Broker Poll: Offload Bharti Tele partially

With the Bharti Televentures stock touching a lifetime high of Rs 302.10 on August 5, 2005, Moneycontrol decided to speak to a couple of experts about the stock’s future and came out with two divergent views.
2005-08-09 16:45

The Bharti Televentures stock is buzzing from the day Warburg Pincus offloaded 9% stake in two separate tranches in February and March this year at around Rs 217-218 levels. Following a slew of initiatives like outsourcing of telecom equipment deal from Ericsson and call center operations to a number of established players coupled with solid earnings numbers reported for the first quarter of the current fiscal year, the stock hit a lifetime high of Rs 302.10 on August 5, 2005, stock and is currently hovering at Rs 294 levels.

What’s more, in the last one year, the stock has almost doubled from a low of Rs 150.30 posted on August 5, 2004 to close at Rs 292.85 on August 5 this year clocking gains of almost 95%. With this in mind, Moneycontrol asked a couple of analysts if the stock has some upside left.

Interestingly, the two analysts Moneycontrol spoke with had divergent views.

Investors should sell at least 50% of their holdings and log onto the gains that they have made since last year, says Vikash Mantri of SBI Capital Markets. He is confident that investors will get a chance again to enter the stocks at lower levels.

Even as the growth story in the telecom sector is still intact it has been accounted into current prices, he argues. And he backs his analysis with hard numbers.

At last year’s trailing EPS of Rs 7.5, Bharti trades at a PE multiple of 35 times. He says that for FY-06 the company is likely to increase its EPS to Rs 13.3 and even at that level the stock would trade at a PE ratio of 22, which is far higher than global companies in the telecom sector. And hence investors should book half their profits and enter again at lower levels.

Ambarish Baliga of Karvy Stockbroking, however, has a complete contrarian view on the stock. He says that the stock can reach a target level of Rs 320-325 in the next four months and feels that investors who are sitting on gains should quit the stock at that level.

“This is not a momentum call I am taking. Based on the stock’s fundamentals it can reach Rs 320-325 levels in four to five months time,” he avers.

One aspect that both the analysts concur on is the ability of the management to perform in the face of stiff competition from established players.

Mantri is very impressed with the Bharti management’s “continuous efforts to outsource its needs from companies which are best at it.” A case in point is Bharti’s decision to outsource its call center operations to IBM Daksh, Mphasis, Hinduja TMT and Teletech. The deal, worth Rs 1000 crore spread over next five years, is likely to add to Bharti’s bottomline. “But when this will happen is difficult to gauge.” The cost-benefit ratio of this outsourcing deal will surely benefit Bharti’s bottomline is his confident analyses.

Baliga, too, gives thumbs up to Bharti’s management in building a pan-India footprint amidst stiff competition. “Not all companies in the GSM space could do that despite having a first movers advantage. The company will benefit from this as it has ramped up a good subscriber base despite competition from established players like Essar-Hutch combine and BPL.”

However, Baliga is of the opinion that Bharti may not benefit from the outsourcing of call center operations to companies engaged in these functions.

On the flip side, Mantri adds that the hotting up of competition in the GSM space after Essar-Hutch combine’s takeover of BPL’s GSM operations are likely to impact operating profit margins of all telecom companies, including Bharti’s.

“One must keep in mind that Bharti has done exceedingly well despite competition from established players in the telecom sector. In terms of subscriber addition and value added services, they are squaring up nicely with the competition which has led to their net profit zooming to Rs 461.72 crore for the first quarter of this fiscal compared to loss of Rs 13.96 crore for Q4-05. Bharti’s management must be given credit for that,” is his parting shot.
By Prasanna Zore

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