Why Investors Should Buy Bharti Airtel stock ?

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.

Airtel enters the elite club of top 25 telecom companies

Diwali went well. We might have contributed to the global warming in a significant way, but who is checking? Muhurat trading went very well with Sensex regaining 9000 levels. That is the good news. Though it is not the topic of this discussion. Bharti Airtel has entered the elite club of top telecom companies. It is at number 25. It is the only Indian company in the list. Britain’s Vodafone which recently acquired Hutch is at number 1.

The study conducted by UK based brand valuation firm Brand Finance Plc, uses a methodology called “royalty relief”. This takes into account several factors mixed up to come up with the brand value of the company. Brand value is not tangible. If it has to go by number of subscribers alone at least 3 Indian companies would be featuring in the list.

India has crossed 300 million subscribers at the end of September. That number is pretty close to the population of United States. India is second in terms of number of subscribers only next to China which has 616 million subscribers. So, it would not be a wonder that Indian telecom providers might have more subscribers than most of the global telecom giants on the list of 25. Airtel has 75 million subscribers, Reliance has 55 million subscribers and BSNL has 38 million subscribers.

Since brand value is measured on a global scale, only one Indian company on the list is justified. None of our telecom providers have global presence. Airtel is setting up its shop in Sri Lanka with the help of IBM. Reliance pursued South Africa’s MTN which would have been a gateway to Africa for Indian telecom. Thanks to family feuds that did not go through. Airtel is rumored to be pursuing MTN kind of deal to expand its global footprint. Lack of global presence is the main reason for a lesser brand value.

I still agree with what came out of the report. Airtel, to me is a better brand compared with Reliance or Hutch (now Vodafone). I had my share of frustrations with both Reliance and Hutch, but not with Airtel. Reliance might not be behind for very long. Reliance has acquired its GSM license and is rolling out the operations swiftly. It is only a matter of time Reliance will overtake Airtel to become the top company in India. Airtel to keep or improve its brand value should innovate with mobile services and also expand into overseas markets. Airtel should grow both organically and inorganically (through acquisitions). It is clear that Reliance cannot grow inorganically. That would be Airtel’s strength. If only it can capitalize on it. Reliance will be on the next list.

Bharti, RCom among world's top 10 telcos

Indian telecommunications companies are ringing louder. Bharti Airtel and Reliance Communications are in the big league of gloal telecom companies.

Bharti Airtel is set to be the 5th among the top telecom operators in the world, according to Wireless Intelligence. In the tenth spot is Reliance Communications.

Meanwhile, Idea Cellular, Tata Teleservices and BSNL have been ranked among the world's top 25 telecom companies. Idea Cellular is at 21st position, followed by Tata Teleservices at 22nd and BSNL has bagged the 23rd position.

Bharti is now the world's third-largest, single-country mobile operator. In March, Bharti signed a an agreement with Zain Group to acquire Zain Africa BV based on an enterprise valuation of $10.7 billion. Bharti will acquire Zain's African mobile services operations in 15 countries with a total customer base of over 42 million.

Zain is the market leader in ten of these countries and ranks second in four countries. With this acquisition, Bharti Airtel will be the world's fifth largest wireless company with operations across 18 countries.

Bharti group's global telecom footprint will expand to 21 countries along with the operations in Seychelles, Jersey, and Guernsey. Bharti launched mobile services in India in 1995, Sri Lanka in 2009 and acquired Warid in Bangladesh in January 2010.

Reliance Communications, a part of the ADAG group, is one of the largest private sector information and communications company, with over 94 million subscribers.

It has established a pan-India, high-capacity, integrated (wireless and wireline), convergent (voice, data and video) digital network.

The Reliance Anil Dhirubhai Ambani Group currently has a net worth in excess of Rs 64,000 crore ($13.6 billion), cash flows of Rs 13,000 crore ($2.8 billion), net profit of Rs 8,400 crore ($1.8 billion).

Bharti Airtel - Is It Time To Buy Stocks?

Bharti Airtel, announced its second quarter FY10 results on Friday, which were quite disappointing. The company’s net profit declined 7.8% to Rs 2,321 crore as against Rs 2,517 crore on a quarter-on-quarter (QoQ) basis. Soon after, the Bharti Airtel stock hit a 52-week low at Rs 290 on the exchanges. The stock was, two months ago, quoting a price of Rs 450.

Is Bharti now so beaten-down that investors can buy at it current levels or is it wiser to stay away from it at even these levels, given the outlook of the telecom sector? Checkout stock analysis and outlook presented by Anand Rathi securities.

Stock close to bottom
“For Bharti, we are closer to the end now in terms of price damage,” says Sanjay Chawla of Anand Rathi Securities. “However, it is the time correction that is likely to be extended and that may well last for another three-six months.”

Chawla adds that market is eyeing two-three developments closely: the impact of tariff cuts on its margins and evidence of the pricing war bottoming out.

“Also, with the Unitech-Telenor launch, Docomo making rapid inroads and number probability to launch soon, the effect of that remains to be seen,” he says. “We don’t see that the time correction is going to end until Q1 results are out.”

He, however, added that stock was close to bottoming out and may stay at current levels for some to come.

“The earnings numbers that we saw are disappointing particularly the fact that the average revenue per user (ARPU) has declined 8% — even when the entire tariff cut was implemented much later,” says Hemang Jani, Senior Vice President, Sharekhan, adding that there was a feeling that the stock may under-perform for the next six months given the competition.

“However, the way I look at Bharti, it’s a company that makes a net profit of Rs 8,500 crore, available at about 11-12 PE and I don’t think we are going to see this kind of a scenario playing out for too long. From an investment perspective at 11 times forward PE, Bharti definitely looks attractive.”

Bharti Telecom: What Next?

There is a saying -

• One can buy a damaged chart but one should never buy a damaged business.
• Charts get damaged much before the real business.

Bharti stock now needs to be discussed in this context. The way stock has been dumped in last one week really raises lots of question on the industry itself. The big question everyone is asking - where stock can go next.

In this article, I am making an attempt to answer the above question technically. Let us look at Bharti chart for some answers.

Bharti Daily Chart

Source: ChartAlert [www.chartalert.com]

Event: Breakdown below key support level: Bharti has broken down below two important support levels -

1. 200 dma: As you can see in the chart above, Bharti stock has slipped below 200 dma last week - technically very disturbing sign.
2. Horizontal support line of 370: This was the level - Bharti chart was holding during the entire BHARTI-MTN deal. But post industry wide tariff war announced by RCOM, the stock has even broken this level.

Currently, 200 dma and 370 coincides; and since Bharti stock is oversold, a relief rally to 370 cannot be ruled out in short term. But that’s not going to end the bad time for Bharti investors.

What Next after relief rally to 370?

Best Case - In a strong market, even weak stocks hold up. [Remember, Glenmark stock - how badly it suffered in the month of August on core business issues but the strong market has helped the stock to retain its price level.]

Bharti after strong sell off may turn sideways between 320 and 370 for a good period of time now. But one thing is certain - the stock will not be able to make strong gains for good period of time. It may best remain sideways. The reason - there is no case for out performance; and stock when it gets liquidated in such a big way will always have a pressure of oversupply at higher levels.

Worst Case - If market starts correcting sharply from current levels, then the stock will find more pressure. Technically, the stock can slip to 270 - the support level during 2008. [see in the chart above]

Final View: Long term investors can look to accumulate the stock around support levels of 280. Bharti is one of the best managed companies in India and hence it will find buyers at lower levels because of cash flows, mouth watering valuation and superior management.

It’s not that everyone is bearish. UBS in its latest report view Bharti very positively; and has put price target of Rs. 480. I guess right now the issue is not where Bharti stock can go on the upside but which is the price level on downside that offers attractive margin of safety.

Right now - the level where Bharti looks attractive is around 280.

Bharti: Where is the floor?

Stronger players survive and always emerge stronger after any intense pricing war in any industry….Bharti Management

Well, that’s what Bharti loyal shareholders may hope for. But right now, everyone is jumping off the sinking ship; and Bharti shareholders are no exception.

Interestingly, I covered Bharti stock on October 11, when stock price was 343. Today, about 20 days later, the stock price is 292 and no one knows how much more price damage stock has to see. The big question - everyone is asking/ debating/ reflecting - Is Bharti now an attractive buy considering the price damage stock has already seen. Where is the floor for stock price? Let us re look at Bharti Chart.

Bharti Daily Chart

Source: ChartAlert [www.chartalert.com]

Stock just above very strong support level: Bharti was one steady stock during 2008-early 2009 decline. It never went below 270-275 during the entire bear market with one exception when stock sank to 240-250 levels for couple of days around Oct 24-27 2008. This was the time when Nifty slipped below 2500. Leaving out that couple of days - support for Bharti stands at 275.

Hence, the big thing to watch out for: Will Bharti stock find value buyers around 275-280? I have my doubts…..

Problem: The issue right now is not of Valuation but of ownership. Bharti was one of widely held stock in institutional portfolio but things have changed and now no one wants to hold it. The stock is getting liquidated across portfolios with no adequate demand on other side. In such instances, it is very difficult to hold any price.

I guess even if one assumes that stock has suffered the price pain - time pain has yet to come; and this stock will fall off the radar of many investors till Telecom industry revives and come back on profitable growth trajectory.

Right now - price of Bharti stock is of no significance. It belongs to - BUY ON HOPE and FORGET Category. The issue with Bharti stock is not of price but of faith that the company will come out stronger over period of time and benefit shareholders. Do you have that faith?

Remember, We do not trade stocks…we trade our beliefs about that stock

Telecom stocks go for a toss on tariff pressure

The mobile phone sector, long the darling of the markets, saw itself facing the uncomfortable prospect of investors hanging up on it on Tuesday on fears that a renewed tariff war may bring its dream run of profit growth to an end and could force smaller players to sell out or shut shop.

Shares in mobile firms were pummelled for the second straight day, leaving analysts wondering if the sector was seeing a fundamental re-rating as investors increasingly worry about the impact of the bruising price war on its profit and revenue outlook.

Bharti Airtel, the country's largest wireless service provider, slumped 10% to close at Rs 359.40, taking losses in just two trading sessions to 17%, the steepest two-day fall in almost a year. Reliance Communications tumbled 11% and Idea, the country's fourth-largest mobile operator, fell 8%.


Mobile tariffs in India are already the lowest in the world thanks to fierce competition, but the intensity of the bloodletting looks set to increase as operators come up with price plans to rival those unveiled by Reliance Communications (RCOM). The Anil Ambani-controlled firm on Monday announced the slashing of tariffs across the board for local, roaming and long-distance calls to 50 paise per minute.

Apart from the RCOM tariff cut, suggestions from the Telecom Regulatory Authority of India on Monday that companies shift to charging customers for usage in seconds instead of minutes now, has compounded the woes for a sector that was not so long ago viewed as the safest of safe havens for investors.

But with the bottom slipping under telecom stocks, the regulator appeared to dilute his earlier position, saying the proposal on per-second billing was at an initial stage and too much was being read into the issue.

TRAI chairman JS Sarma also said that mobile operators were free to oppose the scheme and the regulator would consider their opinion during the consultation process.

The chief of Bharti Airtel said tariffs were best left to market forces. "We had a system for forbearance for years now. The regulators and the government should let it remain like that and let market forces decide. Everyday, you have some other operator or announcing some new plans, so we are at it to provide the best for our customers," Bharti chairman Sunil Mittal told ET NOW.

"The telecom sector in India has done very well and therefore, if you ask me, I strongly think the regulator should continue with the existing policy and not interfere."

India's mobile industry has grown at around 40% in the past five years with Bharti leading the growth. The country has some 456 million subscribers with 11 service providers.

The rapid growth of the industry has drawn a raft of top global names, notably Vodafone of the UK, Japan's DoCoMo and Norway's Telenor, as these companies look to counter slowing growth in developed markets. But their plans could come unstuck because of the latest price war and regulatory changes.

"RCOM's tariff reduction (will) to have a disruptive impact on the revenue and margin profile of the industry," Kawaljeet Saluja of Kotak Securities wrote in a note to clients. "The only hope for stability in tariffs and financials is through consolidation or reduced capacity."

There is little faith in the argument this time around that tariff cuts were ultimately good for the sector. "In the past, growth in subscribers translated to high revenue growth as 'usage' expanded with falling tariffs," ICICI Securities' Vikash Mantri said, adding that the elasticity of usage had fallen recently with falling tariffs and he did not expect any significant improvement in usage.

Investors also don't buy the argument as the revenue per user - a key performance measure in the sector - has been falling over the past many years and that the additions are happening in rural India where usage is minimal. Bharti's average revenue per user, for instance, has fallen to about Rs 270 from as high as Rs 520 in 2005.

Earnings per share estimates have been cut anywhere between 5% and 50% and stocks downgraded as the tariff war could drag on for many quarters leaving companies bleeding.

Analysts say some of the smaller and fledgling companies such as Aircel, Shyam Sistema and Unitech Wireless may be affected more than their bigger peers.

"We expect the Indian mobile sector to experience outright tariff war over the next 12-18 months," UBS said in a report. "Revenue & profitability could come under pressure during this period, which may lead to mobile stocks underperforming. However, we believe tariff wars will likely lead to consolidation and eventually winners and losers in the sector in the long run. We expect Bharti, Idea, and RCOM to emerge as winners."

King of the rings - Sunil Mittal

Mittal believes in scaling up to gain the edge

Sunil Mittal remembers driving past the IIT on his way to his office at Nehru Place in New Delhi when he received the SMS. “I think it was one of the first text messages that I received. It read: we have crossed 10,000.” That was December 1995 and it had taken Airtel nearly two months to notch the fivefigure mark.

Today, Airtel adds 10,000 in the time it takes him to drive from his home to his office off Vasant Kunj in Delhi. Indeed, in an eight-hour working day Airtel adds just over 1,00,000 subscribers to touch three million a month. Last Wednesday, when Mittal left his office his mobile blinked a message “99,900,000”. As he left the office on Thursday, Bharti Airtel became the first Indian company to notch 100-million subscribers.

Yes, the velocity of growth in the Indian mobile market has helped Airtel reach the landmark. After all, India added over 15 million in March alone and that gives an idea of the momentum. But the scale of the achievement couldn’t have been without the relentless focus on acquisition of mass or market share. The ruling mantra at Airtel from September 1995 has been: Refine your systems and processes. Strive to get market share and build the brand.

The desired result: market domination. With a market share of 24 per cent, every fourth mobile user in the country is an Airtel consumer and at 100 million subscribers Airtel is around 27 million ahead of its nearest rival. So even if Mittal froze growth and new subscriptions, the next player will take over nine months at current rates of growth to reach 100 million. This, in a market which includes multinationals like Vodafone (earlier Hutch), the Tatas, a Birla, an Ambani and India’s largest corporate baron—the government of India.

The big numbers Rs 36,962 cr: Revenue earned in 2008-09 24 per cent: Bharti Airtel’s share of total wireless telephone market 32.4 mn: Number of subscribers added between April 2008 and March 2009

The achievement has been built on the back of stupefying scale. With 67,513 towers Airtel’s network offers connectivity to 81 per cent of the population, rather it reaches out to people in 5,060 census towns and 4,15,000 smaller towns and villages.

With 1.2 million dealers, Bharti Airtel could well be among the biggest retail players. In fact, if one took the Census statistics, Airtel has two outlets in every location for subscribers to transact business at.

And, of course, there is the online presence. If only they revealed their daily collections from pre-paid cards and recharges, daily cash transactions could place Airtel among banks. Indeed, consolidated daily earnings of Airtel are to the tune of $10 million. Significantly, in a market where average revenue per user (ARPU) is notoriously low —as low as Rs 200 for some—Airtel has an ARPU of Rs 305. Indeed, while it has one of every four connections issued in India, it earns one in every three rupees spent on mobile telephony.

Did he foresee touching the ninedigit number? No, says Mittal, candidly. After all it took nearly six years to touch the one-million subscribers mark. “It was only when we touched the 25-million mark that we realised that we could begin thinking about it. In fact, internally we had in 2006 estimated that we would probably touch 100-million subscribers sometime in 2010.” At a management level the challenge was to arrange for money, manpower and manage partnerships. Raising capital, forging partnerships with a variety of players from Singapore Telecom to IBM and building a team from the best brands including Xerox, Levers, Coke, BT and Deutsche Telecom, Mittal created a hyper platform for growth.

Telecom projects are typically cash guzzlers in the first years. In 2002 while other players hesitated, wondered about the state of the capital market he innovated by pricing his share at Rs 45 through a book-building process and raised Rs 834 crore. At other times Mittal managed to lure and snare a range of cash cows from private equity players like Warburg Pincus to funds to investors like SingTel. He outsourced when required, created divisions when needed and invested in value-added services like few did. Not many would know that Airtel would be the largest music distributor in the country. Asim Ghosh, former managing director of Vodafone Essar believes “Mittal is an intense and terrific competitor because he has the ability to make decisive moves at defining moments”.

Success required more than just management and team work. A new business in a new sector, where the policy landscape was pockmarked, needed political navigation skills. When the players were bent under the original licence fee system, Mittal along with other players lobbied for a revenue sharing regime. When funding was critical and other players were tentative Mittal made it a one-point agenda and got the UPA to push for higher FDI—74 per cent—in telecom. Mittal proved to be so adept at managing political minds on both sides of the spectrum that for some time many— himself included—wondered if political entrepreneurship was the next stop. Is it still an option? Mittal waves the question away with a smile and a gentle “it’s all frozen now”.

Of course, times are inopportune for a career switch. The telecom market is getting competitive, with more players coming in. Almost every analyst’s report following the Q4 results has placed the sector on watch and predicted that it is likely to underperform. Mittal agrees there will be pressure and tariffs may come down. But he also believes that when all else is equal “the differentiator will be quality which can be offered only when you have scale”. Also, unlike existing players who have it all in place, the new entrants have to invest to expand and hope to earn.

For now, though, the Airtel team is focussed on the next revolution, 3GHSPA. Even as the Government was dilly-dallying about terms and timing of the 3G auction, Mittal’s team has done the full dress rehearsal. “We can press the buttons tomorrow and in 180 days we will be operational,” he says with a confident grin. Once again the objective is market domination.

Contrary to conventional wisdom he believes cost will not be an inhibitor and 3G will move and grow the market. Tariffs, he points out, are around $50 a month abroad and could be as low as $20 in India. 3G HSPA is essentially data flying on jet fuel. From video downloads to live TV and online gaming, 3G services will offer mobile broadband and transform the market. With investments in value-added services Airtel is already among the top players and earns nearly 10 per cent of its revenues in value-added services.

For Mittal, though, the excitement is not so much in videos, music or m-news. “I see the potential of total transformation from health to education to social services if one can use 3G services to deliver governance.” Even as his team and the others celebrate the achievement, Mittal is working on his next dream. Aligning 3G with e-G, or e-governance.

Bharti Airtel’s Unique Business Model

Bharti Airtel Limited (the holding company for the Airtel brand and service) is one of India’s 5 largest companies by market value (the actual rank goes up and down a bit everyday depending on the stock price). Airtel is also a relatively new company (started in the mid-nineties in its current avatar). It was also not always the huge success it has turned out to be. Sunil Mittal, founder and Chairman of the company, has stated in many an interview that for a number of critical years, the company was paradoxically on the cusp of both bankruptcy and great success. Through a combination of business sense, sheer hours and of course, luck, it fell on the right side of the net.

Airtel today, however, is probably one of the best run companies in the world (most definitely in India). It is the largest telecom player in the country and has the advantage of both massive size and a very high-growth industry. It’s worth about $25 billion and growing fast.

The secret of its success (at least in my view) has been its model. Airtel focuses only and solely on two things - customer acqusition & servicing (retention) and business development/expansion. ALL other functions - hardware, network management, backend applications (billing etc), value added services and even telecom infrastructure - are outsourced. Airtel pioneered this in the Telecom game. It was the first to give up network management to companies like NokiaSiemens and Ericsson, IT and backend applications to IBM, billing to someone else etc. It was also the first to divest it’s hard assets, i.e. - its telecom towers - to a separate company and lease them back themselves as well as monetize surplus bandwitdh by selling to other operators. This was the ultimate act in putting the faith in the brand rather than in iron and steel.

Of course, having seen Airtel succeed with this, a number of the other operators are now trying to follow in some way or the other.

Because of this focus on the customer experience and on business development, Airtel has been not only the fastest growing but the most innovative of operators. It has realized the importance of having access to the consumer at all levels, and therefore is going from core mobile to landline internet, Digital TV (DTH) and even digital cinema (theaters). Its taking AT&T’s triple play and making it quintuple (5x)-play and more.

It is also one of the few companies that has realized the importance of value added services (VAS) early on in the game and is gearing up to provide compelling applications and content for when the explosive subscriber growth in India eventually slows (as it surely will).

Airtel is a company I greatly admire. As a disclaimer, I don’t currently hold this stock but have in the past (profitably) and plan to do so in the future. I’m pretty sure this is a great bet going forward.