Call Drop verdict May lead to Re-Rating of Telecoms stocks

The striking down of the telecom regulator’s call drop compensation order by the Supreme Court on Wednesday will remove all regulatory overhang from telco stock prices and lead to a possible re-rating of Bharti AirtelBSE 0.31 % and Idea Cellular’s stocks, analysts said.

“The call drop verdict could lead to some re-rating of telecom stocks, (especially) since Bharti Airtel and Idea CellularBSE 0.72 % share prices have declined by 15% and 36% respectively since June 2015,” brokerage UBS said in a note. Noting that Airtel and Idea had witnessed share price weakness in the last six months on account of the call drop overhang, analysts at UBS felt “the Telecom Regulatory Authority of India’s (Trai’s) directive was practically difficult to implement”.

Faisal Kawoosa, lead telecom analyst at CMR, said putting the onus on a single entity (read: operators) of the entire value for the call drop problem “is quite unjustified”.

However, brokerage CMR said telcos “cannot shrug off their responsibility” as they run the show and are accountable for loopholes in their networks to both consumers and other stakeholders, including the government.

Bank of America-Merrill Lynch, however, expects the apex court verdict to remove the overhang from Airtel and Idea stock prices as in a worst-case scenario, such a move was likely to impact 5% of Ebitda (earnings before interest, taxes, depreciation & amortisation)of Indian telcos.

Read More –  Telecoms Stocks

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