EGoM rule to weigh on telcos; see stocks trading: JM Fin

After this news trickled out, telecom stocks looked excited on Monday. However, on Tuesday Bharti Airtel was down and Sanjay Chawla, Telecom Analyst of JM Financial sees a negative impact of Rs 10-11 per share on Bharti post the EGoM proposal. He also feels Idea's shares will see a downside of Rs 5-6 per share.

Also read: EGoM has tentatively resolved issues on one-time fee: Sibal

Chawla further added that the market is still not aware of the payment to be made by CDMA players. According to him, payment by CDMA players will be a negative surprise and if it goes ahead, Reliance Communication may have to make a one-time payment of Rs 3,500 crore. He believes the decision will only add to the burdens of a sector that is already reeling under a lot of debt and excess competition.

In the near term, telecom stocks will remain in a trading range, opined Chawla. He also thinks the list of interested 2G players will be released by the end of October.

Here is the edited transcript of the interview on CNBC-TV18.

Q: What was your key takeaway after reading the EGoM recommendations yesterday?

A: Obviously the EGoM decision is not a positive one for telecom stocks. We are looking at Rs 10-11 per share downside for Bharti on the back of this decision and Rs 5-6 per share downside for Idea. It is not a positive decision.

Ofcourse the details that came out yesterday were a bit patchy and most of the analysis that we have done are based on some sound bytes which were shared by the ministers. There should have been a proper press release but that was not the case.

What we also hear is that there will be some financial burden or one time fee for CDMA operators as well as for their spectrum holdings above 2.5 megahertz (MHz). It means companies like RCOM will also have to pay around Rs 3,500 crore and Tata may have to pay around Rs 3,000 crore. To that extent, there is some levelling of the playing field but, still it is a burden on a sector which is already reeling under a lot of debt and excess competition.

Q: Did you take the fact that payments would have to be made above 4.4 MHz as a fresh negative because some people had factored in 6.2 in their calculations or was it along expected lines?

A: Broadly what has been talked about over the last two-three years by Telecom Regulatory Authority of India (TRAI) is that a contracted amount of spectrum under the license is 6.2. And I do not think anybody was building in 4.4 being used as a cut off for the GSM operators. So it is a slightly negative surprise. For example: we were not expecting more than Rs 2,000 crore of Bharti, based on 6.2 cut off and prospective payment. Whereas now we are looking at around Rs 4,200 crore for Bharti and around Rs 2,000 crore for Idea, which is slightly negative versus our expectations.