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  • JANUARY 12, 2011

Bharti vs. RCOM: The final frontier

So far we have talked about the market share and the operational numbers for comparing the two telecom majors Bharti and RCOM. In our final piece in the series, we would focus on the valuations and what the future holds for the two companies

Let's first see how the stock prices of the two companies have performed. We would be doing our analysis from Mar-06 onwards as that was when Reliance Communications came up with an IPO.

Source: Prowess

Clearly, both Bharti as well as RCOM have underperformed the broader markets during the same period. However, RCOM's underperformance has been much more as compared to Bharti Airtel.

It would be important to compare Bharti Airtel with Reliance Communications on the basis of their valuations.

ValuationsBhartiRCOM
Market capRs. M1,288,122 284,423
Price to earnings*Times16.2 9.5
Price to book value*Times2.8 0.7
Price to sales*Times2.7 1.5
EV/EBIDTA*Times10.7 8.6
Based on trailing 12 months' data

The valuations show that RCOM is available at a discount when compared with Bharti Airtel.

The price of RCOM has fallen quite sharply in recent times due to the negative news that has been surrounding the company. Time and again, RCOM's name has popped up in some controversy or the other. Earlier, the company was dragged under the scanner for misreporting revenues to the regulator and hence, accused of paying lower fee as compared to what it should be paying. However, the company opened its books for inspection and the matter was resolved. The company's name has again being screamed out in the recent telecom scam. RCOM has been accused of having ownership interests in Swan Telecom, a company that has received spectrum and licenses in 2008. However, RCOM has stated that they had sold their interest in the latter before the licenses were applied for. The matter is still under investigation.

Financials

Bharti has consistently outperformed RCOM in terms of its financials.

Growth BhartiRCOM
Revenues%22.8%9.4%
EBITDA%22.2%2.0%
Net Profits%22.6%9.6%
*CAGR growth from FY07 to FY10


Key Ratios BhartiRCOM
Return on Equity%17.2%7.9%
Net Debt to EquityTimes1.3 0.8
* As on end of September, 2010

Even in terms of returns on equity, Bharti has outperformed RCOM. But Bharti has much more debt on its books as compared to RCOM. One of the reasons behind this is the acquisition made by the company in Africa. How these operations pan out for the company is something that remains to be seen. It is important to note that the company plans to repay the debt through the internal accruals soon.

The path forward

Going forward, both companies have their 3G services to look forward to. Both have acquired 3G spectrum in 13 circles. Both have managed to bag the license for 3 of the 4 metros. However, Bharti has been able to get the spectrum for circles that contribute almost 66% of its mobile revenues, while RCOM's 13 circles contribute around 46% of its total mobile revenues. (Circle-wise and total revenues computed on the basis of data released by TRAI). Interestingly, in this area, RCOM seems to have made the first move by launching its 3G services in 13 circles. Bharti is yet to launch the same.

So, will RCOM get a first mover advantage in 3G like Bharti did in 2G? Only time will tell.

Bharti vs. RCOM Series - Previous | All Articles

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