The Senior Analyst Jan. 2014 | Page 33

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: Page 33