Govt failure to auction spectrum sends telecom stocks buzzing

Frontline counters like Bharti Airtel, Idea Cellular and RCom gained between 0.5-4 per cent.

Despite a cut of 30 per cent in base price, telecom operators on Monday cold-shouldered the 1,800-MHz spectrum put on the block by the government for the Delhi, Mumbai, Karnataka and Rajasthan telecom circles. The response was the same as that in the previous auction, in November last year, when these circles had not been able to secure even one bidder because of the high reserve price.

The development sent the telecom stocks soaring in trade today with frontline counters like Bharti Airtel, Idea Cellular and RCom surging between 0.5-4 per cent.

The response to the 800-MHz (CDMA) spectrum was only a little better, with Sistema Shyam Teleservices, the lone bidder, applying for 3.75 MHz of spectrum in 11 telecom circles, after the base price for the band was reduced 50 per cent. The muted response to its auction plan is set to upset the government’s grand target of rustling up Rs 40,000 crore from sale of spectrum and one-time charges this financial year.

Ankita Somani of Angel Broking reads the situation as improved discipline from the industry players as reserved prices at the current rate is not making any business case to enter into the telecomm market. The broking house remains neutral on the sector as impending liabilities in the space continues to remain high.

Motilal Oswal Research in its report dated 26 February, 2013 notes that the lack of bidders for 900/1,800 MHz spectrum at current reserve price would eventually lead to further lowering of reserve price for the spectrum. It further adds, “as more spectrums in 18 circles are expected to come up for auction as per a recent Supreme Court order which is also unlikely to garner response at current pricing.”

Had the government been able to attract bidders for the entire spectrum offered, it would have been able to earn revenues of Rs 20,209.17 crore. And, even if all the players winning spectrum went for deferred payment, the realisation this year would have been around Rs 6,669 crore.

Commenting on the situation, Daljeet Kohli of IndiaNivesh says that after the winfall gain in 3G allocation, Government was of the idea that players would continue to shell out huge sums. So there was an over expectation built by the Government which is clearly not working. Also, with the several headwinds built in, its no longer viable for companies to bid at prices like a year before.

He, too, remains neutral on the sector but prefers Bharti Airtel from a long-term perspective. “The reasoning being Bharti is best suited to meet the overhangs along the required financial muscle. Also, even in a worst case scenario, the African business can prove to be a saver for the company,” Kohli says.

The other stock analysts prefer in this space is Idea Cellular. The company has been the biggest beneficiary in the number portability move. However, it still remains to be seen if these numbers could substantially contibute to the yield as well over the long term.