Bharti Airtel fell as much as 3.44 per cent to its lowest intraday level since October 2008 today.
Here are the reasons for the sharp selloff in the stock.
1) Credit Suisse has become the latest brokerage to downgrade Bharti Airtel. It slashed its target price on Bharti to Rs 220 citing high downside risk over the next 12 months.
Credit Suisse said Mukesh Ambani promoted Reliance Infotel could enter the wireless voice market, posing a significant risk to the telecom industry's business model. The unit of Reliance Industries was expected to only enter the Indian wireless data market, but Credit Suisse said Reliance Infotel would benefit from also entering the voice market, increasing competition in a segment in which Bharti Airtel is one of the top players.
The 2G auction, expected in November, will have an additional impact of Rs 40 on Bharti's shares. The government is planning to hold the 2G auction in November after the Supreme Court revoked all permits awarded to eight of Bharti's rivals in a scandal-tainted 2008 sale. The auction had been due by end-August, but the telecom ministry is seeking a delay until November as it finalises the bidding rules and the process.
2) On Tuesday, Morgan Stanley had downgraded Bharti Airtel to "equal-weight" from "overweight" and cut its target price by nearly 25 per cent to Rs 280. Morgan Stanley said traffic growth was coming at the expense of operating margins as tariff wars in the sector bring down average revenue per minute for voice calls. 3G rates have also been slashed in the past six months, while overall sequential data revenue growth is declining, it added.
3) Pressure on profits: Intense competition has forced the carrier to pare some call prices and spend more on networks and marketing in an effort to hold market share, squeezing margins. Quarterly net profit slumped 24 per cent at Rs 762 crore against Rs 1,006 crore in the previous quarter and much lower than estimates of nearly Rs 1,200 crore.
4) African business yet to turnaround: High costs in Africa have kept margins under pressure and Bharti has yet to turn the African operations profitable.
5) High debt continues to adversely affect the company's performance: Bharti had $13 billion in net debt at the end of the March quarter. It refinanced $2 billion this year, and has another $3 billion in short-term loans.
(With inputs from Thomson Reuters)