Is ailing Bharti actually SingTel's secret ace?

The underperforming Indian telco dragged down the group's earnings but DBS points out an overlooked upside.

The Indian Supreme Court has cancelled 2G licenses en masse that had been approved by the former telecom minister, a development which the brokerage firm sees as directly boosting Bharti and possibly catapulting SingTel in years to come.

Here's more from DBS:

3Q12 earnings were below our estimates. The key reason was weak contribution from Bharti of only S$83m (-47% y-o-y, -7% q-o-q) due to higher 3G amortisation costs and weaker Indian rupee.

FY12F earnings trimmed 2% to account for weak Bharti contribution. Overall, SingTel’s 9M12 earnings comprise 72% of our revised FY12F projections. Bharti’s 9M11 earnings contribution of S$274m (-42% y-o-y) has been the key weakness due to higher 3G amortisation costs and > 15% weakening of INR versus SGD.

However, Bharti will be the biggest beneficiary of cancellation of 2G licenses of small players in India recently and could be the key catalyst for SingTel going forward. Our TP of S$3.32 is maintained as we have used Bharti’s valuation at Rs 336/share, lower than current market price of Rs 350/share. Bharti makes up 10% of our FY12F earnings and 20% of sum-of-parts valuation for SingTel.

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