Turning point within sight
We believe that the new regulations (spectrum fee to be paid by all operators, tighter subscriber acquisition norms) and experience from Bharti’s aggressiveness during the last 12 months could make the market receptive to tariff hikes. Indeed, our checks indicate that over the past few weeks operators have started testing the market for tariff hikes by reducing discounts. We now build in 1% year-on-year increase in voice RPMs (revenue per minute) over the next three years for Bharti.
While the recent rally in stocks has been led by easing regulatory concerns, we believe the next leg will be driven by tariff increases. Infratel listing could be another near-term catalyst.
We believe the risk-reward for Bharti’s stock now seems favourable. Our target price of R355 implies 20% potential upside from the current levels. We upgrade Idea to Neutral (from Underperform) with a target price of R90 (old R55). The biggest risk to our stock call is the potential entry of Reliance Infotel into the voice business.
The government’s recent decision to impose a one-time spectrum fee on all operators now implies that the financial burden over the near term will be borne by the entire industry and not
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