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Thursday, March 25, 2010

Bharti Zain Deal Analysis - Buy Stocks For Long Term

Investors in Bharti Airtel may have little to cheer about in the short term,with the Indian telecom giant inching closer to buying Zain Telecoms African assets. What could be possible impact of this deal on Bharti's stocks?

Concern over the impact of borrowing for the buyout on Bharti's balance sheet and competition in Indian markets may weigh down the stock in the near term,but stock market analysts consider more declines to around Rs 280-300 as an opportunity to buy stocks for the long run.

The acquisition of Zain will make sense over the next 3-5 years, said Ambareesh Baliga,V-P,Karvy Stock Broking.Investors with a long-term investment horizon should accumulate Bharti shares,with the stock expected to trade range-bound, he said.
The Bharti stock closed at Rs 306.80,down 3% on Tuesday.

In the short term,investors are uncomfortable about the acquisition due to lack of clarity about the impact of the deal that will give Bharti access to 15 African telecom markets.Uncertain valuations of the 3G licences,coupled with added exposure to new markets,are concerns to investors, said Dharmesh Mehta,MD-India Equities,Enam Securities.

Checkout: Bharti Airtel Stock Analysis

The size of borrowing has contributed to the nervousness among investors.Bharti has arranged $8.3 billion in loans for the $9-billion acquisition.Broking firm Edelweiss,which recommends a buy on the stock,estimates that the debt could affect Bhartis consolidated earnings by about 20% and raise its net debt-to-equity ratio to roughly 1.1 times.

INVESTORS are also concerned if Bhartis bet on the African markets would be successful,as most economies there are still underdeveloped and prone to regulatory risks,with the 15 countries having different regulators.The stock may consolidate around the current levels.So far,there have not been too many institutional investors,who have aggressively bought the stock because of lack of clarity about the terms of the deal, said Anita Gandhi,head-institutional business,Arihant Capital Markets.

Some stock brokers feel that Bharti could be a better bet than most other Indian telecom stocks, despite the uncertainty. We are currently having a downgrade rating on all telecom stocks,as we do not expect any major earnings upgrades over the next few quarters. There is nothing in most telecom stocks as future earnings,thanks to cut-throat competition and price wars, said Bharat Shah,head-institutional sales,Ventura Securities. Investors who want a good telecom stock to buy for the long term can look at buying stocks of Bharti at current levels.
Source: Economic Times

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