Idea stock may slip, more pain for telcos this year: Analysts

“I am very sure that the data traffic on Idea must have been hit significantly because of the competition and that must be driving the lower revenue growth and lower profitability,” Soni said. He has a negative outlook for the telecom sector in 2017.

He added that he pain will not ease for all telecom operators in the next 12 months but said over the medium-term there will be some rationality in terms of price competition.Disclosure: Reliance Jio is part of Reliance Industries which also owns Network18 and Moneycontrol.com

Below is the verbatim transcript of Nitin Soni & Prakash Diwan's interview to Nisha Poddar on CNBC-TV18. Q: What are your thoughts on Idea Cellular's numbers?  Soni: This is very much on expected lines, so we were also expecting Idea's revenue and EBITDA as well as margin to decline this quarter. It is mainly driven by the competition which has been in the market because of Reliance Jio and its free data usage. So I am very sure that the data traffic on Idea must have been hit significantly because of the competition and that must be driving the lower revenue growth and lower profitability. However, going forward we believe that Idea and the merger with Vodafone India is a very good merger in terms of strengthening their competitive position and they will benefit from the spectrum assets and will realise some opex and capex savings. So, we believe that is way forward for Idea. Q: Looking at these numbers - would it change anything in terms of the ratings from Fitch Ratings agency? Soni: We do not have any specific rating on Idea Cellular. We rate Bharti Airtel at BBB minus and we have an outlook on the sector which is negative for 2017. We think that consolidation will continue in this industry as Vodafone and Idea will merge together as well as Reliance Communications and Aircel merger could happen in the next 6-12 months. So, we will have three large telecoms with Jio, Airtel and Vodafone-Idea with the fourth pair RComm-Aircel with a weaker balance sheet. However, over the medium-term we believe that there will be some rationality in terms of price competition but in the short-term there will be lot of pain for all the telecoms in the next 12 months.

Q: Come Monday morning, how is the stock expected to react, is it going to react to poor set of numbers which was factored in, in terms of poor performance coming in or do you think it will be overshadowed by the impending Idea-Vodafone merger that they have spoken about already?  Diwan: The positive salience of the merger has already been priced in. We have already seen the stock rally after that and especially since the time you broke that news for the first time. However, these numbers are not good enough for that price to also be sustained because there are a lot of if’s and but’s before the final event happens.  Particularly Idea continues to be one of the most vulnerable players in this entire telecom pack after the Reliance Jio entry and you have seen them succumbing the capitulation in terms of subscriber base eroding especially on the data side which was one of their strengths. It is completely a negative. So, I don’t think the stock is going to have any good time; come Monday morning it might just probably slip a bit in spite of the Vodafone merger as an opportunity.