Edelweiss Cap's call on Idea, Bharti; says buy now

The telecom stocks have been under some pressure over the last few days. The telecom commission has accepted the Telecom Regulatory Authority of India (TRAI) recommendations.

From per share point of view, the revenue share of 8% on tower companies would impact Bharti Airtel by Rs 5 per share and Idea Cellular by Rs 3 per share, pointed out Ganesh Duvvuri, Vice President of Instituional Equities Research at Edelweiss Capital.
He also stated that the excess spectrum charges would impact Bharti's EPS by Rs 11 per share and Idea's EPS by Rs 5 per share. Moreover, he mentioned that the M&A and exit policy needs to be watched out for because all the other negatives are already known.
Edelweiss Capital has a buy call on both Bharti and Idea. Here is the edited transcript of his interview to CNBC-TV18. Also watch the accompanying video. Q: A revenue sharing of 8% has been accepted that includes the tower companies as well. What impact will this have?
A: The TRAI had recommended this, which is not new. But, it is still negative from a tower company point of view. From a stock point of view, the per share impact on Bharti Airtel is close to above Rs 5 per share and on Idea Cellular is close to Rs 3 per share. Q: What about excess 2G spectrum charges? Do they look like a certainty? How much have you marked down your expectations by?
A: We had meetings with DoT and TRAI over the last one-and-a-half year when TRAI recommended this for the first time. This is always a certainty that TRAI and DoT were in an agreement that excess spectrum charges have to be levied.
Excess spectrum charges will be close to Rs 4200 crore as per our estimate for Bharti, which is about Rs 11 per share and for Idea, it will be closer to Rs 1800 crore, which is around Rs 5 per share. Q: They are meeting tomorrow and day after to come up with a final M&A policy. What do you expect there? Will that be a positive upside from this whole affair?
A: If the telecom commission accepts the TRAI recommendations in terms of the revenue market share and subscriber market share at 35%, then it will still be positive because some M&A will be possible in the industry.
If the DoT puts a cap on the spectrum for the merged entity at around 10 mega hertz for Delhi and Mumbai, and 8 mega hertz for the rest of the circles, then there is very limited possibility of any M&A happening in the industry.
It remains to be seen what comes out of the M&A policy. The exit policy is also keenly awaited because that will lead away all the non-serious players out of this industry and then, we will only players who have some investment in the business remaining.
If a consolidation happens between those players, who are already invested in the business, then it is real consolidation according to me. M&A and exit policy needs to be watched out for because all the other negatives are already known. Q: Have you tweaked your recommendations on ratings on any of the key stocks like Bharti and Idea? Where do they stand right now?
A: We have a buy on both, Bharti and Idea. These values will be adjusted against the discounted cash flow (DCF) values for both Bharti and Idea. It