Bharti Airtel reported an impressive 38.3% y-o-y growth in consolidated topline (6.8% q-o-q growth) in its 3QFY2009, driven mainly by the Mobile Services Business unit, which grew by an impressive 41.5% y-o-y (9% q-o-q).
The company recorded strong mobile subscriber additions during the quarter, which grew by a healthy 55.3% y-o-y (10.5% q-o-q) to 85.7 million.
This was the case, even as gross mobile ARPUs contracted by nearly 10% y-o-y (nearly 2% q-o-q) to Rs324 per user per month.
The other business segments of the company, namely Telemedia, Long distance and Enterprise, also pulled their weight, growing at rates between 15-57% y-o-y.
However, EBITDA margin declined 160bp y-o-y (6bp q-o-q) on account of higher network expansion costs.
Due to the margin contraction, as also higher interest costs (up by as much as 135% y-o-y), forex losses to the tune of Rs222 crore and higher taxes paid, bottomline growth, while decent at 25.4% y-o-y (5.5% q-o-q) trailed topline growth.
At the CMP, the stock is trading at 11.8x FY2010E EPS, 6.2x FY2010E EV/EBITDA and at an EV/subscriber of $143.3 on our FY2010E subscriber base.
We maintain a BUY on the stock, with a revised 12-month Target Price of Rs781 (Rs990), including Rs633 as the core business value (12x P/E multiple) and Rs148 as the towerco valuation.
We downgrade the core business P/E multiple from 14x to 12x on account of the significant increase in competitive intensity in the sector with the launch of RCOM’s pan-India GSM cellular operations and pending launch of other operators like Aircel, Tata GSM, Shyam CDMA and newer operators, margin pressures and continuing regulatory risks.