In the last two days, stock of Bharti Airtel has taken a terrible beating on the stock markets. The trigger for this downward spiral is the fact that RCom has been successful to get licenses to additional GSM licenses. So the market believes that Bharti will face tougher competition and this will impact their earnings. It is out opinion that these fears are misplaced. It is not as if RCom was absent from these circles and also the CDMA prices are very competitive to GSM prices. So the competition is likely to intensify in acquisition of new customers and turnover rate. With Indian Telecom market still increasing at mind boggling rate, we do not think that this entry will have any meaningful negative impact on Bharti acquiring new customers in at least next 3-5 years.
In addition, if we see the relative stock valuations, Bharti is trading at around PE of 26.5 considering that their EPS for FY 2008 is likely is to be in the range of 32-33 while RCom is trading at PE of around 50. Similar or even more PE are given to Idea and Tata Tele. So fundamentally Bharti is currently at a very cheap level. So for a educated investor, this recent downslide in the stock is a good opportunity to enter into the script. We expect that the stock will at least give 25-30% return in next 12 months.
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