The stock of Idea Cellular has been on a roller-coaster ride ever since the entry of Reliance Jio on September 1, 2016. Idea Cellular lost R3,528.79 crore in market value and the stock fell by 10.5% on September 1, 2017, the day when Reliance Jio was launched. Further, the stock fell by 18% during the period from September 1, 2016, to January 27, 2017. However, the stock rose by 42% from January 27 till last Friday when talk of an impending Idea-Vodafone merger began.
On Monday, Idea Cellular’s stock rose by 14.6% intra-day after it announced its plans to merge with Vodafone India. However, it soon fell and closed at R97.60. The stock was the biggest loser in the S&P BSE Telecom index, it fell by 9.55% from its previous close. As per the deal, Vodafone will be a dominant partner in the merged entity with 45.1% stake after it will transfer a stake of 4.9% to the Aditya Birla group for R3,874 crore in cash to complete the merger. Aditya Birla group will then own 26% stake in the company but it will have the right to acquire more shares from Vodafone under an agreed mechanism with a view to equalizing the shareholding over time. Vodafone and Idea expect that completion will take place during the calendar year (CY) 2018.
The entry of Reliance Jio had necessitated consolidation in the telecom sector. Last month, Bharti Airtel announced its decision to acquire the Indian business of Telenor. Last September Reliance Communications and Aircel announced the merger of their wireless operations to create a combined entity.
In a recent note to investors, Jefferies said in the long term Indian telecom will still be a five-player market comprising of three large – Airtel, Idea-Vodafone, Reliance Jio and two smaller players- Reliance Communications and BSNL.
“The three equally strong competitors would be equally bad as fragmented competition (as at present) for incumbents. R Jio’s aggressive stance (target of 50% market share) would make market dynamics even worse in the interim before some kind of a steady state is reached, which is still a while away,” the note said. Of the 30 brokerages who track Idea Cellular’s stock, 7 have given it a Buy rating, 13 have given it a Sell rating while the remaining 10 have given it a Hold.
A total of 22.80 crore Idea Cellular shares were traded on BSE and NSE on Monday, 7.6 times more than its three-month average of 2.97 crore shares.