Bharti Airtel, which has underperformed the benchmark Sensex ever since it revived a plan to merge with South Africa’s MTN Group, may surge if the deal falls through, as it would put an end to uncertainty about the future of a combined entity with differing management styles, structures and some imponderables, investment advisors say.
“If the deal (with MTN) succeeds, there could be a small downside,” said Mehraboon Jamshed Irani, senior vice-president-PMS, FCH Centrum Wealth Managers. “But if it fails, the stock could gain, as those worried about the uncertainty surrounding the deal may want to include Bharti in their portfolio,” Irani added.
Bharti, the biggest mobile phone company with a 4.4% weighting in the benchmark Sensex, is down 2% since May 25 this year, when it announced the reopening of exclusive negotiations with MTN. During the period, the most popular index has risen 20%. Bharti ended 1.4% higher at Rs 419.25. Sunil Mittal, who last year ditched a plan to combine the companies, revived the idea to create a $23-billion behemoth with more than 200 million customers, as he sought to grow globally when the domestic revenues per user were declining due to stiff competition.
But the regulatory hurdles such as mandatory open offer by MTN for 20% of Bharti’s minority holders and legal complications in dual listing are threatening Mittal’s ambitions. Both the companies are still in discussion and the deadline to conclude a deal is September 30. During the downturn in 2008, Bharti figured among the best performing stocks and many investors still like the stock, but for MTN. The stock has underperformed its peers, too, despite many investors preferring it over rivals.
“We like Bharti’s strong management team and its ability to execute consistently. But given the current overhangs, we do not think the stock is cheap at 15.9 times FY11 P/E,” said Nomura in a note to clients. It
has a neutral rating on the stock. “Uncertainty about the MTN deal is one element, but domestic competition concerns, along with 3G and MNP (mobile number portability) impact, are other overhangs.”
Its leadership position and experience make it the best candidate to take on the emerging competition, some analysts say. “In our view, it’s best positioned to manage competitive pressure, given its incumbency advantage and diversified service portfolio,” RBS said in a note to clients. “We believe current valuations, at almost 14 times FY11 EPS, factor in the transaction, thus restricting downside on a formal announcement. Hence, termination of a deal could drive significant upside,” the note added.
There are also some who are betting that a buyer of Bharti will be a winner irrespective of what happens to the deal. “Whichever way the deal goes, it will be favourable for investors from the stock market point of view,” says Amitabh Chakraborty, president (equity) at Religare Securities.
“If the deal goes through, Bharti may find a place in the MSCI index which will result in foreign investors wanting an exposure to the stock. At the same time, domestic investors are not very positive on the stock as they think value accretion may take some time in the event of a successful deal with MTN. If the deal falls through, these fund managers may start buying the stock again,” he said.
News Source : Bharti fails to keep pace with Sensex on MTN overhang
“If the deal (with MTN) succeeds, there could be a small downside,” said Mehraboon Jamshed Irani, senior vice-president-PMS, FCH Centrum Wealth Managers. “But if it fails, the stock could gain, as those worried about the uncertainty surrounding the deal may want to include Bharti in their portfolio,” Irani added.
Bharti, the biggest mobile phone company with a 4.4% weighting in the benchmark Sensex, is down 2% since May 25 this year, when it announced the reopening of exclusive negotiations with MTN. During the period, the most popular index has risen 20%. Bharti ended 1.4% higher at Rs 419.25. Sunil Mittal, who last year ditched a plan to combine the companies, revived the idea to create a $23-billion behemoth with more than 200 million customers, as he sought to grow globally when the domestic revenues per user were declining due to stiff competition.
But the regulatory hurdles such as mandatory open offer by MTN for 20% of Bharti’s minority holders and legal complications in dual listing are threatening Mittal’s ambitions. Both the companies are still in discussion and the deadline to conclude a deal is September 30. During the downturn in 2008, Bharti figured among the best performing stocks and many investors still like the stock, but for MTN. The stock has underperformed its peers, too, despite many investors preferring it over rivals.
“We like Bharti’s strong management team and its ability to execute consistently. But given the current overhangs, we do not think the stock is cheap at 15.9 times FY11 P/E,” said Nomura in a note to clients. It
has a neutral rating on the stock. “Uncertainty about the MTN deal is one element, but domestic competition concerns, along with 3G and MNP (mobile number portability) impact, are other overhangs.”
Its leadership position and experience make it the best candidate to take on the emerging competition, some analysts say. “In our view, it’s best positioned to manage competitive pressure, given its incumbency advantage and diversified service portfolio,” RBS said in a note to clients. “We believe current valuations, at almost 14 times FY11 EPS, factor in the transaction, thus restricting downside on a formal announcement. Hence, termination of a deal could drive significant upside,” the note added.
There are also some who are betting that a buyer of Bharti will be a winner irrespective of what happens to the deal. “Whichever way the deal goes, it will be favourable for investors from the stock market point of view,” says Amitabh Chakraborty, president (equity) at Religare Securities.
“If the deal goes through, Bharti may find a place in the MSCI index which will result in foreign investors wanting an exposure to the stock. At the same time, domestic investors are not very positive on the stock as they think value accretion may take some time in the event of a successful deal with MTN. If the deal falls through, these fund managers may start buying the stock again,” he said.
News Source : Bharti fails to keep pace with Sensex on MTN overhang
Posts
