Analysts' corner

Bharti Airtel & Gujarat State Fertilizers & Chemicals

BHARTI AIRTEL
Reco price: Rs 344
Target price: NA
Collaboration between the top five operators to share infrastructure, including towers and optic fibre, would lead to a reduction in capital expenditure for Bharti Airtel. Tariff increases and reduction in distributor commissions expected in first half of FY13 would lead to an improvement in cash flows. Street estimates for Ebitda growth at six per cent compounded quarterly over the next eight quarters is lower than the company’s internal target of eight per cent. Hence, the risk of disappointment is minimal. The new telecom policy, imminent in the next couple of months, would bring in the much needed clarity for operators, including the sharing of spectrum, which would result in capital conservation. Buy

Edelweiss Securities

GUJARAT STATE FERTILIZERS & CHEMICALS
Reco price: Rs 387
Target price: Rs 653
Gujarat State Fertilizers & Chemicals Ltd has been witnessing a steep fall in its share price, as investors panic about the chemical (mainly caprolactam) business. Analysts expect caprolactam prices at $2500/tonne for FY13. The company prices caprolactam based on prices quoted by ICIS in terms of dollars and takes previous month’s average INR/USD exchange rate to determine its price in terms of rupee. Most of it is sold locally. Rupee depreciation is positive for margins in this business, though costs are also dollar-denominated.

However, conversion spreads attract the benefit of falling rupee.

Analysts value fertiliser business at 4.5 times the EV/Ebitda, while chemical business is valued at EV/Ebitda of three times, given the high volatility and commodity nature of business. Maintain buy

Sunidhi Institutional Research