How Bharti Airtel managed to play catch-up with Idea’s valuations

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In the past six months, shares of Bharti Airtel Ltd have outperformed those of Idea Cellular Ltd by 40%. Of course, this doesn’t really make up for the years of underperformance, but it is noteworthy nonetheless.

Ahead of the trend reversal last year, Bharti Airtel’s shares traded at a meaningful discount to those of Idea Cellular, which has now corrected. Besides, the latter has shown signs of losing steam as far as growth in data revenues goes, while the former’s spectrum assets have impressed investors.

In the December quarter, Bharti Airtel overtook Idea Cellular in terms of data revenue growth for the first time in seven quarters. Its data revenue grew by 50.6% year-on-year, resulting in incremental revenue of Rs.1,070 crore. Idea Cellular’s data revenue grew by 45.7% and incremental revenue stood at Rs.567 crore. The latter, with a lower base as well as a reputation for being nimble-footed, has nearly always led in terms of percentage growth rates in both the voice and data segments.

Some analysts believe Bharti Airtel’s superior spectrum assets will result in better growth in the data segment. Last month, the firm even outsmarted its rival by purchasing the spectrum assets of Videocon Telecommunications Ltd. Bharti Airtel now has the best coverage for 3G and 4G services, thanks to the spectrum it has acquired in auctions and through other deals.

Besides, Bharti Airtel has been able to sell some of its tower assets in Africa, and has also inked a merger with Axiata for its Bangladesh operations.

Still, its large Africa operations remain a worry. This is why its enterprise value/Ebitda valuation is still at a marginal discount to those of Idea Cellular, based on earnings estimates for fiscal year 2016-17. Ebitda stands for earnings before interest, taxes, depreciation and amortization.

Using estimates of Kotak Institutional Equities, Bharti Airtel trades at an enterprise value/Ebitda valuation of six times, while Idea Cellular is slightly ahead with a valuation of 6.1 times.