Termination charge, share sale hit Bharti

Bharti Airtel has underperformed the Sensex in the last eight trading days, falling 12.24 per cent against 1.52 per cent decline in the benchmark index. Investors were seen dumping the stock on the news that two executives of the company sold their shares in the open market on March 6 and 9. The sell-off resulted in a sharp increase in trading volumes, up from a daily average of 4.70 million shares during week ended March 6 to 12.27 million during the week ended March 13.

The futures & options (F&O) segment witnessed a short position build-up at the counter during the last four trading days as open interest in the March futures surged from 7.69 million shares on March 6 to 8.89 million shares on March 13. The March futures during the period have declined from Rs 601.50 to Rs 560.10, indicating building up of shorts.

Traders have bought the Rs 560 strike put and call options looking at low implied volatility. They feel that these options are relatively inexpensive. It also means that the traders feel that the stock is due for a big move, but undecided about its direction. So they have bought both the call and put options.

Bharti shares fell on concerns that the cut in domestic termination charges will hurt. The Telecom Regulatory Authority of India (Trai) reduced termination charges on all domestic phone calls to 20 paise per minute from 30 paise. The announcement was made after trading hours on March 9.

Credit Suisse in its report on Bharti has expressed concern over the launch of inexpensive GSM plans by Reliance Communications. The report expects Bharti’s March 2009 quarter mobile revenue growth to be around 3 per cent compared to 9 per cent in the December 2008 quarter.

The report has reduced earlier average revenue per user (ARPU) estimates by 5-6 per cent and operating margins by 150 basis points.