Bharti Airtel - Connecting India

Bharti Airtel (C.M.P Rs 407)   Is India’s prominent telecom player. The stock has been in news today for having given out an order for over US $ 1 billion to Ericsson. The huge order has an underlying message that the management is very confident of maintaining the higher rate of growth in the next couple of years. The previous order in June 2004 was for US $ 400 million.

The stock is already up some 9 times since its IPO and looks set to continue the trend.  The company is a classic play on the following themes

Blue chip + growth + Domestic consumption + Demographics

Over the next few years Bharti is expected to hold 22% of the wireless market in India; the Company’s s current market share is at around 21%. It is expected that Bharti’s leadership in terms of both network penetration & distribution set up shall significantly contribute to it remaining at the position.

Bharti should maintain and also increase its monthly net addition run-rate at 1.2 million subscribers over the next 2 years.

Over the next two years earnings could grow by as much as 40% per anum.. This would be driven primarily by robust subscriber growth which has been increasing at 50% CAGR as well by revenues through new businesses.  As margins improve investor’s nervousness towards intensifying competition should further improve valuations

The unique play: Telecom is the only sector where a company starts a new day/ week/month/year with assured customers. For instance on April 01 2007 Bharti shall wake up to an already assured customer base acquired in the earlier years.

The broadband penetration shall add to the growth in the coming years. Broadband penetration shall grow at more then 100% over the next few years and Bharti is uniquely positioned to capture this boom. Moreover as the technology upgrades Bharti would also start having additional sources of revenues from businesses like M-Commerce etc.

In the next decade a customer will use his mobile phone to make payments for his purchases at shopping malls, pay for restaurant bills etc. In other words wireless money could overtake the plastic money. That revenue stream could be huge and new businesses should help the company maintain its 30%+ growth rate over the longer term.

Recommendation: Bharti Airtel remains a solid blue chip where investors could comfortably double their money in less then 3 years. Investors should buy the stock and keep adding at each decline. Some stocks appear costly and they remain that way Bharti is one of them