Minimum impact from Idea-Vodafone merger
KUCHING: Analysts remain tepid on the merger of Axiata Group Bhd’s (Axiata) 16.3 per cent- owned Idea Cellular with Vodafone could materialise within this month as both companies have recently settled their obligations under protest to India’s Department of Telecom ( DoT).
The settlement included 3,926 crore rupees or about US$ 571 million in cash and 3,322 crore rupees ( US$ 484 million) in bank guarantees, totalling 7,248 crore rupees(US$1.1 billion), which both operators had earlier appealed to the DoT to recalculate.
However, the DoT had rejected their proposal.
Recall that Idea Cellular has agreed to a merger with unlisted Vodafone India Mobile Services, India’s second largest mobile operator in India, that will surpass Bharti AirTel as the country’s largest operator with 430 million customers, 35 per cent customer market share and 41 per cent revenue market share.
“Generally, Vodafone has a stronger footprint in urban areas whi le Idea is better placed in rural and semi-urban regions,” explained analysts at AmInvestment Bank Bhd (AmInvestment Bank) in a followup note yesterday.
“However, the merger will cause Axiata’s equity stake in the merged Idea-Vodafone entity to halve to a non- strategic investment level of 8.2 per cent. Hence, management had earlier indicated that Axiata may look to dispose of its investment in India.”
Nevertheless, as Idea’s operating results will not be equity accounted
Generally, Vodafone has a stronger footprint in urban areas while Idea is better placed in rural and semiurban regions.
post-merger, AmInvestment Bank believed this should be positive for the group in the medium term given the likely continued losses that the combined entity is likely to incur against the background of India’s highly competitive environment driven by Reliance Jio.
“Based on consensus expectations, Idea is projected to incur a loss of 65 million rupees in its financial year ending March 2019 and 56 million rupees in FY ending March 2020.”
As Idea’s share price has significantly fallen to 55 rupees per share from over 100 rupees per share since the beginning of the year, the group may need to provide for a higher non- cash impairment of up to RM3 billion versis an earlier range of RM1.2 billion to RM1.8 billion.
“This could halve the carrying value of its stake in Idea from RM5.4 billion currently to RM2.4 billion,” it opined.
“While likely to result in an FY18F loss of RM1.8 billion, these non– cash impairments should not have any substantive impact to Axiata’s FY18F normalised earnings, which exclude provisions, nor the group’s dividend-paying capability.
“Hence, we maintain Axiata’s forecasts for now, pending the results announcements of PT XL Axiata next week and the group’s next month.”
AmInvestment Bank