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Idea-Vodafone merger: What it means for telecom stocks and who gains most

Analysts expect heightened competitiion as operators align their strategies to compete with RJio

Puneet Wadhwa  |  New Delhi 

Kumar Mangalam Birla, Aditya Birla Group Chairman, and Vittorio Colao, CEO of Vodafone Group, at the press conference in Mumbai. Photo: Kamlesh Pednekar
Kumar Mangalam Birla, Aditya Birla Group Chairman, and Vittorio Colao, CEO of Vodafone Group, at the press conference in Mumbai. Photo: Kamlesh Pednekar

news on Monday morning brought stocks back in focus, with the BSE index outperforming the by rising 0.8% as compared to 0.4% fall in the S&P BSE Sensex.
 
The rally in individual stocks was much sharper, with rallying over 3% to Rs 111 levels in early morning trade. The stock had rallied nearly 5% in opening moves to hit a high of Rs 123.75 on the BSE, but pared gains as trade progressed. By 10:15am, was trading at Rs 100 levels, down nearly 7% from its previous close.


 
GTL Infra, Tata Teleservices Maharashtra (TTML), ITI, Reliance Communications (RCom) and also gained 0.2% - 2.7% in morning deals.

"The ratio is consistent with recommendations from the joint independent valuers. The implied enterprise value is Rs 82,800 crore ($12.4 billion) for India and Rs 72,200 crore ($10.8 billion) for Idea excluding its stake in Indus Towers, valuing India at 6.4x EV/LTM EBITDA and Idea excluding its stake in Indus Towers at 6.3x EV/LTM EBITDA," said India in a release.
 
Over the past few months, Reliance Jio’s freebies and the new tariffs effective April 01 2017 and Bharti Airtel’s acquisition of Telenor India – the sector has been buzzing with activity. While the S&P BSE Sensex has gained around 12% from its recent low in December 2016, the S&P BSE index has rallied 21.1% since then.

Also Read: Price wars just got bigger
 
Given the recent developments and the rally seen in these stocks, analysts now remain cautious on the sector. They expect heightened competitive intensity as incumbent operators align their strategies to compete with RJio. As regards Idea Cellular, most of the positives from the with are priced in, they say.
 
Over the longer term, analysts at expect the Indian sector to remain a five-player market even if consolidation were to happen – three large (Airtel, Idea-Vodafone, R Jio), one smaller (R Com combine) and one fringe (BSNL-MTNL).

Also Read: No stay on Jio free offer; telecom tribunal asks Trai to re-examine issue
 
“The three equally strong competitors would be equally bad as fragmented competition (as at present) for incumbents. R Jio's aggressive stance (target of 50% market share) would make market dynamics even worse in the interim before some kind of a steady state is reached, which is still a while away, in our view," said Vaibhav Dhasmana of
 
Going ahead, Dhasmana expects Airtel to benefit more – gaining both in market share and spectrum which Idea-merged entity would need to give up due to hitting M&A caps.

Also Read: Telcos' revenue growth slumps
 
“In addition, the integration over a longer term could also provide opportunities to further gain share. We change our valuation methodology for Airtel, maintain Hold and continue to prefer over Idea. For Idea, the best case of synergies is already priced into the stock now with challenges around integration not completely factored in; maintain Underperform with a 12-month price target of Rs 90,” Dhasmana says.

Also Read: Institutional investors want Vodafone to up its stake in Idea deal
 
“The situation in the sector is very fluid at this moment as the entry of a large new player has completely changed the business dynamics. We believe it would take another 6 – 12 months for pricing to settle down and only then it would make sense to take a view on this sector,” said Tirthankar Patnaik, India Strategist at Mizuho Bank.
 
“One thing is clear though, the battle has clearly shifted from voice to data and the player which with the best data offering is likely to emerge as the winner. Given the recent volatility in stock prices, is in a no-trade zone for us,” he adds.
 
If someone is taking a two- three year view, Kunj Bansal, ED & CIO, Management advises buying stocks on a decline.

Also Read: RJio aims to corner half the telecom market by 2021
 
“The consolidation will lead to only three big players remaining in the sector. As a result, hopefully the industry, after 6 - 12 months of intense competition, will regain its pricing power,” he says.
 
Adding: “From a short-term perspective, however, there could stoill be more challenges as the balance sheet of most of the players will continue to bleed and the P&Ls will remain under strain. As regards Idea - deal, the recent surge in stock price already builds in most of the key positives.”

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Idea-Vodafone merger: What it means for telecom stocks and who gains most

Analysts expect heightened competitiion as operators align their strategies to compete with RJio

Analysts expect heightened competitiion as operators align their strategies to compete with RJio news on Monday morning brought stocks back in focus, with the BSE index outperforming the by rising 0.8% as compared to 0.4% fall in the S&P BSE Sensex.
 
The rally in individual stocks was much sharper, with rallying over 3% to Rs 111 levels in early morning trade. The stock had rallied nearly 5% in opening moves to hit a high of Rs 123.75 on the BSE, but pared gains as trade progressed. By 10:15am, was trading at Rs 100 levels, down nearly 7% from its previous close.
 
GTL Infra, Tata Teleservices Maharashtra (TTML), ITI, Reliance Communications (RCom) and also gained 0.2% - 2.7% in morning deals.

"The ratio is consistent with recommendations from the joint independent valuers. The implied enterprise value is Rs 82,800 crore ($12.4 billion) for India and Rs 72,200 crore ($10.8 billion) for Idea excluding its stake in Indus Towers, valuing India at 6.4x EV/LTM EBITDA and Idea excluding its stake in Indus Towers at 6.3x EV/LTM EBITDA," said India in a release.
 
Over the past few months, Reliance Jio’s freebies and the new tariffs effective April 01 2017 and Bharti Airtel’s acquisition of Telenor India – the sector has been buzzing with activity. While the S&P BSE Sensex has gained around 12% from its recent low in December 2016, the S&P BSE index has rallied 21.1% since then.

Also Read: Price wars just got bigger
 
Given the recent developments and the rally seen in these stocks, analysts now remain cautious on the sector. They expect heightened competitive intensity as incumbent operators align their strategies to compete with RJio. As regards Idea Cellular, most of the positives from the with are priced in, they say.
 
Over the longer term, analysts at expect the Indian sector to remain a five-player market even if consolidation were to happen – three large (Airtel, Idea-Vodafone, R Jio), one smaller (R Com combine) and one fringe (BSNL-MTNL).

Also Read: No stay on Jio free offer; telecom tribunal asks Trai to re-examine issue
 
“The three equally strong competitors would be equally bad as fragmented competition (as at present) for incumbents. R Jio's aggressive stance (target of 50% market share) would make market dynamics even worse in the interim before some kind of a steady state is reached, which is still a while away, in our view," said Vaibhav Dhasmana of
 
Going ahead, Dhasmana expects Airtel to benefit more – gaining both in market share and spectrum which Idea-merged entity would need to give up due to hitting M&A caps.

Also Read: Telcos' revenue growth slumps
 
“In addition, the integration over a longer term could also provide opportunities to further gain share. We change our valuation methodology for Airtel, maintain Hold and continue to prefer over Idea. For Idea, the best case of synergies is already priced into the stock now with challenges around integration not completely factored in; maintain Underperform with a 12-month price target of Rs 90,” Dhasmana says.

Also Read: Institutional investors want Vodafone to up its stake in Idea deal
 
“The situation in the sector is very fluid at this moment as the entry of a large new player has completely changed the business dynamics. We believe it would take another 6 – 12 months for pricing to settle down and only then it would make sense to take a view on this sector,” said Tirthankar Patnaik, India Strategist at Mizuho Bank.
 
“One thing is clear though, the battle has clearly shifted from voice to data and the player which with the best data offering is likely to emerge as the winner. Given the recent volatility in stock prices, is in a no-trade zone for us,” he adds.
 
If someone is taking a two- three year view, Kunj Bansal, ED & CIO, Management advises buying stocks on a decline.

Also Read: RJio aims to corner half the telecom market by 2021
 
“The consolidation will lead to only three big players remaining in the sector. As a result, hopefully the industry, after 6 - 12 months of intense competition, will regain its pricing power,” he says.
 
Adding: “From a short-term perspective, however, there could stoill be more challenges as the balance sheet of most of the players will continue to bleed and the P&Ls will remain under strain. As regards Idea - deal, the recent surge in stock price already builds in most of the key positives.”
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Business Standard
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Idea-Vodafone merger: What it means for telecom stocks and who gains most

Analysts expect heightened competitiion as operators align their strategies to compete with RJio

news on Monday morning brought stocks back in focus, with the BSE index outperforming the by rising 0.8% as compared to 0.4% fall in the S&P BSE Sensex.
 
The rally in individual stocks was much sharper, with rallying over 3% to Rs 111 levels in early morning trade. The stock had rallied nearly 5% in opening moves to hit a high of Rs 123.75 on the BSE, but pared gains as trade progressed. By 10:15am, was trading at Rs 100 levels, down nearly 7% from its previous close.
 
GTL Infra, Tata Teleservices Maharashtra (TTML), ITI, Reliance Communications (RCom) and also gained 0.2% - 2.7% in morning deals.

"The ratio is consistent with recommendations from the joint independent valuers. The implied enterprise value is Rs 82,800 crore ($12.4 billion) for India and Rs 72,200 crore ($10.8 billion) for Idea excluding its stake in Indus Towers, valuing India at 6.4x EV/LTM EBITDA and Idea excluding its stake in Indus Towers at 6.3x EV/LTM EBITDA," said India in a release.
 
Over the past few months, Reliance Jio’s freebies and the new tariffs effective April 01 2017 and Bharti Airtel’s acquisition of Telenor India – the sector has been buzzing with activity. While the S&P BSE Sensex has gained around 12% from its recent low in December 2016, the S&P BSE index has rallied 21.1% since then.

Also Read: Price wars just got bigger
 
Given the recent developments and the rally seen in these stocks, analysts now remain cautious on the sector. They expect heightened competitive intensity as incumbent operators align their strategies to compete with RJio. As regards Idea Cellular, most of the positives from the with are priced in, they say.
 
Over the longer term, analysts at expect the Indian sector to remain a five-player market even if consolidation were to happen – three large (Airtel, Idea-Vodafone, R Jio), one smaller (R Com combine) and one fringe (BSNL-MTNL).

Also Read: No stay on Jio free offer; telecom tribunal asks Trai to re-examine issue
 
“The three equally strong competitors would be equally bad as fragmented competition (as at present) for incumbents. R Jio's aggressive stance (target of 50% market share) would make market dynamics even worse in the interim before some kind of a steady state is reached, which is still a while away, in our view," said Vaibhav Dhasmana of
 
Going ahead, Dhasmana expects Airtel to benefit more – gaining both in market share and spectrum which Idea-merged entity would need to give up due to hitting M&A caps.

Also Read: Telcos' revenue growth slumps
 
“In addition, the integration over a longer term could also provide opportunities to further gain share. We change our valuation methodology for Airtel, maintain Hold and continue to prefer over Idea. For Idea, the best case of synergies is already priced into the stock now with challenges around integration not completely factored in; maintain Underperform with a 12-month price target of Rs 90,” Dhasmana says.

Also Read: Institutional investors want Vodafone to up its stake in Idea deal
 
“The situation in the sector is very fluid at this moment as the entry of a large new player has completely changed the business dynamics. We believe it would take another 6 – 12 months for pricing to settle down and only then it would make sense to take a view on this sector,” said Tirthankar Patnaik, India Strategist at Mizuho Bank.
 
“One thing is clear though, the battle has clearly shifted from voice to data and the player which with the best data offering is likely to emerge as the winner. Given the recent volatility in stock prices, is in a no-trade zone for us,” he adds.
 
If someone is taking a two- three year view, Kunj Bansal, ED & CIO, Management advises buying stocks on a decline.

Also Read: RJio aims to corner half the telecom market by 2021
 
“The consolidation will lead to only three big players remaining in the sector. As a result, hopefully the industry, after 6 - 12 months of intense competition, will regain its pricing power,” he says.
 
Adding: “From a short-term perspective, however, there could stoill be more challenges as the balance sheet of most of the players will continue to bleed and the P&Ls will remain under strain. As regards Idea - deal, the recent surge in stock price already builds in most of the key positives.”

image
Business Standard
177 22