Even as the Idea-Vodafone deal is inching ahead towards a merger, the share price of Idea Cellular continues to remain under pressure. Idea Cellular share was trading at Rs 92.5, down by nearly 0.6% since the previous close. Earlier, market regulator SEBI had given a conditional go-ahead to the proposed $23-billion merger deal between the two telecom players Idea Cellular and Vodafone India.
Earlier in February, the share prices of Idea had surged to as high as Rs 119.6, rising 49% in eight straight trading sessions on the news of merger with Vodafone, raising hopes that the combined entity would be better placed to take on the competition from Reliance Jio. However the sentiment seems to have changed now. The share has shed more than 10% of its’ value in the last one year. In fact, the scrip has had negative returns of 2.11% in the last 10 years.
Rajat Sharma, an analyst with Sana Securities, believes that the telecom space is fundamentally weak, and has very limited avenues to augment revenues. “The companies are fighting a fierce battle to no avail, the customer seems to be the only one to benefit,” he said to FE Online. Rajat Sharma feels that the benefits of the deal may be short lived, as in the long run, there appear to be no visible growth triggers. According to him, the view for the sector remains weak, as he believes that the advent of free internet services offered by Jio provides very little opportunity for other players in the industry to add subscribers. Moreover, there are concerns that with the competitors taking active steps to build scale, Reliance Jio may further intensify its offerings, putting even more pressure on the incumbents.
The final deal would be subject to the outcome of an ongoing probe by the regulator and approvals from public shareholders and the National Company Law Tribunal. The probe related to a complaint alleging that one of the promoters of Idea Cellular has purchased 0.23 per cent shares of the company before the announcement of the draft scheme of amalgamation. According to PTI reports, the purchasers have submitted a voluntary undertaking not to dispose of these shares till further directions of Sebi and any liability eventually held to be valid against the purchasers shall be borne by them.
A possible Vodafone-Idea combine will surpass Bharti Airtel as the largest telecommunication company with a total subscriber base of 39 crore, far ahead of Reliance Jio’s 7.2 crore. Further, the combined entity would have 43% of the revenue market share and 40% of the active subscriber base, research firm CLSA had said. The report also went on to add that the two operators complement each other, with Vodafone having strong presence in urban areas and Idea being an established player in the hinterland.