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Idea Cellular Limited
Reuters: IDEA.BO Bloomberg: IDEA IN Exchange: BSE Ticker: IDEA
4QFY11: Gaining ground on bigger peers
Strong execution marred by overhang of legal issues; maintaining Hold
Idea Cellular (IDEA)’s performance has been the strongest of all the incumbents
over the past 12 months, a period marked by intense competition and the
introduction of mobile number portability. Its 4QFY11 revenues grew 7% QoQ,
compared to 4% and 5% for Bharti and Vodafone respectively. Furthermore,
EBITDA and PAT were c7% above our estimates. However, the regulatory issues
arising from Idea’s acquisition of Spice temper the impact of successful execution
on the stock’s valuation. We are maintaining our Hold and our target price of Rs70.
4QFY11: Strong performance continues
Two data points encapsulate Idea’s execution: 1) 100bps revenue market share
gain in FY11, to reach 14.4% 2) 93% active subs to reported subs. For 4QFY11,
revenue (Rs42.7bn, 7% QoQ, 3% above our est) was driven by 9% QoQ growth
in minutes and a 3% fall in rev/min to Rs0.406. EBITDA (Rs9.5bn) and EBITDA
margin (22.2%) came in 7% and 90bps higher than our est. Performance in legacy
markets was creditable: rev growth of 6.6% QoQ and EBITDA margin of 28%.
Legal issues from Spice amalgamation create a drag on valuations
Idea announced the acquisition of Spice, which operated in the Punjab & Karnataka
markets, on 26 June 2008. The amalgamation was sanctioned by the high court on
5 Feb 2010 and was effective from 1 Mar 2010. Between the announcement and
the amalgamation of Spice, both companies received spectrum in certain
additional markets, creating an overlap. This is an untenable situation under the
licence conditions and is the source of the legal issues (details inside this note).
Idea notes that total demands made by the Dept of Telecom amount to Rs32.7bn.
Two-year EBITDA CAGR (FY11-13E) of 34%, trading at 6.6x FY12E EV/EBITDA
Our DCF-based target price is Rs70/share: Rs60/share for core operations and
Rs10/share (unchanged) for its 13.5% effective stake in Indus Towers. Our DCF
assumptions are an RFR of 6.7%, a risk premium of 8.1%, a WACC of 14%/11%
and a terminal growth rate of 4%/2% for Idea and Indus Towers respectively.
Upside risks include higher-than-expected traffic growth. An adverse outcome on
the legal issues is a key downside risk.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Idea Cellular Limited
Reuters: IDEA.BO Bloomberg: IDEA IN Exchange: BSE Ticker: IDEA
4QFY11: Gaining ground on bigger peers
Strong execution marred by overhang of legal issues; maintaining Hold
Idea Cellular (IDEA)’s performance has been the strongest of all the incumbents
over the past 12 months, a period marked by intense competition and the
introduction of mobile number portability. Its 4QFY11 revenues grew 7% QoQ,
compared to 4% and 5% for Bharti and Vodafone respectively. Furthermore,
EBITDA and PAT were c7% above our estimates. However, the regulatory issues
arising from Idea’s acquisition of Spice temper the impact of successful execution
on the stock’s valuation. We are maintaining our Hold and our target price of Rs70.
4QFY11: Strong performance continues
Two data points encapsulate Idea’s execution: 1) 100bps revenue market share
gain in FY11, to reach 14.4% 2) 93% active subs to reported subs. For 4QFY11,
revenue (Rs42.7bn, 7% QoQ, 3% above our est) was driven by 9% QoQ growth
in minutes and a 3% fall in rev/min to Rs0.406. EBITDA (Rs9.5bn) and EBITDA
margin (22.2%) came in 7% and 90bps higher than our est. Performance in legacy
markets was creditable: rev growth of 6.6% QoQ and EBITDA margin of 28%.
Legal issues from Spice amalgamation create a drag on valuations
Idea announced the acquisition of Spice, which operated in the Punjab & Karnataka
markets, on 26 June 2008. The amalgamation was sanctioned by the high court on
5 Feb 2010 and was effective from 1 Mar 2010. Between the announcement and
the amalgamation of Spice, both companies received spectrum in certain
additional markets, creating an overlap. This is an untenable situation under the
licence conditions and is the source of the legal issues (details inside this note).
Idea notes that total demands made by the Dept of Telecom amount to Rs32.7bn.
Two-year EBITDA CAGR (FY11-13E) of 34%, trading at 6.6x FY12E EV/EBITDA
Our DCF-based target price is Rs70/share: Rs60/share for core operations and
Rs10/share (unchanged) for its 13.5% effective stake in Indus Towers. Our DCF
assumptions are an RFR of 6.7%, a risk premium of 8.1%, a WACC of 14%/11%
and a terminal growth rate of 4%/2% for Idea and Indus Towers respectively.
Upside risks include higher-than-expected traffic growth. An adverse outcome on
the legal issues is a key downside risk.
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