For Bharti, 345-375 may be the near term target
Despite Rs.600 bln capex over the next three years,
credit rating of Bharti is unaffected-S&P
CMP: 323
Buy on dips around: 315
TGT: 345-375-388-400 (1-6M)
TGT: 452-485 & 605 (12-24M)
TSL<305-300
Note:Looking at the chart, consecutive closing below 300 in Bharti for any reason, the stock may further fall up to 280*-260 area where it may be again accumulated for better investment buying average as 280 is a major technical support area for the stock.
To combat growing threat from R-JIO and to improve overall network congestion/expansion ( "call drops"; 3/4G issues etc) Bharti has unveiled massive capex plan of Rs.60000 cr for next three years. This is around 25% higher from the previous guidance given by the company.
Although this capex will be funded mainly through internal accruals, there may be adverse effect in its projected cash flow and managing the spectrum leverage in future. It may also further stretch its Balance Sheet, where debt level is still significantly high despite ongoing effort of de-leverage/tower asset sales in SA. Analysts are also concerned over its ROE in the near term due to tepid telecom ARPU in India.
Net debt of Bharti as on Q2FY16 was around Rs.144000 cr with D/E ratio around 1.2.
Although this capex will be funded mainly through internal accruals, there may be adverse effect in its projected cash flow and managing the spectrum leverage in future. It may also further stretch its Balance Sheet, where debt level is still significantly high despite ongoing effort of de-leverage/tower asset sales in SA. Analysts are also concerned over its ROE in the near term due to tepid telecom ARPU in India.
Net debt of Bharti as on Q2FY16 was around Rs.144000 cr with D/E ratio around 1.2.
But, S&P believes that despite this capex of Rs.600 bln, the FFO (Funds From Operation) to debt ratio may be around 25% in FY-18 compared with earlier expectation of 30%. This ratio presently stands around 21% for FY-15 with below 20% being the trigger line.
As par S&P, Bharti's planned Rs.600 bln investments over next three years includes Rs.150-170 bln for annual capital expenditure; Rs.30-40 bln annually for spectrum payments from FY-17 and about Rs.60 bln for possible additional spectrum acquisition over the next two years (discretionary or optional). Thus, in that new spectrum scenario, there may be additional Rs.150 bln cash outflow compared with the earlier projections Rs.420-450 bln was already guided) and the FFO/Debt ratio will be around 25%.
As par Moody's also, continuing de-leverage (tower business sale) may help Bharti to keep its NET DEBT/EBITDA ratio at 2.5 over the next 12 months, despite increased capex.
Given by the overall amount of capex and previous guidance by Bharti, it may be termed as a more PR exercise in response to the company's commitment about Govt's "Digital India" initiative and the rhetoric that telecom operators need to invest more to improve network congestion and reduce "call drops", so that the present telecom minister is not labelled as "Call Drop Minister" !!
As par Moody's also, continuing de-leverage (tower business sale) may help Bharti to keep its NET DEBT/EBITDA ratio at 2.5 over the next 12 months, despite increased capex.
Given by the overall amount of capex and previous guidance by Bharti, it may be termed as a more PR exercise in response to the company's commitment about Govt's "Digital India" initiative and the rhetoric that telecom operators need to invest more to improve network congestion and reduce "call drops", so that the present telecom minister is not labelled as "Call Drop Minister" !!
The stock has already corrected by around 15% from its recent top and now 315-300 is a strong technical support area for a good buying opportunist with better risk/reward ratio.
It may be the only listed telecom company in India, which can afford to compete with the likely aggression of R-JIO. Bharti believes that the technology and upgradation its network will enable it to offer far better data speed/bandwidth of 50 Mbps from the present 16 Mbps by CY-2016. In addition, Bharti is also fiber network to homes & offices which can offer speed up to 100 Mbps.
On the other hand, R-JIO's new LTE technology is relatively new and voice over LTE may pose some challenge to Reliance and users need to upgrade a new LTE enabled smart phone (present OTT voice/video calls (WA/Viver/Hang Out etc) are based on VoIP technology).
There may not be an intense "price based" (rate cut) competition after R-JIO's entry, because in India, tariff is already low and ARPU is around Rs.150-250. The low ROE and high capex and long gestation period in telecom industry will ensure that only large player having very deep pocket may survive in the game and Bharti might be one of them along with Vodafone/Reliance/Tata. We may also see consolidation, M&A and various spectrum deals in the telecom space in the coming years thanks to better regulatory environment now.
But relatively high price for the spectrum being charged by the Govt may be a growing headwinds for the telecom operators which left them little room for network expansion & upgradation. Over the years, number of mobile towers might not be expanded in proportionate to the exponential rise in the number of mobile users (both voice & data) for various reasons. In that sense, Bharti's aggressive expansion & ramp up mode may force others (like Idea) to act also with substantial capex.
If this "Project Leap" is successful, then it may be also a big "leap up" for Bharti and it can basically double its ground presence (network coverage) by next few years and we may also see substantial improvement in revenue & earnings due to better network coverage and service quality amid growing data demand for "Digital India" theme.
On the other hand, R-JIO's new LTE technology is relatively new and voice over LTE may pose some challenge to Reliance and users need to upgrade a new LTE enabled smart phone (present OTT voice/video calls (WA/Viver/Hang Out etc) are based on VoIP technology).
There may not be an intense "price based" (rate cut) competition after R-JIO's entry, because in India, tariff is already low and ARPU is around Rs.150-250. The low ROE and high capex and long gestation period in telecom industry will ensure that only large player having very deep pocket may survive in the game and Bharti might be one of them along with Vodafone/Reliance/Tata. We may also see consolidation, M&A and various spectrum deals in the telecom space in the coming years thanks to better regulatory environment now.
But relatively high price for the spectrum being charged by the Govt may be a growing headwinds for the telecom operators which left them little room for network expansion & upgradation. Over the years, number of mobile towers might not be expanded in proportionate to the exponential rise in the number of mobile users (both voice & data) for various reasons. In that sense, Bharti's aggressive expansion & ramp up mode may force others (like Idea) to act also with substantial capex.
If this "Project Leap" is successful, then it may be also a big "leap up" for Bharti and it can basically double its ground presence (network coverage) by next few years and we may also see substantial improvement in revenue & earnings due to better network coverage and service quality amid growing data demand for "Digital India" theme.
To be cont for some more news & analytical inputs----
Analytical Charts:
No comments:
Post a Comment