Idea Cellular: Ready for marriage?
M&A premium reflected in multiples
IDEA has been the best-performing Indian telco this year — up 28%
in absolute terms, vs a 14% rise in the Sensex (Bharti up 15%). Its
FY12F P/E of 24x is well ahead of domestic and regional peers. We
think IDEA has a good domestic execution story and its 3G licence
moves have been well executed. Plus, more balanced MNP risks and
data could surprise on the upside. But, we believe these multiples
cannot be justified alone by operating trends. Anticipation of some
form of M&A could keep a floor on the share price, we believe.
Upside from continued execution and data
IDEA has been executing solidly – winning revenue market share and
narrowing losses in its new circles. In our view, the company has
acquired 3G very strategically, and in all key circles where it has
leading market share. This should not only help in retention in its most
profitable circles, but aid in driving data to its high-end subscribers. In
markets elsewhere, data has buffered the slowdown seen in voice.
We also see ARPU upside as the quality of subscribers in new circles
improves. Hence, we expect the rate of ARPU decline to slow over
FY12-13F. We raise our revenue and earnings forecasts 2-19% for
FY12F. Our new price target is INR70; we remain NEUTRAL.
IDEA expects 3G launch by December
IDEA expects its 3G launch could occur by December – the company
is working with Spice Digital to launch its application store. The P&L
impact of higher interest cost and higher D&A (for 3G licence) is likely
to show from FY12F, we estimate. IDEA has also raised capex to
Rs40-44bn for FY11F (in 1Q FY11), which now includes 3G capex as
well.
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