Trai recommendations cheer telecom stocks

Telecom regulator has proposed slashing of spectrum base price by 50-60% for a coming auction

Recommendations of the telecom regulator to slash spectrum costs by a half sent stocks of telecom companies soaring on Tuesday.

Bharti Airtel and Idea Cellular rose by 8.2 and 5.6 per cent, respectively. The Telecom Regulatory Authority of India (Trai) on Tuesday recommended slashing the spectrum base price by 50-60 per cent for a coming auction.

The recommendations  would not only boost the sector, analysts said, but also aid the government’s fiscal deficit situation. The previous two attempts by the government to auction spectrum met a lukewarm response.

“The reduction in spectrum costs would be beneficial for the companies as this would imply lower cash outflows for those,” said Nitin Padmanabhan, telecom analyst with Espirito Santo Securities.

The government has recommended a floor price of Rs 1,497 crore a MHz for spectrum in the 1,800-MHz band.

The exact quantum of the reduction in the outflow was not clear, said analysts. They said of the three listed telecom companies, the biggest beneficiary could be Bharti Airtel. According to early estimates, Bharti could see a 40 per cent reduction in cash outflows to Rs 10,000-11,000 crore if the recommendations go through.

“While these are only recommendations, it is still a huge positive for the sector. The stocks reacted positively to the news, though the extent of the benefits is still being worked out,” said Sunil Jain, vice-president of equity research at Nirmal Bang Securities.  

On Tuesday, Bharti Airtel was the highest gainer among telecom stocks, up 8.2 per cent to close at Rs 339 on the BSE. Idea Cellular and Reliance Communications rose by 5.6 per cent to Rs 167 and 1.7 per cent to Rs 141.80, respectively, according to the exchange website.

Analysts said the suggestions had brought needed relief to the sector, suffering due to the 2G spectrum scam. The scam had led to closure of a few companies, bringing down the fierce competition in the sector. “The regulatory issues are being given better clarity, the competition intensity has reduced and the pricing power is slowly shifting back to the operators,” said Amish Munshi, senior fund manager and head of research - equities at Tata Asset Management.