Is Telecom a Wild Gamble or Great Long-Term Investment? - Views on News from Equitymaster

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The Equitymaster Research Digest

Is Telecom a Wild Gamble or Great Long-Term Investment?
Sep 2, 2016

The biggest news yesterday was of course the mauling of the two listed telecom giants Bharti and Idea.

Reliance Jio, the brand new player in the telecom space, has announced such aggressive pricing that there seems no way out for the incumbents but to lower their prices.

And if they do, you can well expect their profitability and return on investment to take a heavy pounding. Little wonder a whopping Rs 120 billion in shareholder wealth disappeared in one trading session flat.

If you recall, we made our stance on both Bharti and Idea quite clear in an article we wrote more than a year back.

Here's an excerpt:

  • You see, the industry by its very nature is a difficult industry. It is an industry that Buffett calls the 'many cockroaches in the kitchen' industry. No sooner do you kill one cockroach, another one emerges and then it is back to square one.

    There will always be some or the other problem on the horizon that will put a downward pressure on margins and ultimately the returns on capital.

    And if one wants to stick to this view of things always remaining difficult in the industry, then there's no way the stocks can command the kind of valuations they are commanding currently.
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