80
60
40
20
0

Bharti hikes wireless tariffs: Bharti has increased on net

(Airtel-to-Airtel calls) tariffs by 20% in 6/22 circles from INR0.01/second
(~INR0.5/minute) to INR0.012/second (~INR0.6/minute). These circles represent ~40% of
Bharti's revenue; once fully absorbed (likely over the next 2-3 quarters), we estimate that
the tariff hike will increase Bharti's blended India mobile RPM by ~2%.

Also taking other profitability enhancement measures:

Other measures that operators are taking to improve profitability include a 0.50.8% cut in recharge commissions (typically 2.5-4%) and INR20-25 cut in
commissions per customer added in the prepaid segment (typically INR160170/gross-add). The operators are clearly trying to gain some value back from
channel and customers, which they had lost due to increase in competitive
intensity.

RIGHT Investment is not up to

choosing the RIGHT stock
But..

RIGHT investment is,

Buying RIGHT stock on
RIGHT time

Fibonacci retracement Level

23.6%
38.2
%
50%
61.8%

Best
buying
price

Sources

J.P. MorganMoney Control.com

TRAI

Special Thanks
Kashyap Sir (Professor ITM)
Vikas Jain (Research AnalystMOSL)
Gaurav Patel (Institutional
Dealer)