Prabhudas Lilladher has maintained its Accumulate rating on Bharti Airtel with a target price of Rs 838.
A report released on October 31 said: "Bharti Airtel Q2FY09 revenues were inline at Rs 90.2bn, a 6.3% QoQ growth but profitability came marginally below our expectations at Rs 20.4bn. Derivative and exchange fluctuation loss of Rs 5.8bn Vs Rs 1.48bn for Q1FY09 led to higher than anticipated interest expense. However, lower current tax due to 80-IA benefits and provision for deferred tax of Rs 3bn resulted in negative tax provision for the quarter.
"Intense competition and seasonality weak quarter hurt the pick up of minutes of use (MOU) which slided by 1.5% for the quarter to 526. Lower minutes coupled with tariff cuts across plans (to match competition price points) resulted in lower ARPU.
"Non-Voice revenues as a % of mobile revenues have now reached closed to 10%, which is quite impressive. Management has hinted that more than 60% of non-voice revenues comprised of services other than SMS, which is quite encouraging.
"Bharti Airtel has 60k towers as at end Q2FY09, out of which 35k towers shall be shifted to Indus. Management has indicated of listing the tower subsidiary i.e, both Indus and Bharti Infratel post FY10.
"We expect Bharti to report strong subscriber additions over the next 5-6 months and maintain its wireless leadership. There remain upside risk to our earnings estimate on account of derivative & foreign exchange fluctuation if the Re appreciates from the
current levels. Faster access to 3G spectrum shall be the key trigger in the foreseeable future.
"At the CMP of Rs 649, the stock is reasonably priced at a PER of 12.4x and at an EV/EBITDA of 7.5x FY10E earnings. Maintain Accumulate."
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