Commenting on the telecom space, Brijesh Rajavanshi of Networth Stock Broking said that he is quite bullish on Bharti Airtel and Reliance Communications. He also said that there is a lot of potential in the mobile penetration segment. Rajavanshi added that there are yet many subscales which have to be covered.

Talking about Reliance Communications, he said that if they go for any dilution into their tower business and Flag Telecom; that would be the next key trigger for the company and would enhance the valuation.

Excerpts of CNBC-TV18’s exclusive interview with Brijesh Rajavanshi:

Q: Take us through the key moves that you are going to be looking for in the telecom space. Six million subscriber addition month on month is what we been seeing. On the other side, we also have the tower business which now seems to be coming in its own?

A: For the subscriber base addition, if you look at the current mobile penetration in India, it’s hardly 16%. If we compare it with China or other countries, there it’s more than 40%. So from the mobile penetration from 16% to 40%, there is a lot of potential.

The second thing would be the population coverage. In India, as of now, we just cover 55% of the population. There are many subscales, many cities that have yet to be covered. So going forward from 55% to 90%, we can see the amount of growth we can achieve.

Q: We had huge announcements from Reliance Communication yesterday, Rs 20,000 crore in terms of capex in the current year itself and then of course the buying of Yippes. Would you want to upgrade the stock or change your valuation of the stock after listening to the expansion plans?

A: I have already worked out all the valuation plans given by the company and all the capex. But the next thing would be if Reliance Communication goes for any dilution into their tower business and into Flag Telecom, then that would be the next key trigger for the company and that would enhance the valuation. But as of now, I have not factored in valuations from these two things.

Q: Give us an idea of the tower business because that seems to be the big thing coming ahead for telecom companies. How would you value this, and for Reliance Communication, if you have been able to do any number crunching?

A: To value a tower company is very difficult because as of now, it’s a new concept in India. So we can value it on the basis of American Towers, a company in US. In America the analysts have given them valuation of 7 to 18 EV/EBITDA; so that kind of valuation we can give over here.

But this business has to emerge; there are only few players like Essar and GTL and Reliance Communications and Bharti Airtel they have already demerged the company and they will be listing the company. So as of now, to value would be difficult but we can take some cues from the global players like American Towers.            

Q: Your call on Bharti’s earnings and the price target?

A: Bharti would be posting around 12.2% growth in the topline sequentially and 7% on the bottomline. My target would be around Rs 1,000.

Q: What are your recommendations on under performers like MTNL and VSNL? What’s your call in terms of price target and your recommendations?

A: My top picks would be Bharti Airtel and second, Reliance Communication. My target for RComm would be around Rs 630 for FY09. As I mentioned, the Flag Telecom valuation and the tower business can be the next triggers for the company. So I would prefer these two stocks.

I am not bullish on MTNL and VSNL. I will keep my hold rating on that and accumulate Idea on correction.

Q: Any view at all on Spice, its listing is around the corner?

A: On listing, Spice should see some gains, like it can list around Rs 55-56. But going forward, a player like Spice would be difficult to compete with Bharti and RComm.

So the key trigger would be a player like Idea and other players they can acquire for the company. Hence, the small players would be clear targets for acquisitions or merger, going forward.