Bharti Airtel shares drop sharply over refarming concerns

Shares in Bharti Airtel, India's biggest mobile carrier, closed lower ahead of a crucial meeting of the Empowered Group of Ministers (EGoM) on spectrum refarming Thursday. Refarming is the substitution of more efficient 900 megahertz (MHz) band airwaves with inferior quality 1800 MHz band airwaves.

Bharti Airtel was the top loser on the 50-share Nifty benchmark. Investors were concerned with the financial impact associated with refarming for Bharti and other telecom stocks that operate in the 900 MHz band. The 900 MHz frequency accounts for over 80 per cent of adjusted gross revenue for Bharti and Idea.

Bharti Airtel shares closed 1.7 per cent lower at Rs 265.90 on the NSE. Shares in other telecom firms that have 900 MHz spectrum - Idea Cellular (flat) and Reliance Communications (up 1 per cent) - closed off the day's low though.

On Wednesday, the Telecom Commission had recommended that telecom firms give up all their airwave holding in the superior 900 MHz band at the time of their permit renewals in November 2014. These recommendations will have to be approved by the EGoM before they are implemented.

Bharti Airtel, which has 100.4 MHz in the superior band, will be hit the most by the proposed refarming. The 900 MHz accounts for over 80 per cent circles of Bharti. Analysts say Bharti may have to spend over Rs 40,000 crore towards buying the replacement airwaves (in an auction) and building more telecom towers and replace some of the existing gears to continue services. That translates into earnings per share (EPS) impact of Rs 110.

Idea, which has 65.2 MHZ in the 900 MHz band, will have to spend Rs 25,000 crore and the EPS impact might be Rs 75. Reliance Communications has 39.8 MHz spectrum in the 900 MHz band.

Analysts said the market has already priced in the potential cost after the Telecom Regulatory Authority of India (Trai) proposals earlier this year. Rakesh Arora of Macquarie Capital Securities (India) said the negative reaction in the counter was unjustified.

"Most negative news is built in the stock price... The competitive intensity is likely to reduce as we don't expect too many players at such high prices. Tariffs have started bottoming out. Bharti is the only stock one should invest in the telecom space," he said.


(With inputs from Thomson Reuters)