Telecom stocks saw a positive swing in the stock market the day after the 3G spectrum bid. However, the analysts are clearly concerned over the high debt that each of the winning company needs to bear in order pay off for the massive license fee of Rs. 67,728.95 to the Indian government.
Stock markets on Thursday opened to positive trading for major telecom companies like Airtel, Idea and Reliance; each of these companies having bagged majority of the licenses of the spectrum.
Reliance Communications, which needs to pay Rs 8585.04, at Rs 138.85, was up by 1.5 percent. Bharti Airtel, which needs to cough up Rs 12295.46 crore for a total of 13 circles, was up by .91 percent at Rs 261.90. Idea, which owes Rs 5,768.59, at Rs 53.70 was up by 1.8 percent.
Even though Mahanagar Telephone Nigam (MTNL), the state owned Telecom Company, has already been allotted 3G spectrum. MTNL saw the highest rise at 1.6 percent and closed as Rs 57.05. MTNL needs to pay up an equivalent of the auction price which is a whopping Rs 5,564 crores.
According to the analysts, this rise will not continue for long as the very soon each of the companies will feel the heavy weight of the already low margins. This coupled with the fact that the revenues per person have gone down in the wake of the tariff wars; things will be further difficult for the companies.
Mahesh Uppal, an industry expert and director of consulting firm Com First said, “The numbers are so huge, unrealistic that one would eventually expect a consolidation in the sector. After all $3-4 billion is not small change.”
The 3G spectrum auction was culminated on Wednesday after 34 days and 183 rounds of auction. The broadband auction will be starting this Saturday.
According to the equity head of SMC Capital, a leading brokerage firm, Mr. Jagannadham Thunuguntla, “The 3G auction price will certainly act as a trigger for consolidation in the sector, but in the meanwhile, investors are not going to be kind to telecom stocks as the price paid for spectrum has been way above expectations.”
Sanjay Dutt from Quantum Securities, which is a leading brokerage firm, agreeing with Mr. Thunuguntla, says that shakeouts like these mostly hit the biggest players hard, in this case Bharti. He claims that Reliance, since it’s a player in both GSM and CDMA market, will be able to develop the most.
The coveted Delhi and Mumbai Delhi and Mumbai circles were bagged by Bharti, RComm, and Vodafone. 13 of the circles were bagged by Reliance, Aircel and Bharti, followed closely by Idea which took away 11 circles and Vodafone, S Tel and TATA each bagged 9 circles.
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