In the current scenario, as the Indian telecom market attracts huge funds of several global telecom giants, Bharti’s higher profitability and strong liquidity position serves as a twin-edged weapon to combat the growing competition.
In the wireless segment, a further gain in market share appears well within Bharti’s scope, given its aggressive pace of net adds, till the time Idea and RCOM go full throttle on their pan-India GSM roll-outs.
In the non-wireless segment, the company is looking for new growth opportunities—its entry in the media space by launching the DTH service is one such example. In the long distance business, Bharti’s network quality and captive in-house volume gives it a significant competitive advantage over other carriers.
We expect sales to grow at a CAGR of 33.4% for FY08-FY10. Due to lack of visibility, we have not factored the upsides from the Sri Lanka rollout, the DTH business, and the 3G services.
However, we have further sliced off our EBITDA margin estimate for FY10 by 50 bps to ~40% as an increase in network costs (due to rural penetration) and additional advertising spends (to combat increasing competition) seem inevitable.
At the market price of Rs709.65, the stock is trading at a forward P/E of 15.4x FY09E and 11.9x FY10E. Our DCF-based valuation gives a target price of Rs.1,056, which provides a 48% upside from the current levels. Hence, we maintain our BUY rating.