Sensex Opens Marginally Up; Wipro Falls 4% on Weak Q4 Result

Thu, 26 Apr 09:30 am

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Asian share markets are lower today as Japanese and Hong Kong shares fall. The Nikkei 225 is off 0.6% while the Hang Seng is down 0.6%. The Shanghai Composite is trading down by 0.9%. Meanwhile, Wall Street limped into positive territory on Wednesday on optimism over a spate of upbeat earnings that was nearly offset by jitters over rising US bond yields and corporate costs.

Back home, India share markets opened the day marginally higher. The BSE Sensex is trading up by 42 points while the NSE Nifty is trading up by 7 points. The BSE Mid Cap index and BSE Small Cap index both opened the day up by 0.3%.

Barring consumer durables stocks, capital goods stocks & energy stocks, all sectoral indices have opened the day in green with realty stocks and information technology stocks witnessing maximum buying interest. The rupee is trading at 66.7 to the US$.

In the news from the telecom sector. In the latest development, Bharti Airtel has approved the merger of Bharti Infratel and Indus Towers to create the largest mobile tower entity worldwide with 0.16 million towers across 22 circles in India.

Before merger, Indus Towers was jointly owned by Bharti Infratel (42%), Vodafone (42%), Idea Group (11.2%) and Providence Equity Partners (4.9%).

Reportedly, Bharti Airtel and Vodafone will have equal rights in the combined company.

The combined company, which will fully own the respective businesses of Bharti Infratel and Indus Towers, will change its name to Indus Towers Limited and will continue to be listed on the Indian Stock Exchanges.

Further, the merger ratio of Indus Towers Ltd implies an enterprise value of Rs 715 billion (US$10.8 billion).

As per the reports, Vodafone Group, Idea Cellular and Providence Equity agreed to merge their respective shareholdings in Indus Towers into Bharti Infratel. Idea Group will sell its 11.2% shareholding based on a valuation formula for Rs 65 billion.

The group can opt to receive shares in lieu of cash equivalent to 7.1% of the combined entity on the basis that Providence also elects to get new shares in exchange for its full 4.9% shareholding in Indus Towers. Vodafone will be issued 783.1 million new shares equivalent to its 42% shareholding in Indus Towers, the reports noted.

Taken together, Bharti Infratel and Indus Towers had over 163,000 towers and 367,000 tenancies as on 31 March 2018. With over Rs 253 billion (US$3.8 billion) in revenues (for the financial year ended March 2018).

The combined company will be well placed to invest on a national basis to satisfy the future demand from all telecoms operators in India as they continue to densify their networks to support sustained data traffic growth and roll out new network technologies.

Indus Towers currently operates in 15 telecom service areas (Circles) and Bharti Infratel's operations are focused on the remaining seven Circles.

Bharti Infratel share price opened the day down by 1.2%.

One shall note that, the whole telecom business has been an underwhelming story so far. While the telecom subscriber base has increased from 300 million in 2008 to 1.2 billion in 2017, investors have little to cheer.

The BSE Sensex has gone up 3.25 times in nine years, but the BSE Telecom Index has not moved an inch from its levels of 2008.

Telecom Sector: A decade of Underperformance

Telecom companies are straddled with high debt, intense competition, and lack of pricing power. High spectrum costs and regulatory issues have hampered the sector.

While consumers have benefited from low costs and new players fighting for their share, investors have suffered.

Going forward, whether the situation will change in the future will be the key thing to watch out for.

Moving on to the news from IT sector. Wipro share price plunged 4.4% in the opening session after it reported lower-than-expected profit for the March quarter. This came on the back of additional provisions it made for two of its clients.

The IT major posted 6.6% quarter-on-quarter fall in net profit at Rs 18 billion in Q4FY18 over Rs 19.3 billion in Q3FY18. Bottomline figures slipped 20.6% on a yearly basis for the quarter under review.

Consolidated total income of Wipro slipped marginally 0.05% on a sequential basis to Rs 143.1 billion, whereas the figures fell 4.9% on a year-on-year basis.

Wipro expects topline from IT services business to be in the range of US$2,015 million to US$2,065 million.

Further, Revenue from IT services segment increased 2.4% on QoQ in dollar terms to US$2,062 million. In rupee terms, the figures witnessed an increase of 1.3% to Rs 134.1 billion.

The company made provisions of Rs 2.1 billion for January-March with respect to insolvency of a customer and the impairment loss in one of their acquisitions. The figure had stood at Rs 5.3 billion last year.

Without naming the telecom client, Wipro had earlier said that it had initially signed a deal with this firm in 2008 and had renewed the contract in 2013. The IT firm added that the client had filed its insolvency petition on 28 February.

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