Sensex Opens Lower; Idea Cellular Surges 3.8%

Mon, 20 Mar 09:30 am

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Asian equity markets are mixed today. The Hang Seng is up 0.55% while the Shanghai Composite is trading higher by 0.06%. European stock markets closed higher in their previous trading session.

Meanwhile, Indian share markets have opened the day marginally lower. The BSE Sensex is trading down by 91 points while the NSE Nifty is trading down by 19 points. The BSE Mid Cap index opened down by 0.1% while BSE Small Cap index opened up by 0.1%.

Sectoral indices have opened the day on a mixed note with consumer durables sector and healthcare sector leading the pack of gainers. While, metal stocks and information technology stocks are witnessing maximum selling pressure. The rupee is trading at 65.54 to the US$.

Pharma stocks are trading mixed with Elder Pharma and Torrent Pharma being the most active stocks in this space. As per an article in a leading financial daily, Sun Pharmaceutical Industries Ltd has agreed to acquire Canadian pharmaceuticals firm Thallion Pharmaceuticals Inc for 2.7 million Canadian dollars (around US$2 million). The acquisition will be done through Taro Pharmaceuticals Inc (Canada), the indirect arm of its group firm Taro

Reportedly, the cost of all-cash acquisition will be Canadian dollar 2.3 million with an additional amount of Canadian dollar 0.4 million due at the completion of an additional pre-clinical animal study.

Post the acquisition of Thallion Pharmaceutical, Taro Pharmaceuticals would have only rights for development of orphan drug candidate, Shigamab, which targets E. Coli-induced hemolytic-uremic syndrome. Coli-induced hemolytic uremic syndrome that leads to kidney failure.

Moreover, any revenue generation from Shigamab is expected only after the commercialization of the product that is expected to take around seven to eight years. The acquisition will, however, have no material effect on the consolidated revenues, expenses or profits of Sun Pharma, the reports noted.

As the M&A activity has been heating up globally, the M&A activity in the Indian pharma space has been on the rise in recent times. Rahul Shah has penned an interesting piece in one of the edition of The 5 Minute WrapUp on how generic pharma companies are benefitting from global M&A activity. Here's an excerpt:

• "M&A activity among the innovators provides an opportunity for the generics to build a product portfolio by buying the product basket. For small to midsized companies, this is perhaps the quickest way to expand.
  
  Given the high costs and even higher risks in developing a drug, the innovator companies have increasingly turned towards investing resources in the acquisition of existing drugs or promising ones already in the pipeline."

Sun pharma share price opened the day up by 0.7%.

Moving on to the news from stocks in telecom sector. According to a leading financial daily, Bharti Airtel is in final stages of talks to buy Tikona Digital Networks' 4G spectrum, as the telecom player seeks to increase its market presence and capacity to provide internet services.

As per the reports, the transaction between Bharti Airtel & Tikona Digital Networks could be in the range of Rs 8-10 billion. It was already confirmed that Airtel would buy Telenor's Indian unit (Subscription Required) and with this deal with Tikona, Airtel is looking to strengthen its 4G coverage in the country.

The deal would be another step in the process of consolidation set off by the aggressive pricing strategy of Mukesh Ambani's Reliance Jio Infocomm Ltd, which entered the telecom industry in September.

Further, Tikona has some debt on its books which Airtel will assume, so the overall deal value is close to Rs 15-17 billion. The deal will be split into multiple tranches. Tikona is hiving off its wireless broadband business, Tikona WiBro, which it will continue to run independently.

Meanwhile, Madhu Gupta, Managing Editor of ResearchPro, believes higher investments to upgrade infrastructure (Subscription Required) will further stretch the companies' balance sheets. Bharti Airtel has planned capital investments of Rs 600 billion called 'Project Leap' to upgrade its infrastructure and protect its home turf. Idea Cellular, on the other hand, is exploring the sale of tower assets to raise funds.

Here's a snippet of what she wrote:

• "The tariff war, no doubt, will benefit the consumer. But the profits and shareholder returns of the telecom industry will be severely crippled if the mindless battle to gain supremacy rages on."

Debt Levels of Telecom Players on an Uptrend

As per Livemint, the consolidation suggests that the industry's return on invested capital levels are unsustainably low and spectrum ownership and ability to spend will be key to survival in a high data volume environment. Going forward, whether Bharti's balance sheet and solid spectrum portfolio put the company in a position to benefit will be the key thing to watch out for.

Meanwhile, Idea Cellular share price surged by 3.8% after it was reported that Idea Cellular's Board approved Vodafone-Idea merger.

Vodafone will hold 45% in the combined entity. Idea promoters will hold a 26% in the combined entity, the reports noted. The merger will create India's largest telecom player both in revenues and subscribers, taking on the likes of market leader Bharti Airtel and Reliance Jio.

Bharti Airtel share price opened the day up by 0.6%.

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