Nov 21, 2012, 12.40 PM | Source: Moneycontrol.com
Sharekhan has recommended hold rating on Bharti Airtel with a target of Rs 340, in its November 19, 2012 research report.
, Sharekhan |
“Bharti Airtel, in the last one year, the weakening fundamentals of the telecommunications (telecom) sector owing to intense competition (that has restricted tariff hikes) coupled with regulatory overhang have led to a severe underperformance of the telecom stocks vis-à-vis the broader market indices. Bharti Airtel, Idea Cellular and Reliance Communications (RCom) have declined by 25%, 4% and 22% respectively in the past one year. We always believed that the pessimism was overdone and our price target of Rs310 for Bharti Airtel was among the highest in the Street. The recently concluded tepid 2G spectrum auction has provided the much needed trigger to the sector, with one of the key regulatory overhangs finally getting addressed, though partially.”
“At least the outcome of the auction points to a more rational pricing for the forthcoming auctions which potentially indicates to lower than expected cash outflows for the telecom companies. However, the regulatory overhang regarding the spectrum refarming at the time of license renewal still remains. However, we believe that after the debacle of the recently concluded 2G auction, the government will be more rational in fixing the price of the 900MHz spectrum which will also lead to lower re-farming reserve price. With signs of easing of the competitive intensity in the sector, telecom players are gradually moving towards a more rational environment, with focus on increasing tariffs and improving the other key performance indicators, like average revenue per minute (ARPM) and higher revenue from data services. Also, falling subscriber addition (gross subscriber addition down 1% in the last three months) also signals that players are focusing more on increasing yield (revenue per minute). The withdrawal of promotional schemes would further improve the yields.”
“We remain skeptical about the timeline of the implementation of the positive operating levers for the sector (mainly tariff hikes). Nevertheless, we are hopeful that the sector will at least gradually move towards a relatively better tomorrow, if not the best. Among our rated stocks, we maintain our positive bias for Bharti Airtel, which has recently seen a consensus upgrade from the Street. In our earlier notes, we had highlighted to the receding concerns regarding the regulatory overhang for the sector. Now after the tepid response to the recent 2G auction, we expect the regulatory issues to ease further in the coming quarters. Thus, we have marginally increased our target enterprise value(EV)/EBITDA multiple to 7x from 6.5x earlier; consequently, we have upgraded our price target to Rs340. In the last one month the stock has smartly outperformed the broader market indices with around 17% returns. We maintain our Hold rating on the stock,” says Sharekhan research report.
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