Idea trying to rope in equity investors

Firm starts convincing investors in roadshows in India and abroad that fortunes have reversed in telecom sector in its favour

Aditya Birla group company Idea Cellular has kicked off the process of roping in equity investors into its company. The third-largest telecom operator has been meeting investors in roadshows both in India and abroad in the last few weeks, talking to them about how fortunes have reversed in the telecom sector, in their favour.

“We are not close to a deal, and it might not even happen. But, we are trying to tell foreign investors that the hyper-competitive phase in the Indian telecom sector is over,” a top company executive  told Business Standard. However, sources say that if a deal were to be struck, it could happen in a month's time.

The company has taken an enabling resolution to raise around Rs 3,000 crore through a qualified institutional placement (QIP) at the end of first quarter. Though the company has said that it has it had no immediate equity requirements, some of the operator's licences are up for renewal in two years. The company did not respond to an e-mailed query.

The timing to go ahead with a deal, analysts say, is right because Idea's stock valuations have been high and the stock has been performing well in the last few months. Idea's stock is the best pick in the sector. According to Bloomberg data, the stock was rated buy by 33 broking houses, and while eight gave it a hold rating, ten gave it a sell rating.

Bloomberg has fixed a target price of Rs 177 for the stock. In today's trade, the stock closed at Rs 164.8, indicating a possible increase in valuations. In the last quarter, the company posted a stellar 97.6 per cent increase in its first quarter net profits at Rs 462.7 crore. In the same quarter last year, its net profits were at Rs 234 crore. The operator had cut down on free minutes and discounts, which contributed to its earnings.

Idea also gained from the growth in data subscribers in the last six months. It added 4.7 million data customers in the first quarter, taking their data subscriber number to 30.9 million. They have 5.5 million 3G customers.

In the last few years, investors had become disillusioned with the telecom sector of India after tariff wars ate into the industry's margins. Docomo, the Japanese major who is a joint venture partner in Tata Telservices, did not increase its stake in the Indian venture. Docomo had said that the change in the scenario stopped it from making further investments.

Idea, however, has no such worries. Its largest investor, Malaysian operator, Axiata said that it would invest more to maintain its stake in the company. The partner which has 19.9 per cent stake, will be issued preferential shares worth Rs 750 crore.

In May this year, Qatar Foundation Endowment (QFE) invested $1.2 billion (Rs 6,796 crore) for a five per cent stake in Bharti Airtel.