Japanese Financial Giant Nomura downgraded Bharti Airtel citing concerns about 3G auction price hikes, and the impact of the MTN deal on earnings. Large operators will likely bid to overcome capacity constraints in key metros, and to avoid giving competitors any spectrum advantage. Returns will likely be adversely affected.
Apart from 3G, number portability could also be implemented soon, which may shift market shares. While Bharti has avoided responding
to competition by either offering free minutes or a subsidised pricing, a reaction aimed at preserving its market share cannot be ruled out, in our view, especially if its key competitors pick up the intensity.
At FY10F P/E 15.4x and 9.8x EV/EBITDA, the valuation isn’t compelling, in Nomura’s view. It has set a target price of Rs 750, 10% downside from current levels.