Brokerage house Nomura has retained its neutral rating on telecommunications major Bharti Airtel , with a price target of Rs 310, citing rich valuations. Nomura's team of telecom analysts says investor confidence in the stock has taken a beating following two years of disappointing earnings , and it could take some time for the outlook to change.
Nomura analysts met up with the Bharti management recently, and following are the takeaways from the interaction:
On realisation per minute (RPM):
Management expects 'some' RPM increase in the coming March quarter, but i is unclear how long this can be sustained. The company's focus is both on increasing prices and reducing freebies.
On capex:
Management doesn't expect capex to rise in the next 1-2 years, but doesn't dismiss potential increases beyond that. It noted that Bharti's coverage is reasonable, its electronics are based on a pay-as-you-grow model (along with additional benefits of vendor financing), and pricing models are different in India.
On license auctions and renewals:
No specific comment on license auctions and renewals, except that Bharti doesn't really need to bid for spectrum and an outright license/ service cancellation upon renewal next year is unlikely in the event of regulatory delays. It stated that most of its major renewals are between 2014-2016 and there is enough existing spectrum now; hence pricing should be controlled going forward.
On earnings:
Below the EBITDA line there will continue to be various moving parts-FX(forex) or interest or D&A (depreciation and amortization) changes, which will likely keep earnings volatile.
On Africa:
Africa (operations) will be slow and steady. Debt has been reduced to around USD7.8bn (vs USD 8.7 bn at the time of acquisition), but effective interest expense is likely to be around 4.5%.
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