Nomura maintains 'reduce' rating on Bharti Airtel; valuations weigh

NEW DELHI: Bharti Airtel Ltd reported its second quarter results for FY13 on Wednesday, which were in line with estimates, but failed to bring any positive surprises.

Nomura maintains 'reduce' rating on the stock with a target price of Rs 210 and doubts the results will boost market confidence about Bharti's earnings outlook.

Africa margin improved sequentially (due to positive elasticity), which was a positive, but widely expected. Africa reported 140 bps QoQ margin improvements to 27.2 per cent driven by 3 per cent QoQ revenue growth and 8 per cent QoQ EBITDA growth (in USD terms).

In recent months, the stock seems to have found support at Rs260-280 levels. But virtually every day there is some new regulatory development – good and bad – and telco stocks don't appear to be reacting to it any more.

Nomura maintains their view that although regulations are bad, but that isn't the only reason for their bearish view on India telcos. It has more to do with what "we see as a lack of positive operational surprises (as evident again in the 2Q results) and expensive valuations (20-25x P/E)."

On a positive note, though, the incremental regulatory news flow does not seem to be getting any worse, but it is still difficult to understand and analyse which regulatory decisions will stick and what will happen next.

"Bharti has been in a negative EPS revision cycle for almost two years now and it may not end with these results either," Nomura said in a note.

"If and when we get a sense that the earnings downgrade cycle is over, along with better visibility on regulatory outcomes, we think that could be the time to revisit," said the note.

Nomura sees significant operational leverage in the company and scale matters (245million subscribers). But without any clear catalysts, the stock will likely remain under pressure.