Bharti Airtel - Buy

Bharti Airtel recently announced its Q2 results with good numbers, but not upto the expectation.

Revenues increased by 9% to Rs.98.45 billion Y-o-Y and net profit up by 15% to Rs.23.7 billion Y-o-Y. Net margin was at 24%, relatively higher than a year before.

Here are some positive notes:

1. Customer based increased to more than 110 million as on Sep'09. This is up by 42% from last year same period.
2. Net debt came down to Rs.42 billion, lowest in last five consecutive quarters
3. Return on equity (RoE) is consistently above 30% for the past five quarters (though it was down from 36% in Sep'08)
4. Net debt-to-EBITDA was at 0.26, lowest in last five consecutive quarters. This is due to the decrease in net debt.
5. Interest coverage at 56, highest in last five quarters

Here are some concerns:

1. Average revenue per user (ARPU) came down to Rs.252, from Rs.331 in Sep'08.
2. Market share in mobile services fell to 23.5% from 24.6% a year earlier.
3. Operating expenses increase over last five quarters (though slightly less than previous quarter)
4. Return on capital employed (RoCE) was at 26%, compared to 36% in Sep'08.
5. Capital productivity (annualized revenue/capex) was down at 64% from 73% during last Sep'08.


Share price is at Rs.292, approaching its 52 weeks low, Rs.290. The stock touched Rs.495 (its 52 weeks high) and hence the stock is currently trading at deep discount. Moreover the trading volume is at around 6.5 million.

Considering its positive fundamentals and free-falling stock price, Bharti Airtel is a 'GOOD' pick now. Investors considering long term investments with 1-2 years investment horizon, can make a call now.