We retain ‘reduce’ on Bharti Airtel with a target price of `330 per share. We derive a DCF-based valuation, assuming a WACC of 10.9% and growth rate of 3.5%, with cash flows discounted back to FY20f. Bharti announced the sale of its businesses in Burkina Faso and Sierra Leone (out of its 17 African markets) to Orange this morning. These markets represent around 8% of Bharti’s Africa revenues (2% of consolidated) and are being sold at 7.9x Ebitda.
We do not have the detailed financials on these two countries specifically, but assuming a 35% margin (these are meant to be two of the more profitable businesses, we understand), this implies $800-900 million in asset sales. We view this as a good outcome, but won’t move the needle much — management had flagged the possible sale of some of its African assets in the middle of last year (we also reviewed a Bharti break-up scenario in more detail —see link). This should help de-lever further, which has been a key focus, but a challenge too, especially given volatile currency markets.
We believe developments in the domestic market will be the main driver of stock performance in the near term with the impending launch of R-Jio, domestic price trends and auctions likely to keep its share price and earnings volatile.
Revenue from Burkina Faso was $190 million (5% of Africa; 1.2% of consolidated) in FY15. Sierra Leone contributed $100 million in revenues (2.5% of Africa; ~0.7% of consolidated). The two markets were among Bharti’s six profit-making markets in Africa (based on FY15 numbers).