Shares of telecom companies such as Bharti Airtel and Idea Cellular have rallied 22-23 percent in the past 7-8 sessions. With the shares in an upward spiral, these companies have gained Rs 40,300 crore in combined market value.
However, this upward surge started after shares of both the companies hit multiple-months low last week. Shares of the country's largest telecom operator, Bharti Airtel, slumped to three-month low on October 9, while Idea Cellular shares hit six-month low on October 11.
What is more notable is that this upturn came just a couple of weeks before the telcos are slated to report their worst results in years, reported Mint.
The news report said that the financials of these two companies will go further downhill in the next quarter, as interconnect usage charges (IUC) was cut by 57 percent, which will greatly impact the revenue.
In its second quarter earnings estimates for the Telecom sector, ICICI Securities said that it expects Bharti Airtel's net profit to go down by 30.4 percent on quarter-on-quarter basis, news portal Moneycontrol reported.
Then the question that arises is, what is pushing these companies' stocks up even when the outlook is bleak?
Market analysts believe that even if the short-term view is mostly negative, long-term outlook is positive, thanks to the oligopolistic market structure where the Indian telecom space will be ruled by three biggies— Airtel, the Idea-Vodafone combine and Reliance Jio Infocomm. All these companies are likely to have over 30 percent market share and the remaining will be held by state-owned BSNL.
In the coming days, these three telecom firms will decide pricing as there are no other players available in the telecom space. Reliance Jio has already raised tariffs from the midnight of October 19.
Small-sized telcos have been absorbed by larger ones. In the latest move, Airtel bought Tata Teleservices , the debt-ridden Tata Group teleservices arm, virtually for free. Airtel acquired six small companies over the last five years.
Investors hopes that companies will realise optimal pricing as soon as possible. Until then companies have to live in the reality of losses and significant cash burn for throwing offers and discounts.
Saying it in another way, the companies are currently focusing on increasing the market share in term of users, and once they secure that, they will focus on pricing and revenue will increase.
