New Delhi, Apr 20: Bharti remained the top telecom pick of Indian companies followed by Reliance Communications (RCom), according to the latest report by world's leading financial management and advisory company Merril Lynch.

''We are adding Reliance Communications to our Top India buys as well as increasing weight to RCom in our model portfolio at the expense of ITC. Bharti still remains our preferred telecom pick and we now have both Bharti and RCom in our top five India buys,'' the company said in its latest survey.

However, RCom has been an underperforming Indian telecom stock, more than Bharti by 37 per cent and also under-performing the market by seven per cent.

The stock now reflects investor concerns of lagging revenue growth, delays in GSM spectrum allocation and the recent deactivation of five million subscribers (15 per cent of total base).

RCom now trades at a 26 per cent discount to Bharti on price-to-earnings ratio (PE) and 25 per cent discount on EBITDA basis, the highest since its listing. Though visibility of GSM spectrum availability remains low, the valuations now capture the risk of continuation on the CDMA platform.

''We believe the risk of the company not getting GSM spectrum at all is low, though its timing continues to be a near-term risk,'' the survey said.

Inspite of these downgrades, relative valuations will still look very attractive.

Flag IPO, retail broadband DTH roll-out additional triggers and the non-wireless business would also provide additional triggers to the stock. The overseas listing of its FLAG business, de-merger and listing of its tower business and the expected launch of its IPTV and DTH offerings by end-FY07 will provide additional triggers to the stock.

UNI