2G licences: Videocon, Uninor, Tata Tele and Loop clear losers

Reacting to the Supreme Court’s decision of cancelling 122 licences issued to 11 companies post January 2008, shares ofBharti Airtel trade 7.7 percent higher at Rs 386.8. The Supreme Court ’s decision not only frees the much needed spectrum but also reduces the competition in the sector.

Bharti Airtel trades 7.7 percent higher at Rs 386.8 as a result of this judgement.

The judgement impacts a series of smaller and new telecom companies which were eating into the market share of the bigger companies. Smaller and newer players were adopting an aggressive policy to grow, which were affecting the margins of players like Bharti .

Among the companies that have been affected are Idea Cellular (9 licences), Tata Tele (3 licences), Videocon (21 licences), Uninor (22 licences), Swan (13 licences) and Loop (21 licences).

Idea Cellular is trading 4 percent down at Rs 89 reacting a bit late to the news It was trading 4 percent higher at Rs 96.65 after the judgement came in; while Unitech, the shareholder in Uninor, is down 7 percent at Rs 25.05. Reliance Communication trades 4 percent lower at Rs 96.25 and DB Realty trades 5.5 percent lower at Rs 59.20. Videocon Industries is down 1 percent at Rs 171.35.

The companies whose licence have been cancelled have been given a four-month period to work out an arrangement with TRAI (Telecom Regulatory Authority of India).

As a result of the judgement, 4.4 Mhz of 2G spectrum per circle has been freed which results in freeing of almost 55 Mhz of spectrum. One has to wait and see how these licenses are auctioned and at what price. The Supreme court judgement also makes it clear that the policy of granting license at first come first served basis could be wrong and now the auhtorities could after some other companies whose name had bnot been mentioned till now.

The Chinese and European operators who had leased out equipments to the telecom companies will also suffer. The worst in the gropu are the telecom companies who were granted all licenses after 2008, which means companies like Swan, Loop, Uninor. The incumbents like Bharti are slated to gain by reduced competition.

Finally, the bankers who had lent to some of these names might also face problems. State Bank of India is already down 4 percent, PNB is down 1.8 percent, Central Bank of India is down 1.2 percent, IDBI is down 3 percent.