Bharti Airtel – BUY (Target Price Rs388, Upside 40.4%)

CMP Rs276, Target Price Rs388, Upside 40.4%

Bharti hosted a conference call to outline the rational and synergies from the acquisition of Zain Africa. With its India operations yielding significant free cash flows (~US$1.8bn in FY11E) and greenfield opportunities no longer feasible, Bharti’s management has been on the look out for assets that operate in India-like markets. Bharti appeared confident it can replicate the ‘minutes factory’ model at Zain – deeper penetration coupled with driving down costs/min through extensive IT/network outsourcing, cut in network capex through passive infra sharing and lower overheads. While the deal would involve payout of US$9bn and be EPS dilutive in the near term, mgmt does not foresee any material capex investment in Zain. Even as we await further details on the deal, retain BUY on Bharti attractive ~11x FY11 PER.