 "How Idea could become a loss-making entity overnight")
Telecom counters are trading lower today. Bharti Airtel has fallen nearly 4.17 percent at Rs 343.75 and Idea has fallen 4.5 percent at Rs 82.45. These counters have fallen between 15 and 20 percent over the last one week.
The main reason for the fall is the acceptance of Telecom Regulatory Authority of India’s (TRAI’s) recommendations by Telecom Commission.
Telecom Commission has reached a decision on three areas of National Telecom Policy 2011.
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Telecom Commission is expected to propose liberal M&A (mergers and acquisition) norms for the sector, details of which are awaited.
The commission is in favour of pricing excess spectrum (beyond 6.2 MHz). Though details are unavailable, Bharti Airtel has to shell out Rs 4,000 crore (around Rs 11 per share) and Idea is likely to pay Rs 1,800 crore (Rs 5 per share), as per Trai-specified prices. Bharti Airtel posted a consolidate net profit of Rs 6046.7 crore in the previous fiscal, while Idea posted a consolidated net profit of Rs 898.7 crore.
Telecom Commission is also in favour of imposing uniform licence fees of 8 percent compared to the 6 percent recommended by Trai. Higher licence fees for passive infrastructure business (tower business) and ISP business and uniform 8 percent license fees on wireless services will impact margins of the companies. This move is expected to impact Bharti Airtel’s earnings by Rs 5 per share and for Idea by Rs 3 per share.
While the excess spectrum charge can wipe out Idea’s previous year’s profit, it will bite into a sizable chunk of the Bharti’s profit. Worst still is the ongoing 8 percent passive charge which will keep on impacting the companies margins going forward.
It is no surprise then that these counters are witnessing selling pressure. Given the high valuation enjoyed by both the companies (Bharti trades at 24 times while Idea trades at over 40 times) and the severity of impact the recommendations have, it seems there is more selling pending in these counters.