Despite increasing competition, Bharti’s growth trajectory looks strong due to its multi-segmental business model.
However, intensifying price war, DOT pressurizing TRAI for further rationalizing of tariffs, and the company’s penetration into rural markets are a few factors which will pull realization per minute (ARR) down in coming years.
Factoring an increase in subscriber’s growth on one side and a decline in average realization rate on the other, we expect Bharti’s net sales to grow at a CAGR of 27.3% for FY08-FY10E.
However, we have not factored the launch of 3G and DTH services, and commencement of operations in Sri Lanka, in our estimates.
We have lowered our sales estimates by 4% in FY09E due to fresh bout of mobile tariff reduction and intensification of competition in various circles post entry of new players. Currently, we expect the sales to grow at a CAGR of 27.3% for FY08-FY10E.
Although abolition of access deficit charges will provide around Rs1,500-2,000 million benefit, the EBITDA margins are likely to reduce due to continuously declining mobile ARPUs, and increase in opex after hive off of passive tower infrastructure.
At the current price of Rs746.8, the stock is trading at a forward P/E of 18.3x FY09E and 14.4x FY10E. Based on DCF valuation, we have arrived at fair value of Rs1,038 which provides an upside of around 39% from current levels. We maintain BUY rating.