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The day after the telecom spectrum auctions ended, the four listed private players who were prominent bidders saw their stocks plunge on the exchanges.
Bharti Airtel, the country’s largest telecom service provider, lost 5.64 per cent on Friday, closing at ₹376.20. Airtel was the second largest bidder at the auctions at ₹29,130 crore. Bharti not only retained its existing spectrum but also added more than 20 MHz of additional spectrum to its total holding in the 900 MHz band.
According to initial calculations by Piyush Jain, Equity Research Analyst at Morningstar Investment Advisor Pvt Ltd, Bharti was able to lap up about 111 MHz at ₹262 crore/MHz.
Aditya Birla Group’s Idea Cellular saw the second biggest fall, dropping 4.96 per cent to close at ₹171.45. Surprisingly, the stock had hit its 52-week high of ₹186.90 soon after opening, before spiralling down during the day. Idea was the most aggressive bidder at the auctions, since the company earned over 70 per cent of its revenues from circles that were up for renewal. Its total bids crossed ₹30,306 crore. Jain estimates Idea was able to acquire 79 MHz at the cost of ₹380 crore/MHz.
Shares of Anil Ambani’s Reliance Communications, which failed to defend its existing holdings in the 900 MHz spectrum in five out of the seven circles, has been on a losing streak through the week, consistently hitting 52-week lows. The stock made a new low of ₹56.90 before closing at ₹58.25 on Friday, losing 3.56 per cent through the day.
Tata Teleservices (Maharashtra) Ltd, a subsidiary of Tata Teleservices, fell 1.54 per cent to close at ₹7.68.
Cash flow, capex weighA report by Fitch Ratings singled out what was worrying investors in telecom stocks, saying that the spectrum auctions were expected to exert pressure on telcos’ balance sheets and cash flow, and limit their ability to invest in capex over the medium-term. “However, we believe that the auction will spur consolidation, which should strengthen the telcos’ pricing power.
“In the medium-term, we think that the market will support six competitors — from a current 10 — as smaller and weaker telcos will seek M&A or exit the industry, given the high spectrum prices and stretched balance sheets.”
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