Idea Cellular is the third largest telecom company in india with a total subscribe base of approximately 20 crore. Earlier in 2017, Company had moved to a biggest consolidation in telecom sector. Idea Cellular and Vodafone had both signed a deal to merge themselves and form a new telecom company probably called “Vodafone Idea Ltd” which will have more growth opportunities and strengthen the position of the two companies in Telecom sector.
This consolidation was expected to make telecom sector market of just three players in which all the players would have pan India network coverage and enough strength to give tough competition to JIO. The deal was expected to close in the starting of 2018. But we all know how regulatory approvals in recent years has always become a hurdle for Domestic companies to grow more. This is what happens with Idea Cellular also.
June month has started running but Idea Cellular has not yet able complete its merger. This created pressure on stock and panic selling from FIIs in Midcaps and Smallcaps further forced Idea Cellular shares to move lower. And the result is that Idea share has recently hit a 52 week low of Rs 50. Thanks to DOT approval on raising FDI limit in company and Tower sale to ATC which helped Idea Stock to come above Rs 60. However, merger is still the biggest event for the shareholders of this company.
Potential in Idea shares after Merger…
Now the question arises while discussing these things is how much time will idea cellular would take now to complete its merger. And is there any potential in merger that may boost the share price of Idea Cellular.
The very important information for shareholders in this merger is that the deal which was closed in 2017 is going to provide equal valuations to both companies. Without merger, idea cellular has comparatively less valuations than Vodafone India. Therefore, merger is positive for the investors/shareholders of Idea as they will get favourable shares amount in the new company. Merger will also create the biggest telecom company which would have more strength. Therefore, it can be assumed that Merger is likely to boost confidence and interest of investors in the shares of Idea Cellular.
Another positive thing for traders in Idea Cellular is that this stock is now getting recovered with a perfect mix of buying and selling. After making a low of Rs 50, stock consolidated there for few days. And then stock gave a breakout at Rs 60 and made a high of around Rs 64. After it, it moved lower to make a support level at around Rs 56 and then it bounced back to Rs 64. So, overall stock is really moving towards a strong buying, according to technical charts. In my knowledge, this technical pattern is called cup and handle pattern.
Now coming to level of risk in stock, I think the only risk or you can say concern of market is when Jio would start raising its plans cost? Before, there were expectations that because the Jio is planning to bring its IPO in the end of 2018 or in starting of 2019, the company may start rising its different Data and Voice plans cost in the earlier time of 2018. But it doesn’t happen. The reason behind such expectations is that before IPO, Jio would try to become more leverage, more profitable so that its valuations may go higher. And more valuations would probably help company in raising more money through public.
However, it is also true that this concern over pricing is not limited to Idea, it is also linked to Airtel and even to Jio. Although, prices of telecom services are definitely going to rise soon. But the accurate time to say about it is very difficult.
Risk of Manipulated Revenues/Income
In markets, another risk which has risen at a peak now is whether the company really has a real income or it is just the play by promoters and accountants. In stock market, it is true that there are many companies which used to show higher income/revenue than its real income. This is easily possible because promoters just need to change some numbers in accounts and may need to join some other seniors also in this play to undercover the real picture/financial health of business.
However, this risk is also not connected to Idea cellular at all because the business modal and its reach is clearly visible in market. Also, AB Group is not among those Groups/promoters which likes to play with its investors in a negative way.
Overall, I would say the only telecom stock where both traders and investors can bet now for short-term is Idea Cellular. Merger with Vodafone is expected to be closed soon maybe in June or July. Also, telecom sector is that place where even small developments also attracts a large chunk of investors and traders. Therefore, I think stock of idea cellular may generate some short-term opportunities soon. Thus, this stock can be used for making a short-term investment as it carries very low degree of risk at current levels. Traders can also use a stoploss of Rs 59-58 to avoid any volatility.
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