Bharti Airtel, India’s largest private integrated telecom company announced its 4QFY2009 and full-year FY2009 results last week.
The company reported a 25.6% y-o-y growth in topline for 4QFY2009, led by strong growth in the Mobile Services Business (28.1% y-o-y growth). Margins dipped by 86bp y-o-y due t higher network expansion costs.
However, due to lower taxes paid, PAT grew 20.9% y-o-y for the quarter. For FY2009, topline grew by a robust 36.8% y-o-y led by an impressive 39.4% y-o-y growth in the Mobile Services Business.
The company’s mobile subscriber base grew by an excellent 51.5% y-o-y to touch 93.9mn. Margins dipped 104bp y-o-y due to higher network expansion costs.
Due to the lower margins and higher interest costs, bottomline growth, while at 26.4% y-o-y, trailed Top-line and EBITDA growth.
The company has announced its maiden dividend of Rs2 per share, implying a lessening of capex intensity and free cash flows.
We believe investors can expect more by way of dividends from Bharti in future. A stock split has also been announced (Rs10 face value split to Rs5 face value).
Going ahead, we expect Bharti to record CAGRs of 22.6% and 20% in topline and bottomline, respectively over FY2009-11E.
At the CMP, the stock is trading at 13.5x FY2010E EPS, 8x FY2010E EV/EBITDA and an EV/subscriber of $168.9 on our FY2010E subscriber base.
We downgrade the stock to ACCUMULATE from Buy, with a target price of Rs800, including Rs668 as the value of the core business (12x FY2010E EPS) and Rs132 as the value of the Towerco (Rs102 as the value of its 42% stake in Indus and Rs30 as the value of Bharti Infratel standalone).