on Dec-14e DCF (discounted cash flow); plus (ii) the Indus Towers stake valued at R17/share (Dec-14e DCF); minus (iii) R32/share for the regulatory outgo.
Risks: Downside risks that could prevent the Idea stock from reaching our target price include: (i) Sustained high competitive intensity; (ii) Increase in the number of industry participants, which would increase sector capacity and lead to tariff disruption; and (iii) Adverse regulatory rulings/policies.
Valuation: Our target price for Bharti of R415 based on Dec-14e DCF comprises:
(i) Core domestic business (ex-towerco) EV (enterprise value) of R386/share; implying 8/7x FY14/ 15e EV/Ebitda ; (ii) Africa EV at R68/sh implying EV/Ebitda of 6.6/6.4x FY14/15e EV/Ebitda, (iii) Towerco value based on Infratel’s target price is at R121/share and (iv) We reduce the potential cash outgo (R45/share). We deduct R116/share as net debt to arrive at our target price of R415/share.
Risks: The key risks to our investment thesis which could prevent the shares from reaching our target price include: (i) a slower-than-expected turnaround in Africa, which would result in greater value depletion; (ii) the India business not improving due either to sustained high competition between existing operators or price disruption in voice by Reliance Industries (as and when it enters); and (iii) Adverse regulatory rulings/policies.
Valuation: Our target price of R113 comprises (i) core business value of R85/sh, based on 6.5x Dec-14e EV/Ebitda; at a 20% discount to Idea’s implied target multiple; and (ii) towerco value accretion of R28/sh based on long- term external tenancy of 1x. We believe a discount to Idea on the core business valuation is justified on account of the inherent risks of dual network and relatively inferior quality subscribers.
Risks: We assign a High Risk rating to RCom shares given that the stock is deemed to be relatively volatile by our quantitative risk-rating model. Higher-than expected benefit from potential infrastructure sharing deal and corporate action (stake sale/ business tie-up) remain the key upside risks to our target price and investment thesis on RCom.