Top research and brokerage firms cheered for shares of Aditya Birla group’s telecom arm Idea Cellular, after the company announced a Rs 6,750 crore fundraising plan on Thursday.
Top research and brokerage firms cheered for shares of Aditya Birla group’s telecom arm Idea Cellular, after the company announced a Rs 6,750 crore fundraising plan on Thursday. Brokerage houses such as Motilal Oswal and Edelweiss have raised their target price on the shares. Shares of the company rose nearly 14% intra-day and were trading at Rs 115.35 this morning on NSE. Following a two-day surge in the share prices of Idea Cellular, the market capitalisation of the company has moved to Rs 42,568.49 crore from Rs 36,994.90 as on Wednesday. We take a look at three important takeaways from the fundraising plan.
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The move is seen to reduce debt of Idea Cellular prior to its proposed merger with Vodafone. Edelweiss says that it expects a large portion of the funds towards prunikng the company’s leverage. According to the firm’s estimates, the debt will be pruned to Rs 47,100 crore. On similar lines, Motial Oswal said that it will also help the firm to reduce the overall debt of the firm post merger with Vodafone. According to Motilal Oswal’s estimates, the combined debt post merger with Vodafone could drop to Rs 87,100 crore. “The fund raising plan of Rs 3,250 cr with an enabling resolution to raise Rs 3,250 cr will definitely aid idea cellular in terms of deal apprising in their balance sheet,” Angel Broking said in a report.
The plan is also seen to provide liquidity to the company. Motilal Oswal said the fund-raising will provide much needed liquidity to the company, and also the resulting equity dilution will take away potential gains from existing shareholders. “The move was also necessitated by the fact that idea needed to ramp up its product offerings and at the same time strengthen its infrastructure requirements,” Angel Broking noted.
Idea will be in a better position to tackle rising competition in the industry, especially from Reliance Jio, post merger. “The competition in terms of a new entrant offering a better and a more efficient product necessitated the ramping- up of this investment.This clearly is an indication that the management is very hopeful that only a small group of players will remain,” Mayuresh Joshi of Angel Broking said in a note. “Its evident from the revisions in pricing by Reliance Jio that the telecom industry pricing competition pressure is almost nearing its end. What it also indicates is as data consumption grows exponentially across circles, the existing telecom players will also benefit,” Angel Broking observed.