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Shares in India's leading listed telecoms companies continue to reel after being hit hard in 2009 as a price war dents margins and clouds future earnings growth.

Top mobile operator Bharti Airtel and rival Reliance Communications were the only 30-share BSE index stocks to fall in 2009, while the index rose 81 per cent. The two have slid further this year, but slower than the broader market's drop.

Bharti trades at just under 13 times forward earnings, higher than Reliance's 9 times, but much lower than 5th-ranked Idea Cellular's 23 times. China Mobile trades at 11.4 times forward earnings and SingTel at about 12 times, according to StarMine, a Thomson Reuters company.

Dialling Up Profits

Bharti, Reliance and Idea reported better-than-expected October-December results, the first full quarter after a vicious price war broke out due to cut-throat competition in the world's fastest-growing mobile market.

"Telecom stocks were beaten up quite a lot on concerns that rising competition could pressure margins and average revenue per user (ARPU)," said K.K. Mital, head of portfolio management services at Globe Capital.

"However, when we look at the December quarter results, the impact was less than expected. Also, volume growth is still there," said Mital who manages around $11 million of funds.

"These stocks have enough potential to rise from here."

Both Bharti and Reliance Communications are also set to gain from planned public offers in their telecom tower units, which analysts see unlocking value and helping the parents' stocks.

Put On Hold

Still, some analysts feel the stocks are yet to bottom and more trouble may lie in wait as two more players, including the UAE's Etisalat, are set to join the fray.

Also record volume growth in terms of new connections is not translating to proportionate revenue.

"Although new connections are rising, there's a cost attached to run these connections," said Akhilesh K. Singh, business head of wealth management group at Emkay Global, which manages about $430 million for wealthy clients.

"At the same time, revenues per connection are declining."

Bharti stock has seen at least two analyst upgrades since its quarterly results, though more than half the 39 analysts covering the stock rate it a 'hold', 'sell' or equivalent, according to StarMine data.

Of 34 analysts covering Reliance Communications, only 6 have it as a 'buy' or equivalent, while 20 rate it a 'sell'.