Bharti Airtel: Buy

Strong growth visibility in the mobile and enterprise segments and new business opportunities make Bharti Airtel a good investment option.

Investors with a 1-2 year perspective may buy the stock, which, at Rs 819, trades at 18 times its likely 2008-09 earnings. A healthy rate of mobile subscriber additions despite competition, apart from improving performance from its enterprise carrier division has propelled Bharti's growth in recent times.

Better tenancy for the tower business may improve contributions from this business. The company is also well placed to tap into the opportunities arising from the new 3G policy as well as IPTV and DTH.

The company improved its monthly subscriber additions from 2 million to nearly 2.5 million in 2008, gaining market share amid heightened competition. Airtel's share in new subscribers has increased substantially to 28.7 per cent, probably driven by aggressive reduction in tariffs and continuing popularity of the lifetime recharge scheme.

Bharti's average revenue per user (ARPU) at Rs 350 has declined over the past year, but is still among the highest in the industry. Low tariff has predictably increased the minutes of usage. With many new players lining up pan-India telecom forays, this trend may continue and Bharti may have to depend on scale benefits to sustain margins.

In this context, the announcement of the 3G policy may allow the company to offer premium value-added services that could boost realisations. The tie-up with Apple to bring the hugely successful iPhone to India may be watched for success. Bharti's Enterprise Carrier division has witnessed strong growth helped by increased national and international long distance usage, improving overall margins.

On the tower business, the tenancy continues to be 1.22 for Bharti, indicating challenges in attracting newer players to share infrastructure. However, the company has managed to increase rental revenues. Tenancy levels may improve over the medium term, with new players lined up to offer 2G services and stringent subscriber-linked spectrum norms necessitating more tower sites.

Though Bharti is well placed financially to fund any bids for 3G spectrum, the possibility to overpaying for this opportunity remains a risk. The possibility of increased customer churn once number portability takes effect is also a near term risk.

K.Venkatasuabramanian