Saturday, July 10, 2010

Happy tidings set telecom stocks afire

Shares of wireless telecom service providers such as Bharti Airtel and Idea Cellular led the market rally on Friday, heartened by rating and price target upgrades by investment bank Credit Suisse.

Investors cheered the upgrades, as it has come when most fund managers and analysts are still pessimistic about the industry’s growth prospects due to sharp cuts in tariffs and concern over rising debt.

Credit Suisse, in a report dated July 8, upgraded its rating on Bharti to outperform from neutral and price target to Rs 360 from 320, driving up its stock by 9.7% to Rs 308.10 on Friday. News that Singapore Telecommunications, Southeast Asia’s largest telecom firm, bought around 16 lakh shares in Bharti through the open market also boosted sentiment.

Idea Cellular’s rating was upgraded to outperform from underperform and price target was raised to Rs 75 from Rs 50 at Credit Suisse. The investment bank also upgraded its rating on Reliance Communications (RCOM) to neutral from underperform and price target to Rs 185 from Rs 150.

Idea Cellular surged 13.3% to Rs 67, and Tata Teleservices shot up 5.5% to Rs 23 on Friday. RCOM was flat in a rising Mumbai market, moving up 3% to Rs 193.

"We believe that concerns on competition, regulation, 3G auction fee and RIL’s entry have been overstated,” Credit Suisse analysts said in a report called “The night is darkest before the dawn”.

“With improved outlook for mobile businesses, we raise our FY11 (2010-11) EPS estimate for Idea and RCOM by 7% and 100%, respectively,” the report said.

The investment bank cut its earnings per share estimates for Bharti by 6% in 2010-11 to factor in the “value destruction” from the acquisition of African mobile operator Zain.

Bharti agreed to buy Zain Africa for $10.7 billion, a move that was seen by many in the market as an indication of limited growth in India’s wireless telecom market on judgement that tariffs may not rise soon with new companies launching services.

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