Check out top picks in telecom sector: Emkay

Emkay Global Financial Services has come out with a report on telecom sector with three top picks.

Top picks in telecom sector:

Bharti Airtel: Bharti remains our top pick in the sector. Bharti remains the cheapest bet in the industry both with the strong revenue market share and exposure in the foreign market. However, we would head for upgrades in target price once the regulatory uncertainties are solved. We retain HOLD rating with target price Rs345. At CMP of Rs320, the stock trades at 8.9x and 6.9x EV/EBIDTA and 19.5x and 14.8x EPS for FY11E and FY12E, respectively.

Idea Cellular: The company has been under the clouds of Rs3bn fine imposed by government authority due to which allocation of 3G airwaves in Punjab has been put on hold. We have revised our FY11E/FY12E EPS estimates by 2.1/-12.8% due to lower amortization and interest cost owing to delay in launch of 3G services in FY11E and high advertisement expenses for FY12E. At CMP of Rs60, the stock trades at 8.8x and 7.5x EV/EBIDTA and 22.7x and 25.6x EPS for FY11E and FY12E, respectively. We maintain SELL rating on the stock with target price of Rs60.

Reliance Communication: Stake sale in tower business could be a near positive trigger for the stock. The company has recently signed the document for loan facility of Rs87bn from China Development Bank to restructure 3G loans (Rs60bn) and part of it would be utilized for equipment purchase (Rs27bn). According to management it would save Rs5bn per year on interest outgo from this loan facility. We maintain our REDUCE rating on the stock with revised target price of Rs85. At CMP of Rs103, the stock trades at 9.2x and 8.0x EV/EBIDTA and 14.1x and 15.5x EPS for FY11E and FY12E, respectively. High debt on books (netdebt/ EBIDTA at 5.1x FY12E) remains prime risk especially given the slow recovery in revenue and profitability of the company.

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