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Aditya Birla group’s investment company picks up 6.3 million shares of Idea Cellular from the open market

While the investor community is busy figuring out if telecom companies can hold their own against Reliance Jio, one promoter is putting his money where his mouth is. Aditya Birla group chairman Kumar Mangalam Birla through Pilani Investment and Industries Corporation just bought about 6.3 million shares at an average price of Rs.71 this week.

Idea’s stock price has corrected 65% to Rs.73 since April 2015 when it had hit a high of Rs.203. India’s third largest mobile operator has been hit on several counts. The entry of Jio and a possible price war has led to concerns about a profit dip in the coming months. Its data revenue has already taken a beating from Rs.75 crore in Q1FY17 to Rs.56 crore in Q2FY17.

Given this scenario, its high leverage has got analysts nervous about its ability to service its debt. In Q2FY17, the telecom major saw a 3x jump in its interest cost to Rs.1,004 crore as against Rs.313 crore in Q2FY16. Consensus estimates project Idea’s earnings per share to fall from Rs.8.51 in FY16 to Rs.2.03 in FY17 and further to Rs.1.04 by FY18.  

However, Kunal Vora who tracks the company at BNP Paribas Securities believes most of the concern is in the price. “We believe Idea is trading close to its floor; its spectrum investment and tower portfolio account for almost its entire enterprise value. We believe this provides an attractive opportunity to add to positions in a company with a strong execution track record and underutilised data network, which should drive operating and financial leverage benefits as the data revenue pie grows.”

Not that he needs any external assurance but Birla himself reiterated recently, “Idea is gearing itself for the arrival of a tsunami of mobile broadband users as the company expands its wireless broadband coverage to a billion Indians and supplements the company's broadband capacity at 15-20 times current data traffic on existing and new spectrum.”