Bharti Airtel. Investors will likely have mixed feelings on hearing this name. Depending on when one has invested in the stock, one will either be thrilled or dejected. Year on year, the stock has returned next to nothing. But for those who've invested 3-4 months back, the returns have been fantastic to say the least.
Such volatile price behaviour is certainly not expected from a company that only a few months back was being touted as the one for all seasons. A blue chip in the truest sense. But things are starkly different now. The entire telecom sector has had a whirlwind of a time. It will not be unfair to say that the sector has witnessed change on the scale not seen in the past few years. And it this mayhem that has contributed to peel after peel of invincibility coming off the previously pachyderm like skin of Bharti Airtel.
That the company has further compounded problems for itself by going ahead and making a rather difficult looking acquisition also needs to be highlighted. But that's the story for another day. For the time being though, let us just concentrate on the company's Indian operations. The one that will determine its destiny at least in the near future.
For the uninitiated, the stock is still way below its three year high. And this after taking into account its most recent surge. But take the clock back to another few years and one would realise that the company has not done badly at all. It is a proud value creator if one takes into account wealth created since the listing of the stock.
Current investors though want to look into the future. And they eagerly ask the question as to what would the next ten years look like for the company.
Well, to arrive at an answer, we may have to use the theory of inversion. Just as the question of what should we eat in order to lose weight could be better answered by asking what we should not eat; similarly, we may have to ask what has worked for Bharti Airtel when it was going through its dream run.
We believe that Bharti's golden period was largely dependent upon two factors, the ability to provide a differentiated product backed by tremendous volume growth and to have competitors who were pricing their products in such a way so as to generate good returns on capital rather than just covering their day to day costs.
If there is one thing that we are certain about, it is the fact that volume growth will not be as attractive as it has been in the past decade. Hence, the company will have to rely more on its pricing power than volumes.
As far as the second factor is concerned, the entry of multiple players has indeed made the game more risky. A tendency of focusing on just the operating costs and not worrying about returns on capital is fast catching on. Will the situation remain the same ten years from now is anybody's guess. And it is the right answer to these two questions that will determine whether India's largest telecom company continues to reward its shareholders in a way that is attractive enough. In other words, these would be the keys that would unlock the mystery known as Bharti Airtel.
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