Telecom stocks reasonably valued: Angel Broking

Bharti Airtel BSE | NSE 10/02/12 Are Mutual Funds betting on Bharti Airtel?

Broking house, Angel Broking belives that telecom stocks are already reasonably valued.

Angel Broking report on Vodafone-Hutch Deal:

"Vodafone has acquired Hutch for an enterprise value (EV) of USD 18.8 billion. This gives an EV per subscriber of USD 794. If we compare this to the valuations enjoyed by Bharti Airtel (approx. USD 1,040 per subscriber), it comes at a reasonable discount. This is fair, we feel, given the fact that Bharti has a presence in all the 23-telecom circles of India, greater scale, higher EBITDA margins and ARPUs. Given the strong growth prospects of the Indian telecom market, which is still significantly under-penetrated (mobile teledensity of around 15%), the valuations paid by Vodafone for Hutch, adjusted for growth, would be reasonable. Bharti, on the other hand, will also be a beneficiary, since it has already bought out 5.6% of Vodafone's stake for an effective market price of Rs 676 per share (current market price of Rs 740)."

"Vodafone users while traveling in India will use Bharti's network, Vodafone will use Bharti's NLD and ILD network and Bharti will be given 50% of all Vodafone's incoming roaming traffic. Thus, Bharti has also benefited from this deal and has extracted its 'pound of flesh' from Vodafone. The competitive intensity will increase in the Indian market with the entry of Vodafone. However, this is nothing new, as the competitive intensity was already high, with 6 to 7 operators in each circle. Tariffs will also fall, which again is nothing unexpected. We do not expect a re-rating of telecom stocks after this deal, as we believe that they are already reasonably valued."