What fate did those investors meet who shunned the shares of the Infosys during 2007-08, at a time when the Rupee had inched higher around 40s against the Dollar on the back of robust inflows into the country?
Infosys is currently quoting at all time highs even as Indian benchmark Sensex is still way off from its peak levels. In fact, this stellar performance has notched even as rupee is back on an upward march, currently around 44.6, having recovered from its recessionary lows of 50 against the dollar.
A lesson I’ve learnt from this – Stocks with good fundamentals and sound management can go through a rough patch for few years but not quality deterioration. Somewhat same fate is being witnessed by the fast-growing Telecom sector at current juncture.
Ironically, the very aspect of high growth potential of this sector has marred the case for business viability for the players in this capital intensive industry. A sudden rush of over a dozen operators jostling for space with intense tariff wars has made life difficult for the new entrants in this space.
Bharti on Track with Q4 numbers
India’s largest mobile service provider by sales – Bharti Airtel – has announced quarterly numbers for the January-March quarter. The net profits for the quarter witnessed a slide by 8% to Rs.2055 crore from the same quarter last year while revenues for the company surged 2% to Rs.10056 crore in Q4 March 2010.
Just imagine… here is a company which has managed to scoop in a net profit of Rs.2055 crore even under depressing pricing scenario. The situation can only improve from here but at a gradual speed.
Bharti’s total customer base stood at 137.60 million as on March 2010, an improvement by 41% compared to previous year on the back of expansion in Sri Lanka and Bangladesh. Bharti’s revenue per minute for the quarter was 0.47 rupees, versus 0.55 rupees last quarter
Amid intense competition and price wars, the company has managed well by posting higher sales and getting users to talk more. The management has indicated that the tariff war may have reached its peak and that the propensity to drop the call charges any further is not viable from a sound business case.
Airtel – The First Move Advantage
Bharti Airtel has signed a $10 billion acquisition deal for African assets of Kuwait’s Zain Telecom, which will play a crucial role in expanding in other fast growing emerging markets where telecom is still to witness competitive growth. The inorganic expansion program is likely to offer diversity to Bharti’s revenue profile.
Bharti is also likely to emerge as one of top bidders in the auction process for 3G spectrum. No doubt that 3G spectrum bids for Category A circles have more than doubled in prices, but such circles are expected to house maximum number of subscribers for availing the 3G services.
However, a point to be noted is that these are long-term 20-year licenses. Moreover, the competition is likely to be limited mostly to the existing operators as it may be not be feasible for new entrants to take part at such high bid prices. In fact, India’s 3G costs are way below that of world’s standards even at current high bids.
Bharti Airtel – A Value Buy
To me, this makes a case of long-term ‘Value Buy’ for the stock of Bharti Airtel which is a leader in Indian telecom markets and a company with clear mandate to expand in other emerging markets of Africa with lower penetration levels.
Three years down the line, Infosys is quoting at peaks out-performing most of the Indian market stocks. Possibly, Bharti Airtel is currently plagued with similar worries on investor’s part, which Infosys underwent during times appreciating rupee.
After going through a round-up of company fundamentals, valuation levels and strength of management; the stocks is not expensive at current price-to-earnings valuations of around 11 to 12 at Rs.290 per share Bharti forms a ‘Contra +Value’ pick for investors with 3-5 year perspective, until such time, the company would tide all storms and be back in race for top company by market capitalization on the Indian bourses.
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