Stock Views on Bharti Airtel, Jet Airways, Lanco Infra, MTNL

HSBC Global Research on Bharti Airtel

HSBC Global Research has assigned an ‘overweight’ rating to the stock saying the company’s strong balance sheet and infrasharing models will allow it to consolidate its revenue market share leadership further. “We value the core business at 12.5 times FY10 (estimated) EPS (earnings per share) at Rs 660 per share and tower valuations of Rs 183 per share,” said HSBC Global Research in a note to its clients. The research firm is positive on Bharti based on a combination of expected sharp growth in the Indian wireless market, execution of a low-leverage, low-cost business model with a high return on invested capital, and a close alignment of majority and minority shareholder interests. However, it views higher regulatory charges and aggressive international expansion as key downside risks.

Citi investment research on Jet Airways

Citi investment research has changed its rating on the stock to ‘sell/high risk’ from sell/medium risk with a revised target price of Rs 167 from Rs 440. “Jet merits a high risk rating, given the competitive scenario in the domestic market, unstability in its international operations and its highly leveraged balance sheet,” said Citi in a note to its clients. Citi believes that Jet’s operating cash losses will continue into FY10 and expects the company will need to raise fresh funds to refi-nance debt repayment (around $280 million over FY09/10E). “Debt/equity ratios are rendered meaningless given the significantly affected net worth — debt-equity is forecast at seven times end FY10E (including asset revaluation reserves),” said the Citi note. According to Citi, the company will face recurring losses of over Rs 36 billion (earlier Rs 20 billion) over FY09-FY10 due to decelerating passenger traffic and escalating cost pressures (aided by depreciating rupee). It expects the yields to dip by 12% in FY10E as lower fuel prices will be passed on to the customers.

ICICI Securities on Lanco Infra

ICICI Securities has maintained its ‘buy’ rating on the stock. “We believe that the expected commissioning of Amarkantak I (300MW) by end-November 2008 would result in reducing execution risk/discount associated with Lanco’s power portfolio,” said ICICI Securities in a note to its clients. According to ICICI Securities, Lanco’s ongoing litigation with MP SEB to convert Amarkantak I from PPA (power purchase agreement) to merchant is expected to be resolved soon and even 50% conversion will provide upside of Rs 35/share. “Lanco has emerged as the sole bidder for the 1,320 MW coal-based power plant at Rajpura, Punjab. We ex-pect the tariff of the project to be lucrative, providing healthy upside along with Rs 70 billion EPC potential,” said the note. The NAV (net asset value) estimates for Lanco stand at Rs 65 billion or Rs 296 per share, the ICICI note said.

Merrill Lynch on MTNL

Merrill Lynch has maintained its ‘underperform’ rating on the stock with a lowered target price of Rs 65 from Rs 110 earlier, saying it has valued the company’s core telecom business at a 25% discount. “The discount captures the risk of potential large cash outgo towards its assured 3G licences. The stock appears cheap at a price/book of around 0.4 times FY09 and this reflects its low RoE (return on equities) of around 2-3%,” said Merrill Lynch in a note to its clients. Merrill Lynch has cut earnings by 35% for FY09E and 29% for FY10E. “This reflects around 3-5% cut in topline and 4% rise in operating costs. We now forecast MTNL’s EBITDA margin at 11-13% for FY09-10E vs 10% margin in 1H FY09,” the note said.