Telecom's mega merger gets ray of hope; Idea Cellular shares jump 18%

Investors were very upbeat on share price of telecom service provider Idea Cellular, as they tapped the company so much that it has gained massively by nearly 18% on stock exchanges. Such hope in Idea’s share price came after reports circulated stating that Vodafone has cleared all its dues with Department of Telecom (DoT). In order to strengthen foothold in telecom sector which was hampered by Mukesh Ambani’s Reliance Jio with its freebies, the two telecom operators decided to join hands. This merger is set to be the mega merger in this industry. 

However, DoT approved the merger plans but laid out a condition which was creating more delays in uniting of Idea and Vodafone. 

However, good news has arrived at the doors of Idea and Vodafone. According to Business Line news sources, the dues relating to the administrative spectrum have been paid to DoT. This includes Rs 3,926 crore in cash and Rs 3,322 crore in bank guarantees, totalling Rs 7,248 crore .

What has happened is that, DoT kept a condition of upfront payment of Rs 7,248 crore which was split between the two companies Rs 3,322 crore from Idea which was levied for one-time spectrum charges and bank guarantee and remaining Rs 3,926 crore from Vodafone for non-auctioned radio waves. 

Both the companies have argued in order to recalculate the dues, however, the proposal was rejected by DoT. 

Now that one issue is clear, this means the telecom mega merger can become reality anytime soon, which was accepted positively by Idea investors as they made buying in heavy amount in the company’s share price. 

At around 1421 hours, share price of Idea was trading at Rs 57.60 per piece which was up by Rs 4.95 or 9.40% on BSE. However, so far in today’s trading session the company has touched an intraday high of Rs 62 per piece which results in a rise of nearly 18%. 

Once Idea and Vodafone become a one entity namely ‘Vodafone Idea’ they will be the largest telecom company by having 436 million customers surpassing both Bharti Airtel and Reliance Jio. 

On Idea share price, Motilal Oswal said, “The stock is trading at 15x/9x on combined FY19/20E EBITDA. We believe headwinds from APRU downtrading would continue for the next few quarters. This coupled with delay in merger completion and risk of capital dilution lead us to reduce our TP to INR75 (INR85 earlier), assigning 10x to FY20E combined EBITDA of INR187b (including merger synergies).” 

It added, “Merger synergies should help tackle competition. Further, market recovery beyond FY19 should lead to a re-rating, triggered by FCF growth. Maintain Buy.”