Stay ‘overweight’ on Bharti Airtel as the company is better placed to monetise the spectrum auctions and scores better on spectrum holding and is best placed to respond to 4G new entrants. We continue to value Bharti at a target price of R481 per share.
Bharti stock is down 16% over last three months and is trading at FY16 EV/ebitda of 5.6x (versus historical average of 6.9x). The 16 % decline over the last three months has, we believe, been driven by a) confusion over availability of spectrum in upcoming auctions, b) the official devaluation in the Naira (we expect the impact should be limited to -80 bps on consolidated revenues in FY16e) and c) negative news-flow around the pending dispute on excess 2G spectrum allocation facing Bharti’s chairman . However, with release of incremental spectrum in the 2100 band and good possibilities of simultaneous auctions of 2G and 3G spectrum, we are of the view that the recent correction is overdone. On the other hand, we do not believe the market is pricing in Bharti’s ability to benefit from data growth, the addition of more spectrum and an early 4G launch.
Bharti, with FD LTE spectrum in 13 circles and 2G voice network, is suitably placed to segment the data market with both 3G and 4G propositions and possibly have an early mover advantage in 4G. Further we expect Bharti to accelerate data rollout and estimate it to double its 3G BTS over the next 12 months. Furthermore its presence in the enterprise segment allows it to have early move advantage in small cell coverage as well.