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Rcom, Airtel show big margins

india Updated: Feb 07, 2007 01:22 IST
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Reliance Communications has to fight several suitors to buy 67 per cent stake in Hutchinson Essar. But the stock markets had valued Reliance Communications stock independently of this deal, based purely on their performance. Two trailblazers in the Indian telecom space, Bharti Airtel and Reliance Communications have over performed the benchmark BSE Sensex in the last six months by phenomenal margins.

"There is a lot of value there and I would recommend a hold on these stocks given the volatility currently," said Gul Tekchandani, investment consultant.

Analysts see a lot of value with new additions like 3G spectrum, as well as additional triggers in the form of relaxation in certain regulatory issues governing the industry.

Reliance Communications stock dipped five per cent to Rs 489 at the end of trading on Tuesday even as the company announced it had raised $1 billion through an overseas convertible bond issue. Bharti Airtel, did better with a fall of just over a percentage to Rs 779. "The fundamentals are getting strong and the growth is going to be sustainable," commented Sanjeev Hota, telecom analyst at Emkay Share and Stockbrokers.

Bharti added 50 lakh customers and R Com, 50 lakh in the third quarter and their net profits were up by 123 and 198 per cent respectively. It is the volumes that have been adding value to the bottomline so far even as average revenue per user has been declining. But if there is consolidation in the industry following the Hutch buyout, it can bring stability to tariffs or even allow players to hike them, said Tekchandani. Companies have also found enormous value in sharing network and fall in equipment prices.

Both the stocks have been favourite picks of mutual funds as well as FIIs. "The sale of Hutch stake has led to further bullishness on these stocks. But one need to be careful in case the final valuation of Hutch gets stretched like the Corus price," warned Sapan Patel, who runs a BSE brokerage.

Email MC Vaijayanthi: vaijayanthi .chakravarthy@hindustantimes.com

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