Buy Bharti Airtel with target of Rs 1150: S Verma

Sanju Verma, ED & Head of Institutional Business, HDFC Securities is of the view that one can buy Bharti Airtel with a price target of Rs 1150.

Verma told CNBC-TV18, "Bharti Airtel is in the mature phase of the product cycle; my personal sense is that this acquisition if it goes through smoothly will be EPS accretive from two-three years perspective. Despite that we have a buy on the stock with a target of Rs 1,150. My personal sense is one need to monitor the dynamics of the deal as and when it pans out carefully. How will they finance this deal, I think that is the crux of the matter?"

She further added, "Vodafone had acquired a controlling stake in Hutch Essar for just about USD 12 billion and I am told that Bharti for a 51% stake in MTN could pay anywhere in excess of USD 20 billion. So if one compare it with the last big deal, the Vodafone-Hutch deal, then certainly the deal is going to come at a steep premium to them and more importantly what needs to be seen is whether they will finance the deal through an Special Purpose Vehicle (SPV), writes issue, preferential issue or they are likely to sell some of their stake in Bharti Infratel, their tower company which is valued today anywhere between USD 10-15 billion or even more."

"So there are lot of ‘ifs’ and ‘buts’ but given the fact that for a market leader beyond a point one cannot grow organically, one have to grow inorganically and given the fact that today Reliance Communications is in a market expansion mode whereas Bharti to some extent push to the wall its in a market retention mode. So if Bharti has to breakout of the market share retention mode then it needs to grow inorganically. But between the two if push comes to shove, I would still go ahead and buy Reliance Communication and follow that with Bharti. Incidentally on Reliance Communications we have a price target of Rs 812."