Buy Bharti Airtel with a target price of Rs 417.20: Microsec Capital Ltd

Nitin Prakash Daga, Research Analyst, Microsec Capital Ltd in a chat with Economic Times, shares his views on Bharti Airtel

What is the call on Bharti Airtel?

We continue with the comparable valuation methodology to value Bharti on EV / EBIDTA basis. Based on FY2012E EBIDTA of Rs 254.09 Bn and industry’s historical EV / EBIDTA of 8.60x; we arrived at a target price of Rs 417.20 for the stock for a 7 month time horizon. This represents a 8.1% upside from the CMP of `386.00. On an annualized basis this represents an upside of 14.7%.

Our new target price reflects an increase from our earlier target price of Rs 414.70. Upward revision of FY2012E EBIDTA remained the sole contributor for increase in target price. The increase in EBIDTA primarily reflects current rate increases. Considering the expected returns, we rerate the stock from HOLD to BUY.

As our valuation is based on EV / EBIDTA methodology, a below expected bottom line did not impact our target. Furthermore, the recent hike in tariffs could help the company report improvement in EBIDTA Margins in the upcoming quarters.

We expect the full impact of the same to be witnessed in Q3 FY2012E. As a result, we raise our target price for the stock to Rs 417.20 from earlier target of Rs 414.70.