Though the Bharti Airtel scrip fell 2% today due to concerns on spectrum refarming, analysts continue to back the company on expectations of receding competitive intensity, hike in tariffs and Bharti’s stronger balance sheet vis-à-vis competition. About 60% of analysts according to Bloomberg Data have a buy call as against 20% who have a sell rating.
Moreover, Citigroup analysts led by Gaurav Malhotra say that the negatives and the near term pain are already factored in the price. This includes the Rs 60-70 impact on the Bharti stock value due to higher costs of retaining spectrum in the 900Mhz band. After factoring for these issues and its Africa operations analysts have pegged target price in the range of Rs 325-340 translating to gains of 23-28% from its current price. Among the key catalysts for the stock according to HSBC analysts are improvement in realised rates, data pick up and value unlocking (listing of tower subsidiary).
Lower competition, higher capex?
While competitive pressures continue to be high, there are signs that the industry is moving towards a more rational approach to pricing. After Uninor, which had shut operations in four circles, Aircel too recently took a decision to close down operations in five circles. Rcom’s selective tariff hike too indicate that realizations aren’t in the comfort zone for most players and making money is becoming more difficult. Analysts believe that tariffs are likely to move up after the auctions.
Say Suresh Mahadevan and Varun Ahuja of UBS, “Irrespective of the outcome of the auction, we expect realisation rates to rise post the auction as operators will be bound to behave rationally given the huge upfront payment for spectrum.” In fact Analysys Mason, a technology consultancy in a study commissioned by the Top 3 telecom players indicated that operators would need to incur an incremental Rs 54,000 crore in capex and about Rs 18,000 crore in operating expenditure if they replace their 900 Mhz infrastructure with that of 800 Mhz.
The consequence of this, according to the firm is that tariffs are likely to be 64 paise per minute if incremental investment in refarming and the costs of spectrum are passed on to consumers in the form of enhanced retail voice tariffs. The current tariffs are about 1.2 to 2 paise per minute.
Savings on costs
While the operating environment is likely to improve going ahead, companies are also looking at cutting their sales and general administration expenses.
Stringent TRAI norms on subscriber acquisitions as well as a steep cut in dealer commission have helped reduce inactive subscribers.
Says a telecom analyst with a foreign brokerage, “The shift from a volume linked commission to fixed rate has helped weed out some of the fraudulent practices adopted by the retailers. Practices such as rotational churn which was very high earlier have been checked as well as dummy activations.” Despite the overall decline in telecom subscriber growth (GSM subscriber base fell by 2 million to 671 millon, second month in a row) analysts are not too worried and believe that the situation is likely to stabilise going ahead.
“Though overall subscriber base is down, the number of active subscribers have gone up indicating that the fall has been due to the discontinuing of the inactive subscribers,” says a telecom analyst. ICICI Direct in a report said that the fall indicates that operators are withdrawing freebies and lucrative offers, which is causing subscribers to not activate their second mobile connection especially in urban areas with a tele density of 155%.
