What to do with Bharti, Idea and Rel Com now

Despite a sharp fall in telecom share prices, analysts are not recommending Bharti Airtel, Idea Cellular and Reliance Communications to investors. Following the Telecom Regulatory Authority of India's (TRAI) recommendation of a steep hike in 2G spectrum pricing, wherein telecom companies have to shell out additional Rs 16000 crore to the government, the telecom stock prices took a severe beating. The telecom stocks were one of the biggest losers on Thursday's trade.

 

According to analysts, no fresh buying is recommended at the current level. With an estimated price earning ratio (PE ratio) of 26.1x in FY11, Idea is recommended for sell. For Bharti Airtel, investors can hold on with an estimated PE of 20.4x, as suggested by Emkay Share.

 

�Telecom companies would not agree to the re-pricing proposal by TRAI. The proposal does not seem reasonable. Unless there is clarity on the re-pricing issue, no fresh entry is recommended. Market has already factored in the re-pricing issue. However, there could be further down falls based on the final outcome,� said an analyst on condition of anonymity.   TRAI has sent a final recommendation for re-pricing of 2G spectrum. This was a further intimation to recommendations made in May 2010 for re-pricing of spectrum above 6.2Mhz. Re-pricing is recommended for the remaining period (7 years) of spectrum at the price discovered in auction of 3G spectrum.

 

If implemented then it would erode profitability of Bharti and Idea with yearly outgo of Rs 580 crore and Rs 230 crore, respectively for 7 years. Cost for Reliance Communication is expected to remain miniscule at Rs 2 crore, according the Emkay research note.

  Shares of Bharti and Idea ended at Rs 322.80, down 2.81%, Rs 65, down 1.89% respectively. RCom, however, was at Rs 96.25, up 1.69% at the close of day�s trading on NSE. The stock prices Bharti Airtel, RCom and Idea have corrected 15% on an average in last one month.