Outlook on Axiata maintained after Idea’s merger plans
KUCHING: Analysts have maintained their forecasts and recommendations on Axiata Group Bhd (Axiata) even after 19.8 per cent-owned Idea Cellular Ltd (Idea) announced plans to merge their Indian operations with Vodafone India Limited (Vodafone India).
In a media statement on Bursa Malaysia, Axiata referred to the announcement made by Idea Cellular to the National Stock Exchange of India Ltd and Bombay Stock Exchange Ltd on March 20, 2017 on the approval of Idea’s board of directors on the scheme of amalgamation of Vodafone India and its wholly owned subsidiary Vodafone Mobile Services Limited with Idea.
“Axiata has been a significant and strategic shareholder in Idea for the last nine years. As always, Axiata will ensure that the position of its shareholders are best addressed through among others, any industry consolidation or development. At the same time, Axiata will ensure that its investment position in Idea is maximized in terms of value and liquidity.
“Hence, the group is currently engaged in analysing all potential impact on Axiata arising from the proposed merger. The group’s assessment of its position as a minority shareholder of Idea will be an extension of Axiata’s ongoing evaluation and analysis of its investment portfolio in its entirety,” the group said in the statement.
According to the reseach arm of Kenanga Investment Bank Bhd ( Kenanga Research), the merger comes after India’s mobile industry was thrown into turmoil with the launch last year of Reliance Jio Infocomm, which offers free voice calls and cutprice data services, forcing the big three – Bharti Airtel, Vodafone and Idea - to slash prices and accept lower profits.
Kenanga Research noted that Vodafone will own 45.1 per cent of the merged entity, after it transfers 4.9 per cent to the Aditya Birla Group for circa 39 billion Indian rupees (circa US$579 million) in cash concurrent with completion of the merger.
“The Aditya Birla Group will then own 26 per cent and has the right to acquire up to 9.5 per cent additional shares from Vodafone under an agreed mechanism with a view to equalising the shareholdings over time,” it said.
Kenanga Research went on to highlight that no decision was made for now as Axiata is currently engaged in analysing all potential impact on the group arising from the proposed merger.
“Having said that, should Axiata decide to go with the merger exercise, its equity stake is expected to be diluted to circa 10 per cent under the enlarged entity,” the research arm said.
In view of the insignificant ownership, the research arm did not discount Axiata considering to dispose the stakes and shifting focus to the group’s core businesses.
All in, Kenanga Research’s earnings estimate remained unchanged, pending management’s decision.
KenangaResearchalsoreiterated its ‘underperform’ call on Axiata as the research arm believed the group may face another tough year ahead as a result of heightened completion, tax and regulatory uncertainties in the group’s key operating companies (OpCos).
Meanwhile, the research arm’s sum of parts (SoP)-driven target price stayed at RM4.64 per share.