The Idea Cellular scrip shot up nearly 20% in intraday trade, a day after the KM Birla-owned telco and UK’s Vodafone Group Plc confirmed their merger talks, with analysts and industry experts underlining that India’s No 3 telco could emerge in a stronger competitive position, benefitting from a combination of synergies and cost savings if the mega consolidation move goes through.
So much so, analysts also expect high synergy benefits to potentially drive up Idea’s market capitalisation by 30%. The company’s stock 12.5% higher at Rs 110.20 on BSE on Tuesday. The shares had risen 26% on Monday.
Brokerage Goldman Sachs said a potential merger with Vodafone India would give Idea a stronger competitive position in the wireless market, with potential for cost savings, both on the opex and capex fronts.
According to the US brokerage, 49% of Idea’s opex is fixed in nature, with network opex forming the largest chunk. “A potential combination of two large entities such as Idea and Vodafone, would allow for cost savings (for Idea) due to rationalisation of tower footprint as there would be significant overlaps,” it said in a note.
Brokerage Edelweiss Securities, in turn, expects the combined entity to drive meaningful synergies in employee costs and other selling, general & administrative (SG&A) expenses for Idea as it would be able to reorganize employee base, especially common support teams, including those involved in network operations and corporate functions, which would eliminate duplication of costs.
Credit Suisse seconded the view but said the merged Idea-Vodafone entity would still be among the most leveraged telcos regionally, even after factoring in cost synergies”. Brokerage JM Financial had recently warned that Idea’s financial leverage was set to touch alarming levels, with net debt likely to cross Rs 55,000 crore by March 2017.
Analysts at IDFC though expect the proposed Vodafone-Idea merger transaction to be a complex one that would take time to resolve, but said the “sharp rally in Idea’s stock” (post-merger talks announcement) almost “builds in 100% probability of the deal and synergies”.
Analysts at brokerage Jefferies said the merger “could trigger value unlocking (for Idea) from the share sale in Indus Towers,” in which Idea owns 16% through subsidiary, Aditya Birla Telecom.
Brokerage Citi Research, in turn, reiterated that Idea would be better placed to counter formidable adversaries such as Reliance Jio Infocomm and market leader Bharti Airtel, on the 4G front if the merger goes through.
Analysts, however, said Idea could be impacted by regulatory costs associated with the merger, adding that competitive pressures from Reliance Jio Infocomm’s disruptive pricing were also likely to weigh on the profitability of the merged entity
So much so, analysts also expect high synergy benefits to potentially drive up Idea’s market capitalisation by 30%. The company’s stock 12.5% higher at Rs 110.20 on BSE on Tuesday. The shares had risen 26% on Monday.
Brokerage Goldman Sachs said a potential merger with Vodafone India would give Idea a stronger competitive position in the wireless market, with potential for cost savings, both on the opex and capex fronts.
According to the US brokerage, 49% of Idea’s opex is fixed in nature, with network opex forming the largest chunk. “A potential combination of two large entities such as Idea and Vodafone, would allow for cost savings (for Idea) due to rationalisation of tower footprint as there would be significant overlaps,” it said in a note.
Brokerage Edelweiss Securities, in turn, expects the combined entity to drive meaningful synergies in employee costs and other selling, general & administrative (SG&A) expenses for Idea as it would be able to reorganize employee base, especially common support teams, including those involved in network operations and corporate functions, which would eliminate duplication of costs.
Credit Suisse seconded the view but said the merged Idea-Vodafone entity would still be among the most leveraged telcos regionally, even after factoring in cost synergies”. Brokerage JM Financial had recently warned that Idea’s financial leverage was set to touch alarming levels, with net debt likely to cross Rs 55,000 crore by March 2017.
Analysts at IDFC though expect the proposed Vodafone-Idea merger transaction to be a complex one that would take time to resolve, but said the “sharp rally in Idea’s stock” (post-merger talks announcement) almost “builds in 100% probability of the deal and synergies”.
Analysts at brokerage Jefferies said the merger “could trigger value unlocking (for Idea) from the share sale in Indus Towers,” in which Idea owns 16% through subsidiary, Aditya Birla Telecom.
Brokerage Citi Research, in turn, reiterated that Idea would be better placed to counter formidable adversaries such as Reliance Jio Infocomm and market leader Bharti Airtel, on the 4G front if the merger goes through.
Analysts, however, said Idea could be impacted by regulatory costs associated with the merger, adding that competitive pressures from Reliance Jio Infocomm’s disruptive pricing were also likely to weigh on the profitability of the merged entity
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