Bharti Airtel recovers after initial fall; RIL at new high as TRAI cuts IUC

Bharti Airtel recouped losses in noon deals to trade at Rs 395 levels after falling nearly 6% to Rs 370 on the Bombay Stock Exchange (BSE). Idea Cellular, on the other hand, continued to trade 2.4% lower at Rs 81 levels.

Both these stocks were hammered after the Telecom Regulatory Authority of India (TRAI) cut termination charge for all mobile to mobile calls to 6 paise per minute from 14 paise effective October 1. 
That apart, in two years, the charges would come down to zero, meaning there won’t be any payment for calls landing on other telcos’ networks. The decision came in post market hours on Tuesday.
Following the development, Idea Cellular slipped 7% to Rs 76.85, while Bharti Airtel was down 6% to Rs 370 on the BSE in morning trade.


Reliance Industries (RIL), however, hit a new high of Rs 872 on BSE on reports as the regulator’s tariff order will be beneficial for its telecom subsidiary, Reliance Jio Infocomm. The new charges are being seen as a relief for the latest entrant, Reliance Jio. It is estimated to save about Rs 3,800 crore annually from this move, reports suggest.

Bharti Airtel, on its part, slammed the move and said that the company was disappointed with the regulation that comes at a time when the telecom industry is under severe financial stress.

“We are extremely disappointed with the latest regulation on the IUC, especially at a time when the industry is facing severe financial stress. The suggested IUC rate, which has been arrived at in a completely non-transparent fashion, benefits only one operator which enjoys a huge traffic asymmetry in its favour,” Bharti Airtel said in a statement.

“The sharp drop in the IUC rate will only help transfer part of its cost to other operators, thereby further worsening the financial health of the industry. As part of an industry, which continues to be a critical driving force behind the economic growth in the country, we are genuinely dismayed by this decision,” it added.

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At 09:32 AM; RIL was up 2% at Rs 859, while Bharti Airtel (down 2% at Rs 387) and Idea Cellular (4% at Rs 80) on BSE. By comparison, the S&P BSE Sensex was up 0.18% at 32,460.

Historically, analysts say, the impact of IUC cuts have not been much because of lower incoming-outgoing ratio and considerably higher earnings before interest, depreciation, taxation and amortisation (EBIDTA) margins of incumbents. However, with a sharp decline in EBIDTA margins already, and skewed traffic after Reliance Jio’s launch, the impact on EBIDTA this time around should be more pronounced.

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“The dent will be more significant for incumbent category B and C circles, which have higher incoming ratios. Bharti’s Bihar circles will be significantly more impacted than metro circle Mumbai. Negative IUC impact to Bharti’s consolidated EBIDTA will be by 4% while its mobility business FY18 EBITDA will be hit by 8%. We believe Idea Cellular’s FY18 EBIDTA to get a 10% dent,” says Naveen Kulkarni, an analyst tracking the sector with Phillip Capital.

Purely from a stock return perspective, A K Prabhakar, head of research at IDBI Capital feels most of the negatives are already factored in and investors should hold on to telecom stocks for now. Reliance Industries, he feels, should continue to outperform going ahead.

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