Bharati Airtel underperformance was due to increased competition: Study
Mumbai: A recent study has claimed that Bharti Airtel has underperformed the Sensex by 50 percent YTD due to increased competition, leading to severe tariff cuts and expectation of a drop in earnings in the coming
quarters. The study report felt that impact of the tariff cut and regulatory uncertainty
is already being felt in the market price. "Our FY11E EPS of Rs18.5 is at 20 percent
discount to the Bloomberg consensus EPS of Rs22.6. Though, a further fall in stock
price is not ruled out, we see downside risk to be lower versus the upside in
the long term. Therefore, we upgrade Bharti to BUY with a DCF-based TP of Rs360,"
felt the Ambit capital research team. "Owing to the tariff war and MNP implementation,
we forecast 21 percent drop in ARPU during 2H2009 and a further 11 percent drop
during FY11. Based on this, we estimate a 4.4 percent drop in mobile revenue and
18 percent drop in FY11E EPS. We expect the tariff war to recede post FY11, and
estimate marginal drop in ARPU in FY12," the report said. The study further says
that, "Based on this, mobile revenue is estimated to grow at 9 percent in FY12.
We also expect FY12E EPS to grow by over 16% over FY11E. Strong subscriber base,
marginally reducing ARPUs and better control over cost would lead to profit growth."
According to the Ambit capital study Bharti has a better places versus peers to
acquire 3G spectrum. "Better quality of subscribers (high ARPU) would help increase
the adoption of 3G services on its network (unlike BSNL, MTNL), leading to higher
ARPUs post the 3G scenario. With 3G in place, impact of MNP can be minimised;
rather Bharti could be a net gainer due to lower tariffs, better QoS and strong
distribution network," the report said. The study expects the regulatory uncertainties
likely to end over next few days as the Telecom Regulatory Authority (TRAI) is
considering to implement uniform licence charges and spectrum charges.
