Buy Bharti Airtel, target of Rs 1269: Networth

Networth Stock Broking has maintained its buy rating on Bharti Airtel with a target price of Rs 1269 in its May 2, 2008 research report. "Bharti reported strong set of numbers during Q4FY07 surpassing street’s expectations. The total revenues grew by an impressive 12.3% qoq to Rs 78.2 billion, driven by strong performance in mobile business and Long distance business, which have reported a sequential revenue growth of 14.4% and 10.8% respectively, however margins have dipped on qoq basis. The overall EBITDA margins declined by 100 bps to 41.6% on the back of transfer of tower assets to Bharti Infratel, increased sales and marketing cost and reduction in tariffs. PAT margins also registered a dip of 100 bps and grew by 7.6% qoq to Rs 18.5 due to the higher finance charges of Rs 2157 million comprising a forex loss of Rs 1264 million."

"We expect total revenues to grow at a CAGR of 30.5% over FY08E-10E and PAT to grow at 30% CAGR over the same period. Our target price is based on DCF value of core business and book value of tower business. We value the core business of Bharti at Rs 1143, assuming a WACC of 11.5% and a terminal growth rate of 3.5% and value of tower business at Rs 125 (based on book value of tower business). At current market price, stock is trading at 18.9x and 15.1x of its FY09E and FY10E EPS of Rs 47.6 and 59.7 respectively. We maintain “BUY” with a target price of Rs 1269," says Networth's research report.