Idea announces merger with Vodafone India, but stock sees wild gyration of 30% since opening bell

Shares of Idea Cellular, the telecom arm of Aditya Birla group, witnessed wild gyration on the domestic bourses since the company announced its decision to merge its business with the Indian subsidiary of UK-based Vodafone earlier today.

Idea Cellular stock zoomed nearly 15 percent in early trade to touch a high of Rs 123.75 before erasing the gains on profit-taking.

After slipping into the red, Idea stock plunged deep, tumbling around 15 percent to hit a low of Rs 92, thus resulting in a huge volatility of around 30 percent in just a few hours from the start of the trading session.

Over 1.5 crore shares changed hands on BSE as against two-week average volume of 23.53 lakh shares traded.


At 10.50 am, Idea Cellular stock was quoted at Rs 99.85 a share on BSE, down 7.5 percent over its previous close.

Analysts say the Idea stock had already witnessed a sharp rally ever since the proposed merger with Vodafone India started doing rounds in the past few months.

"There is no clarity on who will benefit the most in Voda-Idea merger deal. Once Vodafone merges with Idea, the merged entity will be listed on the bourses and it will be a proxy play to buy Vodafone as it has the second largest subscriber base in the country. The market also believes that despite a Idea-Voda merger, competition will not die soon as Reliance Jio will further up its ante going ahead," said A K Prabhakar, Head -Research, IDBI Capital Markets Services Ltd.

According to Prabhakar, since Idea stock has given 31 percent returns in the last quarter, the stock may now witness some profit-taking in days to come with the merger deal announcement now being made public.

Idea shares have already fallen 15 percent this month amid concerns that the stiff competition could further erode the company's margins going ahead.

For investors, Idea stock around Rs 80-85 level will be a good entry point, said Prabhakar.

As per the agreement, Vodafone will own 45 percent of the combined entity with both the companies' promoters having rights to appoint three directors each.

The combined entity will create India’s largest telecom firm with a revenue share of around 40 percent and a subscriber base of over 380 million, according to India Ratings and Research.

The merger is also expected to create an entity with a revenue forecast of around Rs 77,500-80,000 crore.

Updated Date: Mar 20, 2017 11:31 AM

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