Vodafone Idea may prioritise cost savings over market share retention, Credit Suisse said.
Idea Cellular share price fell 2.7 percent intraday on Friday after global research firm Credit Suisse maintained its Underperform rating on the stock with a target price at Rs 45, implying a 17 percent downside.
After the merger between the company and Vodafone, the new entity may prioritise cost savings over market share retention and the cost base should be close to current Bharti mobile cost base, the research house said.
Credit Suisse has merged company's capex estimates significantly below smaller peers.
Recently the government approved the merger between Idea Cellular and Vodafone India, paving the way to become country's largest telecom operator. The new entity will be named Vodafone Idea Limited.
The combined operations of Idea and Vodafone will create the country's largest telecom operator worth over USD 23 billion (or over Rs 1.5 lakh crore), with a 35 percent market share and a subscriber base of around 430 million.
Debt-ridden firms Idea and Vodafone India are in process of merging their businesses in India as it is expected to bring down cost of their operations and give them relief from cut-throat competition in the market where margins have hit rock bottom with free voice calls.
Vodafone Idea will have the capacity to provide 4G spectrum in all telecom circles of the country. According to a presentation by Idea, the combined 4G spectrum of both the companies is capable of offering up to 450 megabit per second broadband speed on mobile phones in 12 telecom areas in the country.
With the new entity coming in force, Bharti Airtel will lose the tag of India's biggest telecom service provider to the new entity. The combined debt of both the companies is estimated to be around Rs 1.15 lakh crore.
Vodafone will own 45.1 percent stake in the combined entity, while Kumar Mangalam Birla-led Aditya Birla Group will hold 26 percent and Idea, 28.9 percent. The Aditya Birla Group has the right to acquire up to 9.5 percent additional stake from Vodafone under an agreed mechanism with a view to equalising the shareholding over time.
Balesh Sharma will be the new CEO of the merged entity. Idea's chief financial officer Akshaya Moondra will head the financial operations of the new entity as its CFO. Ambrish Jain, currently the deputy MD at Idea Cellular, is set to become the new chief operating officer. (With inputs from PTI)At 12:48 hours IST, the stock price was quoting at Rs 53.30, down Rs 1.00, or 1.84 percent on the BSE.