A straight call

Potential for data growth and cash flow offsets the African negatives that have cast a shadow on Bharti Airtel


It’s not exactly a hot favourite on the Street, but telecom major Bharti Airtel has got all the ingredients that make it a sound bet in the new year. Of late, the stock has taken a drubbing from its high of ₹420 to ₹342 (Jan 16), down by a sizeable 18%. The adverse reaction by the market was mainly driven by the Nigerian naira devaluation of around 8% from 155 against the dollar to 168. Analysts perceive the development negatively since Nigeria is Bharti’s biggest market in Africa and contributes 12% to consolidated revenue as per FY14 data. 

However, in our opinion, this is simply a notional factor. Since Bharti’s revenue earned and costs incurred are in the same currency, the telecom giant does not face any impact on cash flow. But it impacts the numbers when the figures are converted on a dollar or rupee basis for financial reporting. Thus, it is purely a reporting impact and does not influence cash flow.

The other concern for the company has been around spectrum. Bharti’s cumulative spectrum renewal costs could be about ₹100 billion, assuming a 50% upside to the current reserve price, with Andhra Pradesh and Karnataka being the only two top-tier circles. On the other hand, Idea Cellular could potentially require about ₹200 billion for a majority of the bigger circles. Bharti is comfortably placed given its robust free cash flow of ₹100 billion in FY15 compared with ₹62 billion for Idea Cellular. Thus, in conclusion, Bharti’s sizeable balance sheet/free cash flow and lower spectrum renewal payouts give little cause for concern when compared to its rival from the Aditya Birla camp.

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 Of Bharti's diversified portfolio, wireless mobile services fetch the highest revenue


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