Telecom stocks sharply gained after the 2G spectrum auction flopped badly. Analysts said that the failed 2G auction is good news for telecom companies and shareholders. Not only would it lead to lower tariffs, but will also ensure better returns for shareholders, they said
Through the spectrum the Government had expected to get bids worth about Rs 40,000 crore but received bids worth only Rs 9,400 crore.
Despite the weak markets, telecom stocks emerged as the top gainers. Bharti Airtel closed at Rs 291, up about 3 per cent from its previous close on the BSE. The stock of Bharti Airtel has been rallying over the last month. It has moved from Rs 263 to Rs 291.
The stock of Idea Cellular closed at Rs 95.05, up 3.15 per cent from its previous close and Reliance Communication closed at Rs 63.45, up 4.88 per cent from its previous close on the BSE. The scrip of Idea Cellular also moved upwards from Rs 80.90 in the last month.
In the auction, there were no bids for the Mumbai, Delhi, Karnataka, or Rajasthan circles. Idea, Telenor, and Videocon won spectrum in 7, 6, and 6 circles respectively. Bharti bought one block of spectrum and Vodafone bought extra spectrum in 14 circles.
less reserve price
“We believe an unsuccessful 2G auction shows that there is limited demand for spectrum at high prices. We believe the Government will likely to reduce the reserve price in circles where there was not even a single bid,” said a note from Goldman Sachs, who has assigned a ‘buy’ rating to Idea.
A report from BRICS Securities said that “any re-pricing of the 2G spectrum will be positive for the industry, which is already suffering from stretched balance sheets, limited pricing flexibility and low payouts from 3G/4G investments.”
The failed auction could lead to some regulatory uncertainty. “The fiscal concerns of the Government could be an indicator that the Government may yet attempt to extract more revenue from the sector. Nonetheless, in light of regulatory uncertainty continuing and the futility of taking a call on Government actions, we place the sector Under Review,” said a note from Nirmal Bang.
According to Bank of America-Merrill Lynch, “our earnings outlook for the industry, including Bharti and Idea, is unchanged after the 2G auctions. We have not built any tariff hikes into our forecasts, but the auction reaffirmed our recent view that competitive pressures are moderating.
“Large tariff hikes may be deferred in anticipation of policy softening but floor for tariffs could rise given that players such as Telenor have won relatively expensive circles and industry seems unanimous about the need for better price economics.”