HSBC puts 'sell' on Bharti Airtel

RESEARCH: HSBC

RATING: SELL

CMP: Rs 274.55

HSBC maintains `Sell’ rating on Bharti Airtel (Bharti). Bharti’s Zain deal in Africa is expected to be earnings dilutive in the near term (dilution estimated at 14% for FY11 and 10% for FY12). The challenges before it include tariff cuts and elasticity, high taxes and the need for a generalised approach when it will be important to provide a local flavour in each market.

News reports mentioning Bharti’s plans to join hands with other tier-2 telecom operators in Africa to share radio access networks can be a positive, as it will enable the company to expand network rapidly with minimum capex and operating expenditure. However, due to lack of details on this matter, HSBC is not changing its forecasts. On the other hand, network sharing is considered a double-edged sword as operator loses independence. HSBC’s cautious view on Bharti is driven by weak earnings growth and the hurdles it will likely face in replicating the minute factory model at Zain.