Idea Cellular surges over 50% in eight trading sessions; should you buy?

NEW DELHI: Shares of Idea Cellular extended their gains for the eighth consecutive trading session of Tuesday after Britain's Vodafone Group on Monday confirmed it was in discussion to merge Vodafone India with Idea Cellular in an all-share deal to create the country's largest telecom operator with 43 per cent revenue market share.

Idea Cellular surged nearly 52 per cent in eight trading sessions (till date). The scrip surged as much as 8 per cent intraday on Tuesday.

Shares of the telecom major were trading 6.53 per cent up at Rs 104.35 around 9.30 am (IST). The scrip advanced over 26 per cent in the previous trading session.

Idea Cellular on Monday also unveiled a five-point plan to grow its digital revenues, as the arrival of Reliance Jio disturbs the largest segment of voice revenue. The new strategy will focus on entertainment, cloud, payments, digital communication and information offerings.

With the voice revenue share declining, the Aditya Birla Group company is targeting to derive up to 20 per cent of its revenues from the 'digital segment', 50 per cent from data and the rest from the traditional voice segment, according to a report by PTI.

Global brokerage house CLSA believes that the potential merger is a best fit with significant synergy benefits.

Edelweiss Securities in a research note said, “We believe that the Idea-Vodafone merger will help the combined entity to take on Reliance Jio more aggressively as the combined entity will have leaner operations leading to better profitability. This will also boost their ability to invest in the network. In case of merger announcement, Idea may benefit from high synergy benefits which may potentially drive up market capitalisation by 30 per cent. However, in absence of merger announcement and lack of clarity on deal structure we maintain our estimates and ‘HOLD/SP’ on the stock with DCF-based target price of Rs 85.”