Bharti up 4% on 4G spectrum buy; Jefferies says deal expensive

Moneycontrol Bureau Shares of Bharti Airtel surged over 4 percent intraday on Monday as it goes on a spectrum shopping spree.

The telecom company has acquired 4G spectrum rights from Aircel in 8 circles for Rs 3500 crore. These circles include Tamil Nadu, Bihar, J&K, West Bengal, North East Andhra Pradesh, Odisha, Chennai and Assam. By acquiring right to use 20 MHz, 2300 band 4G TD spectrum in these circles, Airtel becomes the first pan-India 4G telecom operator.

However, Jefferies says that the deal is a tad expensive as it has paid 47 percent premium to Aircel's acquisition price in 2010 and 14 percent to reserve price in upcoming auctions. At the same time, the brokerage house feels that the acquisition will help Bharti to increase lead in 4G versus competition and hedges it from the risk of buying the steeply priced 700MHz in the upcoming auctions.

"Bharti's data coverage now stands at 100 percent of its revenues versus 87 percent for Idea and 80 percent for Vodafone. In 4G specifically, Bharti looks even stronger with 100 percent coverage versus 61 percent for Idea and 50 percent for Vodafone. Bharti already has a head start versus incumbents in 4G rollout. We believe that its leadership position in data should only widen," Jefferies says in a note. Though JM Financials agree that the deal is costly, but it argues that the pro-rated price of Rs 4830 crore is merely 10 percent higher than the latest TRAI reserve price. The firm expects Bharti to focus primarily on filling up its 2100-3G and 1800-4G gaps in the next auction and reduced competition for 2300 augurs well for other 4G-contenders like Idea and Vodafone.At 12:14 hrs, Bharti Airtel was at Rs 347.10, up 3.83 percent or Rs 12.80 on the BSE.