SingTel – DBS

Bharti retaliates with price cuts

• We lower Bharti’s FY11F earnings by c.7%. Bharti’s consensus FY10F/11F earnings could possibly come down by 10%/19%.
• SingTel’s consensus FY10F earnings look fair but FY11F earnings could be trimmed by 4%.
• SingTel’s TP lowered to s$3.20. Maintain HOLD

Rcom initiated tariff cuts in the first week of October. Rcom cut its tariffs up to 50% under its “Simply Reliance Plan” on long distance and roaming calls. The lower tariffs would particularly hit hard the players – who do not own long distance lines and pan India presence.

Bharti and other players retaliate in the second week of October. We understand that major players like Bharti, Vodafone and Idea have already launched similar plans as Rcom, across various circles without much publicity and fanfare though. Given swift reaction across the board, we see a possibility of intensified battle for market share. We lowered Bharti’s FY11F earnings by 7% as FY11F earnings may see single-digit decline due to c.5 ppt decline in EBITDA margins. Bharti’s FY10F/11F consensus earnings could come down by 10%/19% in our view.

SingTel’s consensus FY10F numbers look all right but consensus FY11F numbers could be revised down. SingTel’s FY10F earnings are unlikely to disappoint due to (i) stronger Aussie dollar and Indonesian Rupiah (ii) strong performance of Telkomsel in Indonesia. However, consensus FY11F numbers may come down by c.4% as street realizes the impact of price wars on Bharti’s FY11F earnings.

SingTel’s FY11F earnings lowered by 3%. We have assumed S$40m loss (about 1% of group earnings) due to high cost of English Premier League (EPL) rights in FY11F. Our SOTP target price is lowered to S$3.20 as we lowered our fair value of Bharti by 8% to Rs 345 based on 15x FY10F earnings.

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