Idea, Bharti Airtel shares spike as merger talks, pole position allay Reliance Jio fears

Telecom majors Idea Cellular and Bharti Airtel are leading gains on NSE as stocks rise on abetting concerns from heightened competition from Reliance Jio.

Bharti Airtel was trading up 3.72% at Rs 335.8, after rising to a high of 339.7; while Idea Cellular was up 6.86% at Rs 83.35 after rising to a high of Rs 85.

Earlier last week, Bharti Airtel shares had fallen after posting worse than expected fall in net profit in fiscal third quarter.

However, Fitch Ratings said after the results were released that it expects Airtel to benefit later when Jio starts losing customers upon the start of paid service. Further, Fitch also said Bharti Airtel was in the best position to withstand the competition from Reliance Jio due to its market leadership position and spectrum assets.

Bharti Airtel, India’s largest telecommunication services operator, said that its consolidated net profit for the fiscal third quarter fell to Rs 504 crore, less than half of that in the same quarter a year ago. The fall was much sharper than estimated, hurt by a tariff war due to Reliance Jio’s entry leading to a sharp fall in money earned per customer, demonetisation and exceptional one-time costs.

Reliance Jio’s entry into the telecom space has forced the incumbent players to drastically cut tariffs – as much as by 66% – in order to retain their customer base, and has put the entire sector under tremendous pressure of choosing between protecting margins and user base. Reliance Jio recently extended its inaugural free voice and data plan till March 31 drawing complaints and criticisms from its biggest rivals Airtel and Vodafone, who assert that its anti-competitive practices and freebies are hurting the industry.

On the other hand, Idea Cellular is extending last week’s gains on continued speculation that it may merge with the second largest telecommunication operator Vodafone (India), raising hopes that the combined entity would be better placed to take on the competition from Reliance Jio. A possible Vodafone-Idea combine will surpass Airtel as the largest telecommunication company with a total subscriber base of 39 crore, far ahead of Reliance Jio’s 7.2 crore.

Broader markets were lacklustre. NSE Nifty was trading down 0.14% at 8,628.9 points and BSE Sensex was down 0.08% at 27,859.9 points.

IDEA Cellular Limited