Idea: Another "Idea" Of "Buying A Good Business In Temporary Distress" ? 75-65 May Be A Big Support Despite Threat Of R-JIO "Disruptions/Datagiri"

Trading/Investing Idea: Idea

CMP: 84

Buy around 80-78 OR in dips around 70-68

TGT: 92*-97-102*-106-110*-115 (1-3/6M)

TSL< 75 OR < 65

Note: Consecutive closing (3 days) below 65 for any reason, Idea may further fall towards 55-48* & 40-35* area in the near to long term (alternative bear case scenario from the current trading level).

Anyone holding short position in the counter and prefer to continue to do so, may also watch the 92-97* closely as nearest positional resistance zone for the same.

Reasoning: 

Talk of R-JIO launch on 5-th Sep (today) with an apparently aggressive Plan & Pricing has caused significant meltdown in the listed telecom space, specially Idea & Bharti Airtel.

Although, for the last few months there was talk of R-JIO launch with aggressive Plan & Pricing and the telecom scrips were already under pressure, market was not prepared/discounted for the same in the lower end data consumers. (specially for 149 & 449 plan of R-JIO).

Primarily R-JIO's aggressive data plan & pricing  along with the concern for highly expensive 700 Mz telecom spectrum auction in the forthcoming auction has caused a crash in the telecom scrips, including Idea.

But the market reaction & selling may be overdone, considering some facts that:

1. R-JIO's plan & pricing is not so simple; it has many fine prints (T&C) and not unique itself.

2. Professional data users will continue to use land line broadband which is offering a standard plan & pricing of 80GB/pm under FUP @80 mbps (unlimited @2mbps above 80 GB FUP for 30 days) for around 3000/- for 90 days. This effectively translating an average cost of around 10-15/- per GB against R-JIO's 45-50/- per GB under the similar high end plan.

3. On an average, a normal data user consumes around 2 GB data/pm in his/her smart phone, which is available at an effective rate of around 300/- for the last one year (Vodafone/Airtel/RCOM/BSNL).

4. Going by the present ARPU trend, specially for data user and considering the fact that in a middle class small family, there may be 2-4 nos of smart phones with active mobile data connections, an average ARPU (data) above 250-300/- per smart phone is highly unlikely.

5. Most of the people having office or home-office are now using land line broadband with WI-FI router and consuming the maximum requirement of data either absolutely free or around 10-15/- per GB as above.

6. R-JIO will make money, if it can transfer the existing high end professional data users to its 4G-LTE platform in a significant way. But, considering the fact that, very few office or even home-office may not uninstall the existing land line broadband system for a new R-JIO broadband (4G), until & unless R-JIO can offer data at least below 10/- per GB; even R-COM is now offering data at this rate.

True, there will be huge response for a new R-JIO connection, specially from the younger generation/students etc, but they are primarily for lower end data user and unless & until, high end data users transform from their existing broadband connection to R-JIO (4G/LTE) in a meaningful way, small data consumers may be happy, but investors may not be.

Looking ahead, consolidation and M&A will be the key for telecom players and companies having very deep pocket will only survive (Vodafone/Idea/Bharti Airtel/Reliance/R-COM/BSNL/MTNL) and Idea may be a top contender for M&A candidate also (with Vodafone ??).

Primary obstacle for R-JIO will voice telephony as it required interconnection (co-operation) from other telecom operators and as par various reports, there are significant voice call drops for the ongoing R-JIO trial run.

"Datagiri" of R-JIO will definitely expand the overall market for data users in India and other telecom operators may also benefit from it (higher volume and lower margin).   

 

More to be updated shortly--- 

Analytical Charts:

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