Sensex Trades Strong; Bharti Airtel Surges 4%

Wed, 11 Oct 01:30 pm

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After opening the day in green, Share markets in India have continued the momentum and are presently trading above the dotted line. Sectoral indices are trading on a positive note, with stocks in the oil and gas sector and stocks in the telecom sector witnessing maximum buying interest.

The BSE Sensex is trading up by 130 points (up 0.4%) and the NSE Nifty is trading up 40 points (up 0.8%). Meanwhile, the BSE Mid Cap index is trading up by 1%, while the BSE Small Cap index is trading up by 0.8%. The rupee is trading at 65.51 to the US$.

In news from stocks in the telecom sector. Bharti Airtel share price is among the top gainers on the bourses today. The surge comes after media reports indicated that a KKR-led consortium was in talks for a tower consolidation deal involving Airtel's tower arm Bharti Infratel and Indus Towers.

A consortium led by US buyout fund KKR and comprising Canada Pension Plan Investment Board, Abu Dhabi Investment Authority and GIC Singapore is in discussions to acquire Indus Towers, the world's largest wireless infrastructure company, and telecom tower company Bharti Infratel for US$ 11billion.

Bharti Infratel currently owns 42% equity interest in Indus Towers, which has a portfolio of 1,22,920 towers as of June 2017. Vodafone India owns another 42%stake in Indus Towers, while the rest is held by Aditya Birla Telecom - Idea Cellular.

Bharti Infratel, with its 42% in Indus Towers, will buy out all or almost all of the 58% stake that other partners Vodafone, Idea Cellular and Providence Equity Partners hold in Indus Towers.

If it materializes, this will arguably be the largest such transaction globally.

The entry of Reliance Jio and the fierce tariff war it has triggered has set off brisk activity in the telecom industry for fundraising and consolidation, as the incumbents look for ways and means to fend off the competition.

Telecom Sector: A decade of Underperformance

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 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.

With the entry of Reliance Jio, the competition has intensified further. Reliance Jio's low cost offerings and strategy of capturing market share will further dent the sector. The sector has been a classic 'value trap'. While it always looks cheap compared to other sectors, it has failed to provide any reasonable returns. We also believe the situation is unlikely to change in the near future. For an investor, it's important to differentiate between 'value' and 'value traps'.

At the time of writing, Bharti Airtel share price was trading up by 4.2%.

Moving on to news from stocks in the pharma sector. Lupin share price is in focus today after the company announced the acquisition of US based Symbiotix Therapeutics.

The pharma major said that it acquired the US based company in a deal worth US$ 150 million (Rs 9.8 billion) in a bid to grow its women's health business.

Lupin said the acquisition was made for a cash consideration or US$ 150 million, including a US$ 50 million upfront and other time-based payments. In addition, there are sales based contingent payments.

The US market contributes around 45% to Lupin's revenue, and this is the pharma major's second big acquisition in the US in the past 15 months. Earlier, it acquired Gavis for US$ 880 million.

The latest acquisition brings to Lupin the company's specialty product, Solosec. Just last month, the US Food and Drug Administration (USFDA) approved Symbiotix's lead product Solosec which is an oral granule for treatment of bacterial vaginosis in adult women and Lupin expects to launch the product by mid-2018.

Solosec eligible for at least 10 years of exclusivity in the United States.

At the time of writing, Lupin share price was trading down by 1%.

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