IIFL has recommended a reduce rating on Bharti Airtel with a price target of Rs 356 in its report dated October 6, 2009. The share closed at Rs 358.35, down Rs 1.05, or 0.29%.
"Typifying the ferocious competition in the Indian telecom sector, RCOM followed Tata DoCoMo in announcing sharp rate cuts for outgoing calls (at least 25% below average industry rates) on the basis that its relatively less-utilised network will accommodate the consequent surge in traffic and enable revenue to grow (following two quarters of modest growth despite GSM launch). Bharti, Vodafone, Idea and BSNL may be unable to retaliate because of spectrum-related capacity bottlenecks (3G networks are 12 months away). Incrementally, RCOM can divert 4-5% of industry traffic to itself, and so can Tata DoCoMo. With more entrants (Aircel, Uninor, Etisalat) having progressively fewer differentiation options, we model a 10% reduction in Bharti’s mobile revenues for FY11 and beyond, and accordingly cut FY11 and FY12 EPS estimates by 16%. MNP and TRAI’s newfound interest in pre-second billing are other concerns. We downgrade the stock to reduce with target price of Rs 356," says IIFL's report.
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