Though the three telecom players, namely, Idea Cellular, Bharti Airtel and Reliance Communications, are trying to keep their heads above water with mergers/ acquisitions to fight against Reliance Industries’ Jio offer, market experts still remain negative on these stocks. In other words, it is difficult for them to pick a relatively better stock or say who could be a winner in the longer term.

Jio’s massive investment of $20-25 billion and unprecedented offering of free voice and data for six months to new subscribers have accelerated industry consolidation. Vodafone India and Idea Cellular are planning to merge their operations to combine spectrum assets, strengthen balance sheets and reduce cost and capex to compete effectively.

Reliance Communications is also in the process of merging its wireless operations with Aircel. On Thursday, Bharti announced a deal to buy Telenor’s Indian telecom operations. The on-going consolidation is likely to leave four larger operators — Bharti, Jio, the combination of Vodafone India and Idea Cellular, and the combined Reliance Communications and Aircel. Despite reduced number of players, competition is likely to remain high, according to industry and market experts. “We continue to believe that competition will continue to remain high, and consolidation is not likely to return any pricing power to the operators in the near term. We retain our negative outlook on the sector for 2017, as fierce competition and rising capex will put pressure on most operators in the short term,” pointed out Fitch Ratings in a note.

‘Margins to shrink’

“I don’t like telecom stocks as margins are going to shrink further in the next two years,” said an independent analyst, who did not wish to be named. Moreover, the positives of the merger talks has been more than priced into the stocks, he added.

The stock of Idea has surged 22 per cent ever since the company confirmed on January 30 to stock exchanges that it is in preliminary discussions with Vodafone for a merger. Bharti’s shares jumped 11 per cent intraday on Thursday after it announced its acquisition plans.

Shares of Idea have leaped 62 per cent till date in 2017 while Bharti have gained only 20 per cent. This is partly because shares of Idea were dumped more than Bharti post Jio announcement. On Thursday, Idea was the biggest gainer on Nifty with its stock price ending up 6.4 per cent while Bharti closed with gains of 1.5 per cent.

While Motilal Oswal and ICICI Securities have a ‘buy’ on Bharti, they are cautious on Idea. Motilal has maintained its ‘under review rating’ on Idea, while I-Sec maintains its ‘reduce’ stance on the same. Edelweiss Securities recommends ‘hold’ on both the stocks though.

Analysts feel that Bharti will be relatively better placed to compete with Reliance Jio compared to even the Vodafone-Idea combine.

G Chokkalingam, Founder, Equinomics Research and Advisory, sees some value in Reliance Communications due to value unlocking potential from likely sale of the company’s real estate assets in future. The stock declined 61 per cent in 2016 and has gained only over 8 per cent till date.

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