Telecommunications stocks have been hogging the limelight in the last couple of weeks after some brokerages came out with positive reports on the sector.

Reports that the Government might help these firms secure bank loans also boosted sentiment.

Telecommunications companies are struggling to raise funds from financial institutions following the 2G scam.

JP Morgan recently upgraded Bharti Airtel from neutral to overweight and revised the price target higher to Rs 410. “Our upgrade is driven by the India wireless segment where we expect pricing stability from H2 FY12 (after the MNP impact).”

Since March 15, Bharti Airtel gained 13.8 per cent, Idea Cellular 10.9 per cent and Reliance Communications 8.6 per cent, outperforming the BSE Sensex, which gave out a return of 5.2 per cent.

“We expect details of a new National Telecom Policy (NTP 2011) to usher in regulatory clarity and be well received. While the outcome of the regulatory regime is by no means certain, we have quantified the impact for Bharti from excess spectrum charge, renewals, higher spectrum usage charges and benefits from lower licence fees,” JP Morgan report added.

Following its inaugural GS India Telcos Conference, Goldman Sachs turned “more optimistic on Bharti Airtel and Idea Cellular.”

“We return more positive on potential for the regulatory environment to improve; and with further stabilisation such improvement would bring on the competitive front. In the next couple of months we expect more clarity on regulatory issues (like excess spectrum payments, license renewal and M&A policy) and believe any potential impact from MNP would be behind us. We reiterate buy on Bharti and Idea,” Goldman Sachs said.

Loan talk

Recently, Mr Kapil Sibal, Communications and IT Minister, had written to the Prime Minister, Dr Manmohan Singh, seeking his intervention in getting banks to start lending again to telecom companies.

Over the past few months, both domestic and international banks have become wary of extending loans to telecom companies for fear of coming under the scanner of investigating agencies after the 2G scam.

However, still some analysts are not in favour of the telecom sector.

According to Nomura, “Indian telcos are topical but still not in favour — based on our recent investor meetings feedback within India. Too many overhangs remain in regulations, licence renewals structure, Africa, as well as scams and other scrutiny. Valuations are not entirely cheap either, with FY-12-F multiples of 16-20x for Bharti/ Idea and 12x for RCom (vs regional average of 14x). Of the three, interest is still centred on Bharti, but conviction remains low. Africa turnaround could be the next key catalyst. RCom appears cheap, and a potential capital injection/asset sales could stoke a rally. Idea's execution is well appreciated, but is also reflected in valuations.”

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