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Idea Cellular Ltd.
Factoring in F2Q11,
Maintaining Our Bullish View
What's Changed
Price Target Rs101.00 to Rs97.00
MW EPS 2011e-2013e -14% / -16% / -8%
Reasons for OW: We believe a) 3G overhang is behind
us; b) Idea’s future capex may be lower; c) tariff wars in
the industry seem to have stabilized; d) we believe the
worst quarter is behind us, and expect to see EBITDA
growth ahead. We have however lowered our long term
EBITDA by 2-3% and cash profit by 3-4% based on
these F2Q11 earnings, due to lower ARPU, driven by
lower MOUs. Our cuts to our net profit estimates are
higher, at 10-15%. Our SOTP based price target is
Rs 97, implying 44% upside.
Tariff wars in the industry seem to have stabilized in
the past twelve months, with operators only fine tuning
promotions. Idea has the highest sensitivity to tariffs –
every 10% change in tariffs changes earnings 30%.
Also since Idea has only 4% of overall subs and ~11% of
overall revenues from post paid, number portability
could have a positive impact.
Good relative capex outlook: Idea has the lowest
subscriber per spectrum ratio of the top six operators,
the lowest subscriber per Base Terminal Station, and
also has as much as 65 MHz of spectrum in the efficient
900 MHz band. This suggests relatively lower spending
vs. peers to achieve similar or stronger growth in market
share. Idea’s wireless revenue market share has growth
by 290bps in the past 2 years to an impressive 12.9%.
F2Q11 results lackluster - Revenue and EBITDA 3%
below our expectations due to lower minutes’ growth.
Overall revenues grew 23% YoY and were flat QoQ;
while EBITDA grew 9%YoY however down 1% QoQ
Tower sale could be a key trigger: Idea owns ~25,500
towers, which we value at US$ 2.3bn or Rs32/share,
48% of its market cap. Idea is looking at unlocking this
asset’s value.
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