The Hindu Business Line : Bharti Tele-Ventures: Buy

ROBUST growth in customer addition, an expanding scale of revenues and earnings and big-ticket investments in network and services, which will drive growth over the next few years make Bharti Tele-Ventures an attractive opportunity in the large-cap space.

Bharti's relentless focus on enlarging its customer base with aggressive pricing and promotional campaigns is reflected in the addition of about 3 million customers in the first half of FY 06 in a fiercely competitive market (it now has 14 million customers).

This focus is a positive, as growth the customer base will be the key driver of revenue and earnings in the Indian market. Even if this expansion in customer base leads to lower profitability and average revenue per user over the longer term, this is likely to be compensated by growth in revenues. Its broadband, long distance and enterprise services businesses, too, are likely to exhibit of healthy growth in revenues as well as profits.

Bharti is still in an investment mode, as it seeks to widen its footprint and strengthen its network across the country. We believe this investment phase will lead to sizeable gains over the next few years in customer base and network quality. It is comfortably placed to finance these investment plans and the robust growth in operating profits should enable it absorb higher financial charges without significant dent to earnings growth.

Though the stock has risen manifold in the bull market since 2003, we remain bullish on the stock. The stock has almost doubled from last buy recommendation in June last year at about Rs 175; we believe there is room to be covered on the upside. The expanding base of FIIs is likely to eye this stock, as one of the more preferred plays in India, and this is likely to cushion risks on the downside.

Any dips linked to the broad market should be used to accumulate the stock. Buy with a one- to two- year perspective to capitalise on the growth that lies ahead; but do expect more moderate returns than in the past. Bharti also offers an exposure that is unlikely to be affected by cyclical factors and high oil prices that are a risk now with manufacturing sector stocks.

The principal risks to our recommendation will be any adverse policy prescription on spectrum allocation, and unified license, which could affect payoffs from its investments, especially in national long distance telephony.

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