While Bharti is not growing as fast as an Idea or a Vodafone, which have rolled out their services in new circles, the market leader with a share of 25 per cent, continues to add about 2.7 million subscribers every month.
Although revenue growth for Bharti is a given, the problem is the declining margins (mainly in the wireless business on account of falling average revenue per user and per minute numbers; Rs 350 and 67 paise, respectively).
With 77 per cent of the population covered, expect these figures to stabilise or dip slightly from these levels offset by the upward movement (based on expansion of subscriber base) in broadband/internet services where the average ARPUs are around Rs 1,250.
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Although there are investments to be made in the 3G license fees (reserve price at Rs 2,020 crore for an all India license) and the company has net debt of about $402 million (Rs 2,010 crore), strong cash flows (Rs 3,365 crore cash profit for Q2, FY09) will enable Bharti rollout its 3G network without having to stretch itself.
At Rs 686, the stock is trading at 12.25 times its estimated FY10 EPS and should offer about 22 per cent return over a one year period. For aggressive investors, Reliance Communications could be considered. The stock is trading at Rs 205 (FY10 P/E 8.9). Lower valuations are largely due to concerns on large scale investments on GSM infrastructure and additional funds needed for 3G rollout.
Source: Business Standard
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