Idea Cellular to face spectrum constraint in the medium term

In spite of a rapid fall on Friday, the medium turn prospects remain good for Idea Cellular. If it closes above 110, it can be deemed a positive trend. Idea Cellular is facing some resistance reaching 125 and 137. The stock got its much-needed support when it reached 98 which can be termed as a negative outlook. There are fears that it could reach lower to 82.

Traders can think of buying Idea Cellular at 110 which closed with a premium of 2.75. The market share is 3000 shares a contract so one will have to spend 8250 to purchase this option. However if Idea Cellular does not cross 112.75, it will be a total loss. However, the profit potential is immense if it manages to climb swiftly.

However if the premium touches, 7.75 traders can consider giving up this option. If the operators think taking the risk they can opt with a stop-loss at 98 for an initial target of 118.

Despite expectations, the Telecom industry is spectrum-constrained in the medium term. Instead of ARPU (average revenue per user), Idea considers the market to be centered on subscriber growth. There will be space for other players including Reliance Jio without affecting the revenues of Idea if the market continues to grow at the present level of 8% to 9%. Therefore Idea’s strategy is to buy spectrum on a need to basis since it feels that there is the significant availability of spectrum in the 1800Mhz band in the medium terms.

However, experts though agreeing to Idea’s assertion, for the time being, are forecasting that it will be constrained in the long run and will have to defend its market share very aggressively.

Experts opine that in the coming four years, mobile earnings will grow at 8% per annum, and there will be 3% growth in voice and 28% growth in data. The pricing will have to be halved in the coming three years if companies are to maintain their edge.

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