Despite the merger announcement with Vodafone, Idea-Cellular's share price has dropped by almost 50 percent in the last two months.
Indian telecom sector has been witnessing financial turmoil for more than two years. The plunging revenues and mounting losses and debts have resulted in either closure or merger of several smaller and marginal players. But the upheaval is now affecting even the strongest of the herd.
Among the big four that are expected to remain standing- Bharti Airtel, Reliance Jio, Vodafone-Idea Cellular and the government-owned MTNL-BSNL, Airtel has seen profit drop sharply, while Idea, which is set for the merger with Vodafone has found itself in a state of dismay.
Despite the merger announcement, the Aditya-Birla group promoted Idea-Cellular's share price has dropped by almost 50 percent in the last two months. The share closed at Rs 51.45, down by 11.83 percent on Friday.
Earlier on February 12, the promoters of Idea Cellular-Aditya Birla Group firms Grasim Industries, Aditya Birla Capital and Hindalco, through their subsidiaries had invested Rs 3,250 crore in Idea's preferential issue. Soon after, Idea Cellular announced the successful closure of its Qualified Institutional Placement (QIP), having issued 42.42 crore equity shares to institutional buyers at an issue price of RS 82.50 per share aggregating about Rs 3,500 crore.
According to sources, the QIP issue had witnessed interest from investors from both India and abroad and the issue allocation was approximately 56 percent and 44 percent to Indian and foreign investors, respectively.
But following the share drop in Idea's share price, there has been a huge decline in the value of these investments. According to sources,"QIP investors lost heavily by 37 percent of their investment of Rs 3,500 crore".
Bharti Airtel, the most established player in the telecom sector, posted a 77.79 per cent fall in consolidated net profit at Rs 82.90 crore for the March quarter. The company had posted a profit of Rs 373.40 crore in the corresponding quarter last year.
The turmoil which began with the advent of Reliance Jio and deepened through 2017, saw the weaker players pack up or merge with bigger entities.
In 2017, Airtel signed a memorandum of understanding with Tata Teleservices & Tata Teleservices Maharashtra to merge their Consumer Mobile Businesses for a token payment of Rs 1. Even Norwegian telecom giant Telenor had sold out its India business to Bharti Airtel in 2017.
According to sources, telecom companies together carry a debt of approximately Rs 5 lakh crore. However, the total sectoral liability, if one takes into account loans from domestic banks, overseas borrowings and annual spectrum instalments is pegged at nearly Rs 8 lakh crore.
Successive spectrum auctions over the past seven years aimed at increasing government revenue have also contributed significantly to the sector's woes.
The price of spectrum in India is among the highest in the world and telecom firms have no option but to participate in the auctions and buy this expensive "raw material" if they want to stay relevant and competitive in the business.
The companies are, however, finding it extremely difficult to recover the crores of rupees spent in the auctions at a time tariffs have plunged. In India, average revenue per user (ARPU) is a measly $2 a month, perhaps the lowest in the world.
Revenues from data services were supposed to flow in with the spectrum in place. But that has not materialised either. Global rating agency Fitch had earlier noted that monthly data consumption levels in Asian markets such as China, Hong Kong, Korea and Japan were nearly three to five times higher than in India.
The entry of Jio in September 2016 has added to the troubles of existing players as their primary revenue earner- voice, accounting for over 80 percent of revenues was suddenly being given away free.
Companies like RCOM, Bharti Airtel, Vodafone and Idea were compelled to match Jio's offers to maintain market share.
In a bid to give relief to the telecom sector, the Telecom Commission in September 2017 has increased the tenure of installments to be paid for spectrum bought in auctions to 16 years from 10 years, while lowering the rate of interest charged on penalties on delayed payment.
(With inputs from IANS)
