Mobile Cos: Going Out of Range on Debt, Competition | CORPORATE ETHOS

Mobile Cos: Going Out of Range on Debt, Competition

By: | July 26, 2017

With a huge debt of Rs 5 lakh crore, falling revenues and intensified competition set by Reliance Jio, the mobile telecommunications industry is indeed gasping for breath and running for cover in India. This has led to government and the banking sector coming to the aid of the distressed mobile operators.

Some have wisely gone into consolidation and mergers to sustain, following the rate war unleashed by Reliance Jio. The Competition Commission of India (CCI) has approved the merger of Idea Cellular with Vodafone bringing fresh hope to the industry. sreekumar-photo

With the first two quarter financials of FY 2017-18 likely to be worrying on account of Reliance Jio’s aggressive pricing policies, the prospects for listed mobile players seem quite worrying in the short to medium term. However, all depends on how the measures taken by the government, banks and counter strategies by the other players will play out in the coming quarters to help tide over the crisis.

Here is a look at the prospects of major players in mobile telephony industry:

Idea Cellular Ltd (BSE: 532822 NSE: IDEA) Category: Large Cap

Idea Cellular Ltd was set up in 1995 as Birla Communications Ltd with a GSM license in Gujarat and Maharashtra. It grew through a series of mergers and acquisitions with Tata Cellular Ltd, RPG Cellular Ltd, Escotel and ultimately became part of the Aditya Birla group when Tata Cellular transferred its entire shareholding.

Idea Cellular has posted a loss of Rs 327.70 cr in the March quarter, while sales fell 14.26% to Rs 8109.10 cr. On a returns perspective, 20.47% on monthly, 11.49% quarterly, 25.47% on half-year basis compares favourably with competitors. On financial ratios, it fares poor on return on equity, on assets, and net profit margins, while cash flow and solvency ratios are better.

Trading at a price earnings of -41.74, it is highly undervalued by the market, promoters hold 42.39% stake in the company.

On technical charts, Relative Strength Index (RSI) of 64.67 is bullish, while the MACD line is above signal line, giving a buying opportunity while Average Directional Index (ADX) of 35.80 is indicative of uptrend. Prices are trending above the 50 DMA of 82.83.

Target: 125     Duration: 6 weeks      Strategy: Hold

Bharti Airtel Ltd (BSE:532454  NSE: Bhartiartl) Category: Large Cap

Bharti Airtel Ltd, headquartered in Delhi, is the fourth largest mobile operator in the world having operations in 20 countries. Under the able leadership of Sunil Mittal, Bharti Airtel has grown ahead of its competition since 1995.

It has innovated with several industry tie ups recently with Ola, Amazon to offer integrated digital offerings and among the first to rollout 4 G services in major regions.

In June quarter, net profits have fallen 57.75% on annualised basis Rs 617.70 cr while it is a gain of 31.26% on quarter-on-quarter basis. Sales fell 14.05% to Rs 21,958.10 cr. Earnings per share has fallen drastically to 0.92.

On a returns perspective, 16.17% monthly, 18.99% quarterly and 36.64% on annualised basis is above industry average. Trading at a PE of 15.29, the scrip is undervalued by the market.

On technical charts, RSI of 71.60 is bullish, while MACD line is above signal line signifying buying opportunity and ADX of 33.30 indicates uptrend. Prices are trending above the 50 DMA of 382.14. Near term support is seen at 404, 407, 389.

Target: 450  Duration : 3 weeks        Strategy: Hold/Sell

Reliance Communications Ltd  (BSE: 532712, NSE: RCOM) Category: Mid Cap

Reliance Communications Ltd was established in 2004 to provide landline, mobile telephony and enterprise wide voice, data and communication services.

For the consumer segment, it has 3 G, 4G, HomePhone, Digital TV and global calling services. It has a subscriber base of 118 million and 39,000 business customers.

The company reported a net loss of Rs 948 cr in the March quarter while sales fell 24.11% to Rs 4312 cr. EPS has fallen to 3.91. On a returns perspective, 5.25 monthly, 6.83 quarterly and 14.92 on semi-annual basis is below industry average. Financial ratios are also not encouraging with return on equity at 1.84% although net profit margin of 3.12 is above peer average. Liquidty, solvency ratios are also in the red while long term cash flows are positive. Trading at a negative PE of 3.53, the market has undervalued the stock.

On technical charts, RSI of 65.10 is bullish for the stock while MACD line is above signal line showing buying opportunity and ADX of 20 denotes range bound trade. Prices are trending above the 50 DMA of 15.94. Near term support is seen at 23.96.

Target: NIL

Mahanagar Telephone Nigam Ltd (BSE: 500108 NSE: MTNL) Category: Small Cap

Mahanagar Telephone Nigam Ltd is a state-owned telecom services provider established in 1986. It’s main source of income is telecommunication (fixed telecom services), while mobile services is the second major revenue earning division of the operator. It also provides CDMA, Broadband, ISDN services.

In the March quarter, the company reported a loss of Rs 634,80 cr and sales fell 15.41% to Rs 705.17 cr. EPS fell to -10.8. On a returns perspective 5.14 monthly, 6.75% quarterly and 14.87% semi-annual basis is below peer average. It has proved to be dismal in financial ratios- return on equity, assets, net and gross profit margins, and liquidity ratios. Cash flow appears positive. Trading at PE of -0.46, the scrip is undervalued by the market.

phonenetwrokOn technical charts, RSI of 51.37 is neutral while ADX of 20.66 denotes range bound trade and MACD line has witnessed a bullish cross over signifying a possible buying trend emerging. Currently, prices are trending close to the 50 DMA

Target: 25    Duration: 3 weeks    Strategy: Hold/Sell


Intense competition has become a part of the mobile telephony industry in India and seems to stay as Competition Commission of India (CCI) has ruled that Reliance Jio hasn’t indulged in predatory pricing with its free offerings in mobile telephony and data services on a complaint lodged by Bharti Airtel. With a small market share, Reliance Jio is not in a position to monopolise or indulge in market abuse as alleged.

If we look at the history of mobile telephone in the past twenty years since the services were rolled out in GSM & CDMA, several players were crushed out in the competition or had to merge with industry leaders to survive.

The history of Idea Cellular is a classic example. As approval was received for Idea Cellular-Vodafone merger, the industry would turn into an oligopolistic nature as Jio’s market share is also expected to rise from 3% to 10% in a year.