Stay cautious on Idea, advise analysts

Despite the merger with Vodafone’s India operations which will create India’s largest telecom company, the rough ride will continue for some more time for shareholders at Idea Cellular. Investors should tread with caution, as the sector has been one of the biggest wealth destroyers. And Idea isn’t significantly different from a long-term investor’s perspective. The stock, which listed in March 2007 at Rs 85 is currently hovering at around Rs 98 — a compounded annual return of under three per cent (over its IPO price of Rs 75 a share) that fails to beat inflation. The merger will take at least a year and a half to complete and both companies will operate as independent entities till this goes through. Analysts believe the pricing pressure the industry is going through will continue for at least the next two to three quarters, putting pressure on Idea’s financials. Astrology and Numerology Trading Tips



It reported a net loss of Rs 383 crore in the December quarter; operating profit margin fell by a little over 500 basis points year-on-year, to 25 per cent. Tirthankar Patnaik, India strategist at Mizuho Bank, believes it would take another six to 12 months for pricing to settle; only then would it make sense to take a view on this sector. Not surprising, then, that the stock, which had spurted 30 per cent since January, fell nine per cent on Monday. Analysts ascribe this to profit-booking after the sharp run-up and the muted near-term outlook for the sector. The market was also unhappy with the merger valuation, which pegs the per-share value at Rs 72.50 for Idea. While Idea will face major headwinds over the next few quarters, a section of analysts believe investors could make money over the longer term if the merger benefits are as planned. They say the company had not been performing well, barring its eight leadership circles, and would face immense operational pressure. This would have led to further straining of the balance sheet. Commodity Trading Tips