Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Idea Cellular Ltd (IDEA IN)
N(V): Minutes momentum continues
4Q FY11 results above consensus estimates
Margins improved in established circles after four quarters
Maintain INR72 target price and Neutral (V) rating
Idea’s 4QFY11 results were in line with our estimates but above Street estimates, driven by a
180bp improvement in network costs and strong minutes growth (c9% q-o-q). Revenues
during the quarter increased 7% q-o-q, while absolute EBITDA increased 13.4% q-o-q and
was c7% above our forecasts (see Figure 2). EBITDA margins during the quarter were 210bp
above our estimates and 100bp above consensus estimates. Net profit improved 13% q-o-q
during the quarter and was c19% above consensus forecasts.
Key negatives: Idea’s ARPU was down 4.2% during the quarter, the highest decline among
all operators during the quarter. Its MoU fell by 1% q-o-q, however, the overall increase in
minutes at 9% during the quarter was the highest in the sector for this quarter. RPM declined
by 3% q-o-q (see Figure 3).
Key positives: After a period of four quarters, margins improved in the established circles.
Furthermore, the positive trend continued in new circles, as the EBITDA loss decreased here
by 15% during the quarter. Idea’s wireless EBITDA margins improved 170bp during the
quarter. The improvement was driven by the fall in EBITDA losses from new circles (see
Figure 4) and 120bp margins improvement from established circles (see Figure 5). A key
positive was the 180bp fall in network costs as a percentage of revenues, driven by higher
network utilisation, in our view.
Valuation and risks: We retain our N (V) rating and INR72 target price. We value the core
business at INR67 per share and its stake in Indus JV at INR20, our target price factors in the
negative impact of INR15 for the TRAI recommendations. We see mobile number portability
(MNP) as low risk for Idea given its 3G capabilities, which allow it to cover c75% of the
present subscriber base and 80% of the revenue base. A key upside risk for the stock, in our
view, would be the ability to monetise tower assets (Idea has a 16% stake in Indus) and a key
downside risk would be acceptance of TRAI recommendations in the current format.
Valuation and risks
We value the core business of Idea Cellular at INR67 using a mix of PE and DCF. For our DCF analysis,
we assume a cost of equity of 12%, cost of debt of 10%, target debt-to-equity ratio of 25% and WACC of
12%, and arrive at a value of INR74 per share. For our PE analysis, we use a multiple of 20x on our
FY13e standalone EPS and arrive at a value of INR60. We value Idea’s investments in the Indus tower
business at INR20 per share using DCF, assuming a sliding WACC of 11% and terminal growth rate of
c3%. We adjust our target price down by INR15 for the impact of TRAI recommendations, even though
we doubt they will be accepted in the current format.
Under our research model, for stocks with a volatility indicator, the Neutral band is 10 percentage points
above and below our hurdle rate for Indian stocks of 11%, or 1-21% above the current share price. Our
target price of INR72 implies a potential return of 0.1%. At the time we set our target price, it suggested a
potential return that was in the Neutral band; thus, we continue to rate the stock Neutral (V).
Key upside risks include sector consolidation and ability to monetise tower assets. Downside risks
include a slower-than-estimated pick-up in 3G and a sharp decline in revenue per minute.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Idea Cellular Ltd (IDEA IN)
N(V): Minutes momentum continues
4Q FY11 results above consensus estimates
Margins improved in established circles after four quarters
Maintain INR72 target price and Neutral (V) rating
Idea’s 4QFY11 results were in line with our estimates but above Street estimates, driven by a
180bp improvement in network costs and strong minutes growth (c9% q-o-q). Revenues
during the quarter increased 7% q-o-q, while absolute EBITDA increased 13.4% q-o-q and
was c7% above our forecasts (see Figure 2). EBITDA margins during the quarter were 210bp
above our estimates and 100bp above consensus estimates. Net profit improved 13% q-o-q
during the quarter and was c19% above consensus forecasts.
Key negatives: Idea’s ARPU was down 4.2% during the quarter, the highest decline among
all operators during the quarter. Its MoU fell by 1% q-o-q, however, the overall increase in
minutes at 9% during the quarter was the highest in the sector for this quarter. RPM declined
by 3% q-o-q (see Figure 3).
Key positives: After a period of four quarters, margins improved in the established circles.
Furthermore, the positive trend continued in new circles, as the EBITDA loss decreased here
by 15% during the quarter. Idea’s wireless EBITDA margins improved 170bp during the
quarter. The improvement was driven by the fall in EBITDA losses from new circles (see
Figure 4) and 120bp margins improvement from established circles (see Figure 5). A key
positive was the 180bp fall in network costs as a percentage of revenues, driven by higher
network utilisation, in our view.
Valuation and risks: We retain our N (V) rating and INR72 target price. We value the core
business at INR67 per share and its stake in Indus JV at INR20, our target price factors in the
negative impact of INR15 for the TRAI recommendations. We see mobile number portability
(MNP) as low risk for Idea given its 3G capabilities, which allow it to cover c75% of the
present subscriber base and 80% of the revenue base. A key upside risk for the stock, in our
view, would be the ability to monetise tower assets (Idea has a 16% stake in Indus) and a key
downside risk would be acceptance of TRAI recommendations in the current format.
Valuation and risks
We value the core business of Idea Cellular at INR67 using a mix of PE and DCF. For our DCF analysis,
we assume a cost of equity of 12%, cost of debt of 10%, target debt-to-equity ratio of 25% and WACC of
12%, and arrive at a value of INR74 per share. For our PE analysis, we use a multiple of 20x on our
FY13e standalone EPS and arrive at a value of INR60. We value Idea’s investments in the Indus tower
business at INR20 per share using DCF, assuming a sliding WACC of 11% and terminal growth rate of
c3%. We adjust our target price down by INR15 for the impact of TRAI recommendations, even though
we doubt they will be accepted in the current format.
Under our research model, for stocks with a volatility indicator, the Neutral band is 10 percentage points
above and below our hurdle rate for Indian stocks of 11%, or 1-21% above the current share price. Our
target price of INR72 implies a potential return of 0.1%. At the time we set our target price, it suggested a
potential return that was in the Neutral band; thus, we continue to rate the stock Neutral (V).
Key upside risks include sector consolidation and ability to monetise tower assets. Downside risks
include a slower-than-estimated pick-up in 3G and a sharp decline in revenue per minute.
No comments:
Post a Comment