Markets continue to dislike Idea-Vodafone merger as shares fall for second consecutive day
Idea Cellular and Vodafone India on Monday decided to combine the two companies to form India's largest telecom service provider.
Although the deal is currently far from completion, it signals consolidation in the sector preceded by Reliance Communications--Aircel and Bharti Airtel--Telenor India deals.
Despite the two companies joining forces in order to take on Reliance Jio and the fact that Idea Cellular, even after being the smaller company of two, getting a better deal out of Vodafone, investors don't seem to surprised.
Shares of Idea Cellular had climbed on Monday morning but confusion related to the deal size and fine contours soon crept in. Shares of the company on Tuesday continued their downward trend and were trading lower by over 4% during afternoon trade.
On January 30, 2017, Idea announced that it has been in preliminary discussions with Vodafone.
Shares of the company jumped to five-month high, over Rs 100-mark level which was last recorded in the month of August 2016.
Between February 2017 to March 17, 2017, Idea's share price rose over 50%.
However, since Monday March 20, 2017, shares of the company have started correcting again.
AC Choksi Share Brokers Equity Head Ashish Shah, in a Bloomberg report, said that this drop is likely to be because of “investor confusion” on per-share value of its merger deal with Vodafone’s Indian unit.
Motilal Oswal, however, is confident that Idea will perform better. It said, "We upgrade Idea to Buy with a target price of Rs 120, implying 9x EV/EBITDA on FY19E for the combined entity. In our view, rich valuation is justified, as the expected recovery from FY19 could drive EBITDA CAGR (compound annual growth rate) of 18% over FY18-22."