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A merged behemoth in the making, data pricing slugfest continuing and the data consumer finally calling himself King! - Angel Broking

Posted On: 2017-03-20 11:57:40

Views of Mr. Mayuresh Joshi (Fund Manager, Angel Broking):

"The Idea Vodafone merger was finally announced and as regulatory clearances come through in the next few months, a clear behemoth is in the making. The proposed merged entity shall be having more than 390 mn subscribers, capacity of 1850MhZ, Subscriber market share close to 36-37%, Revenue Market share close to 41-42%. With the merger now finally taking shape, the telecom industry is firmly moving towards consolidation and exit of smaller players having far lesser spectrum capacity and pricing prowess is on the cards. With Jio's entry and the announcement of its Prime membership along with data offerings on the scheme has invariably forced existing telecom incumbents to attractively price their plans to ensure that the existing subscriber base stays with them and does not move to Jio's network. The next few months shall throw light in the numbers that Jio has successfully been able to retain from the 10 crore subscribers it acquired during the free promotional period. It would also be interesting to note that Jio would need at penetrate at least 10-11 crore subscribers to break even on the operating front. Albeit with assumptions that half the subscribers would stay on the network and ARPU's being a mix of the Jio membership plan of Rs 303/- and the basic membership plan of Rs 149/- would come roughly around Rs 226-227, would ensure that as Jio makes inroads in the existing telecom subscriber base the next few quarters would determine its trend both on the operating level and the impact on the bottom line as well. Existing incumbents like Bharti who as per the latest quarter's numbers have a blended ARPU of 172/- and Idea (Standalone) having ARPU's of close to Rs 160-162. The ARPM'S have largely remained flat and as pricing pressures intensify which is eminent from new plans/packs announced, it shall have a further bearing on the topline as it gets adjusted for revenues with lesser pack prices and having a consequent effect on the EBITDA margins along with probable contraction on the bottom line. In the quarter gone by what was even more evident was the fall in data realizatios prices per MB. Bharti was close to 17.8/18 Paise per MB and Idea close to 16.2-16.4 paise per MB which is significantly lower compared to what they generated a few quarters back. The accentuated fall in data prices were not necessarily and adequately off-setted by increase in data volumes. Interestingly Jio's prime membership deadline of getting registered by March 31, 2017 by paying a nominal fee of Rs 99/- for existing subscribers and who have actually availed the offer shall throw further light in terms of dents that it shall make on the existing incumbents. With data pricing still remaining competitive and all the telecom operators fighting tooth and nail to regain their SMS and RMS market share, pricing pressures shall continue for the near foreseeable future. What this does to leveraged balance sheets of telecom operators with already high spectrum payouts and high operating costs, time shall decide whether elements of their fixed and variable costs shall get compensated by huge surge in data volumes. One can argue that the managements of IDEA AND Vodafone are looking at cost optimisation and synergies in consolidation of network sites leading to savings to the tune of almost $2.1bn on an annualized basis. The Government push through on the digital front is a huge untapped potential for increasing data consumption and as the industry consolidates with 3-4 large players there can be some sanctity that can return to pricing and end of data wars, but the same seems unlikely over the next 1 year to say the least. So, Telecom companies still continue to be plagued with whole host of issues and any significant improvement in numbers on the P&L statement seems unlikely. The consolidation in the telecom industry through the Idea Vodafone merger, acquisition of spectrum from other operators by Bharti Airtel and market share gains by Jio would ensure competitive and demanding times for telecom operators but the consumer is having the last laugh at their expense, at the current juncture."

Shares of IDEA CELLULAR LTD. was last trading in BSE at Rs.97.6 as compared to the previous close of Rs. 107.9. The total number of shares traded during the day was 27189765 in over 107178 trades.

The stock hit an intraday high of Rs. 123.75 and intraday low of 92. The net turnover during the day was Rs. 2788168301.


Source: Equity Bulls

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