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Once a star performer, Idea Cellular has become a drag on Aditya Birla Group’s market capitalisation in the past one year due to intense tariff war in the telecom sector.
But the rebound in valuation of UltraTech Cement and re-rating of Hindalco Industries due to buoyancy in cement volumes and rise in metal prices, respectively, has provided some cushion to the group’s valuation.
While the group’s market capitalisation, excluding Idea, jumped 44 per cent, the growth is down to 32 per cent if the telecom venture is included in the pack.
Until recently, Idea was one of the most favoured stock in the AB Group since it got listed in 2007. The share of the telecom player in the group’s sales and profit have risen over the past decade due to robust growth in the telecom sector (erstwhile, a sunrise industry).
The company’s share in group sales and profit have risen to 16 per cent and 32 per cent, respectively, in FY16, from 8.5 per cent and 8 per cent.
But in the past one year, intensified competition, especially after the launch of Reliance Jio, has affected Idea’s financial performance. Market has periodically downgraded ratings on the telecom sector including Idea.
Now, with the merger with Vodafone India, Idea’s importance in the group, both in terms of financial performance and valuation, is expected to wane further. Moreover, full synergy benefits will be flowing in four years after the completion of merger in CY2019.
G Chokkalingam, founder, Equinomics Research and Advisory, said the next two years will be a painful and tough journey as the industry will continue to witness margin pressure.
Meanwhile, Adiitya Birla Group’s other key companies such as Grasim Industries, UltraTech Cement and Hindalco Industries are on better footing. Housing for all, upcoming peak season and government spending will compensate for the negative impact of demonetisation for cement companies, going ahead.
Prices and volumes are expected to gradually gain momentum soon, which augurs well for a pan-India player like UltraTech.
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