THE SENIOR ANALYST
Jan 2014
has benefitted from the deal in short term; it will
certainly boost cash flows for Bharti Airtel, that
too at a time that telecom companies are highly
leveraged to add to that the stiff competition. So
bharti has made efficient use of its resources and
earn cash flows.
1.Net sales is increasing on account of new
customers and increase in tariffs, and is likely to
continue, as all operators behave in the same
way.
Recommendations:
3. PE ratio is increasing from 2011, due to fall in
earning, but the trend is expected to change in
the future, as indicated by falling PE ratio.
The price may fall in the short run, as the
company has posted better than expected
results, and hence people may book their profit
and sell shares. However, I am of the view that
one should maintain a long position on the stock,
due to several reasons:
1. In the domestic telecom business, tariffs have
been increased and the ugly price war among
competitors is settling down. Hence, there is
scope for revenues to increase.
2. Company has last-mile-connectivity with 260
million consumers in India, which very few
companies can boast of.
3. The return on capital though low as of now, is
the highest in the industry.
4. Competition was tough as before, and
regulation was complex as before.
5. The company has the first mover advantage in
terms of providing 4G services. Recently, Reliance
Jio’s Mukesh Ambani made a statement that it
was open to tie up with Bharti for 4G services in
Punjab. This has clearly illustrated the advantage
Airtel has and can develop technologies to
provide low cost 4G services.
2.The earnings per share is reducing, but is
expected to increase in the future
4. The price to book value ratio indicates that it is
undervalued, and has scope to increase in the
future.
5.The Return on Equity(ROE), is falling
continuously from 2011, but is expected to
increase in the future.
6. ROCE(Return on Capex) is falling from 2011
onwards, but is expected to increase in the
future.
7. The Enterprise Value to sales ratio(EV/Sales) is
continuously declining, and the company seems
to be undervalued, and hence scope for growth in
price in the future
Thus, my view is that in the long run, the
company will perform better, and hence, should
buy now, and maintain a long position on stock.
The stock would see levels of 375 by the end of
final quarter of FY14.
By Darshit Sankhesara
(Faculty of Management Studies- Delhi)
6.
In terms of competitors, only Idea and
Vodafone can challenge Airtel’s prospects. Idea
cellular seems a better buy, solely because of a
higher EPS and lower PE ratio. However, lack of
innovative initiatives from Idea makes it a second
choice for investing in telecom sector in long run.
From the financial performance, following points
are noted:
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