Bharti Airtel bleeds after Credit Suisse slash, competition fears intensify

After Morgan Stanley, Goldman Sachs and Standard Chartered downgraded the country's leading telecom company Bharti Airtel for its disappointing quarterly earnings, global financial services company Credit Suisse also slashed it on Wednesday fearing the intense competition it would face from the Internet arm of Mukesh Ambani-led Reliance Industries Ltd (RIL) Infotel Broadband, which plans to offer cheaper data and voice services soon.

Falling for the second day in a row, shares of Bharti fell to their lowest intra-day level in almost four years declining by up to four per cent and eroding Rs 3,779 crore from its market value amid the downgrading by Credit Suisse.

Credit Suisse downgraded Bharti to 'underperform' from 'neutral' while cutting its target price to Rs 220. Credit Suisse said that with Infotel planning to enter the wireless voice market, there is a significant risk to the telecom industry's business model. Credit Suisse said there will be increasing competition in the segment.

Morgan Stanley had downgraded Bharti to 'equal-weight' from 'overweight' and cut its target price by nearly 25 per cent to Rs 280.

According to industry data, an investment of Rs 1 lakh in Bharti at the beginning of this month was worth around Rs 83,000 on Wednesday as the stock has lost almost 17 per cent this month.

Early this month, Bharti reported its 10th-straight quarter of decline in its profit as cut-throat competition squeezed margins sending its shares to their lowest level in two years. It reported a sharp lower-than-expected net profit of Rs 762 crore in the April-June quarter-a drop of 37 per cent from the same period in the last fiscal. Bharti had a net debt of $12 billion (Rs 67,200 crore) as of June.

Bharti Group officials have been candid in admitting that they feel the threat more from Reliance Indutries in the broadband space.

The latest downgrading of Bharti comes after the department of telecommunications (DoT) moved the Telecom Regulatory Authority of India (Trai) to let Infotel have an Unified Access Service Licence (UASL). This would pave the way for the company to offer both voice and data services. A senior DoT official confirmed that it had got a formal request from Infotel seeking migration of its current Internet service provider licence to UASL.

ISPs, under the new National Telecom Policy, have been allowed to offer voice services. They can get a unified licence for Rs 20 crore and offer voice services. Leading telecom companies had objected to Infotel's plan to participate in the upcoming 2G spectrum auction.

However, the government in the New National Telecom Policy has allowed telecom companies having ISPs and VOIP (voice over Internet protocol) licences to participate in the auction. Infotel is expected to roll out its 4G services across the country sometime later this year. It is the only telecom company to win a pan-India licence for 4G broadband services.

Industry fears that this could erode the market share of giants such as Bharti among others.

A senior telecom analyst said that Infotel has an edge over Bharti and is strongly placed in the 4G segment. "Infotel is the only player which has pan India licence for 4G spectrum. Therefore, they will not depend on roaming agreements."  

Courtesy: Mail Today