Reliance Jio's foray likely to cause structural risks to telecom sector; Idea hits new 52-week low

Steady decline in private telecom scrips continued for the second straight session Friday, with the sector staring at the prospect of an intense competition after Reliance Jio also threw its hat into the ring with its cheap tariff plans a day before.



At 10.30 am, shares of Idea Cellular shed 2.2 percent to Rs 81.85 after hitting a new 52-week low of Rs 81 a short while ago.

While Bharti Airtel inched up marginally to trade at Rs 311.40, Reliance Communications was down 1.2 percent at Rs 48.55 and Tata Teleservices (Maharashtra) eased 1.1 percent at Rs 6.12

Investors remained cautious on telecom stocks, even as the broader market staged a modest recovery with Sensex rising 59 points at 28,482.10.

What analysts say

Structural risks in the sector would continue in medium term due to risk to voice revenues, steep correction in data realizations, continued capex and rise in subscriber churn and subsequent increase in costs, brokerage firm Emkay said in its report.

Will there be Jio impact

According to Emkay, while Jio’s offerings are restricted to 4G handset subscribers, impact on existing telcos will be gradual and it would be interesting to see how they react.

Impact on earnings

Analysts see gradual impact on the earnings of telecom companies, with Emkay cutting Earings before interest tax depreciation and amortisation (EBITDA) 6-12 percent for the estimated FY18 earnings.

The brokerage says telecom stocks to remain under pressure and maintains reduce rating on Bharti Airtel and Idea.

Yesterday, telecom stocks were hit by severe selling pressure, falling sharply by up to 11 percent in intra-day trade, which wiped out Rs 16,997 crore from their market valuation after RIL chief Mukesh Ambani read out aggressive plans for Reliance Jio network.

"Whenever any late entrant in any industry adopts penetration pricing to capture the market share, it does destabilise the existing players. The glimpses of the same were visible today in the form of bloodbath in the stock prices of Idea and Bharti Airtel, which were down," said Jimeet Modi, CEO, Samco Securities.

Storming his way into the telecom industry, India's richest man Mukesh Ambani on Thursday announced free voice calls and free national roaming along with rock-bottom data prices on his new Reliance Jio network that will debut on 5 September.

Earlier this week, telecom operators Airtel, Vodafone and Idea cut their tariff and bundled free calls with data to drive mass market adoption.

Market leader Bharti Airtel on Monday announced two plans with data tariffs effectively lower by an eye-catching '80 per cent'.

With inputs from agencies

(Disclosure: Firstpost is part of Network18 Media & Investment Limited which is owned by Reliance Industries Limited.)

Updated Date: Sep 02, 2016 11:49 AM

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