KUALA LUMPUR: Kenanga Research has maintained its outperform call on Axiata Group with a lower target price of RM5 following the approval of the merger plan between Idea and VOdafone India by Indian authorities.
According to the research house, the completion of the merger is now subject to the National Company Law Tribunal, Mumbai Brach, passing the dissolution order of Vodafone Mobile Service Ltd and Vodafone India Ltd with the deal expected to be completed by August 2018.
Kenanga said the merged entity will have a customer base of 440 million or 39% market share, replacing Bharti Airtel Ltd as the market leader. Revenue is forecast to be in excess of US$10 bil with an estimated revenue market share of about 37%.
"The merger is set to strengthen Vodafone Idea’s position to compete effectively in a market dominated by three main players with immediate synergistic benefits to be realized from the best spectrum position and other operational efficiencies," said Kenanga.
It added that the merger will change the status of Axiata's stake in Idea from being a strategic investment to a simple investment as its shareholding in the combined entity is diluted from 16.33% to 8.17%.
The research house said a technical non-cash accounting adjustment of about RM1.5bil to RM3bil is expected to be captured in the group's 2Q187 unaudited accounts, and that Idea will need to provide higher technical impairment of up to RM3bil and halve its carrying value in Idea stake to about RM2.4bil due to a 48% plunge in its share price.
"Nevertheless, as it is purely a non-cash technical treatment, the exercise does not have any impact on Axiata’s underlying performance and cash position."
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