India Infoline downgrades Bharti & RCom

MUMBAI: India Infoline has downgraded its rating on telecom majors like Bharti Airtel and Reliance Communications to ���Market Performer��� from earlier ���Buy��� as its expects the tariff price cuts are likely to impact revenues as competition intensifies.

���The launch of Rcom���s ���Simply Reliance Plan��� comes in the wake of ���per second��� billing introduced by Tata-DoCoMo and is likely to intensify pricing war amongst telcos. Our talks with Bharti indicate it is unlikely to react to Rcom���s offer, at least in the near term. However, rate cuts could intensify as Unitech Wireless and Etisalat DB begin their quest for subscribers later this year.

We had earlier assumed an average Revenue per minute (RPM) of ~50p/min in Mar��� 11 for our coverage universe but now factor in a 10% cut in RPM for Bharti and Rcom as tariffs would decline faster than earlier expected.

Accordingly, our FY11E earnings are projected to decline 12% and 9.5% respectively for the two incumbents; downgrade Bharti and Rcom to Market Performers from earlier BUYs.

Rcom���s new offer is likely to provoke similar offerings from other major telcos like Idea and Vodafone, though Bharti may stay put. This would then dampen industry revenue growth as ARPUs could decline to as low
as Rs150 even for private operators.

We model in a 10% cut in RPM for Bharti and Rcom and accordingly cut FY11 EPS estimates by 12% and 9.5% respectively. Downgrade both the incumbents to Market Performers (earlier BUYs) with a target price of Rs 388 (earlier Rs 453) for Bharti and Rs 290 (earlier Rs 323) for RCom,��� the report said.