The markets today cheered an upgrade of telecom stocks by foreign brokerage Credit Suisse.
Idea Cellular led the pack, surging 13.31 per cent to close at Rs 66.95 on the Bombay Stock Exchange. It was followed by Bharti Airtel, which soared 9.7 per cent to Rs 308.10.
Credit Suisse had upgraded Idea Cellular to ‘outperform’ from ‘underperform’ and raised its 12-month price target to Rs 75 from Rs 50. The brokerage had also upgraded Bharti Airtel to ‘outperform’ from ‘neutral’, raising its price target to Rs 360 from Rs 320.
Bharti stock also surged on news that Singapore Telecom had bought 1.6 million shares in Bharti from the open market for $9.03 million, increasing its stake in the company by 0.04 per cent to 32.04 per cent.
Credit Suisse also raised its rating on Reliance Communications (RCom) to ‘neutral’ from ‘underperform’ and increased its price target for the stock to Rs 185 from Rs 150. RCom shares gained 2.82 per cent at Rs 193.25.
“We believe that concerns on competition, regulation, 3G auction fee and Reliance Industries Ltd’s entry have been overstated,” Credit Suisse said in a telecom sector report. “Although the risk of being early exists, inexpensive valuations give us sufficient buffer to start accumulating in the Indian telecom sector,” it added.
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Credit Suisse upgrades had a rub-on effect on other telecom stocks too. Tata Teleservices (Maharashtra) Ltd advanced 5.54 per cent to Rs 22.85.
Mahanagar Telephone Nigam Ltd also moved up 2.21 per cent to Rs 67.10.
Managements of telecom companies, however, did not read too much into the impact of the re-rating. Idea Cellular Managing Director Sanjeev Aga said: “Paul, the octopus, must have pointed at the telecom stocks in the morning!” Bharti Airtel CEO Sanjay Kapoor said he would not like to comment on the stock price movement, but added that post-3G, the days of heavy tariff discounting were over.
With improved outlook for mobile businesses, Credit Suisse analysts have raised their FY11 earnings-per-share (EPS) estimate for Idea and RCom by 100 per cent and 7 per cent, respectively. However, they have lowered their FY11 EPS estimate for Bharti Airtel by 6 per cent due to the inclusion of Africa financials.
Stability in the competitive environment forces us to build in stable revenue per minute and a stronger recovery in wireless EBITDA (earnings before interest, tax, depreciation and amortization) margins, Credit Suisse said in the report.
Analysts at Religare Capital markets are also positive on the Indian telecom sector based on their view that most of the negative news flow is behind, tariffs are stabilizing, opportunity on data revenues is not being factored in and above all, valuations are cheap.
“We maintain our view that this is the right time to invest in Indian telecom stocks for high returns over next 9-12 months,” they said in a telecom sector update.
Religare has a “buy” rating on both Bharti and Idea stocks with a 12-month price target of Rs 375 and Rs 70, respectively.