Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Elusive free cashflow
Contrary to market expectations, Idea Cellular may not be a sector M&A
participant. Unlocking value from Indus Tower may be tricky with 20-
40% lower valuation versus the last deal and a risk of change in strategic
positioning. Also, unless dismissed by New Telecom Policy 2011 (NTP),
risk of regulatory payments and compulsions to complete its 3G footprint
may keep free cashflow elusive. Meanwhile 3G capitalisation ends in FY12
and profits should be down 25%YoY. ROIC is down 12ppt from its peak to
less than 6% and is unlikely to turn before FY13CL. Valuation at 8x
EV/Ebitda, leaves no room for a negative surprise. Maintain UPF.
Unlikely M&A participant
Contrary to market expectations, Idea may not be a participant in sector M&A.
Idea India promoters (Birla’s) are committed to the business, although 19.1%
ownership by Axiata may see a change in hands. Even as Axiata views its Idea
investment as long term, the ownership is below even what can be considered a
strategic stake and carries no management role. The company’s stake, at over
Rs156/share (2x the CMP), was a result of a 2008 deal. Because it was a merger,
there was no open offer for minority shareholders. In the future, the structure of a
potential deal or change of ownership will determine the upside for minority
shareholders. Meanwhile, any stake sale by a promoter holding of up to 5% pa
will not trigger an open offer.
Indus tower stake is strategic
After the 16% stake sale in Aditya Birla Telecom (ABTL) in October 2008, Idea still
holds 13% of Indus Tower. Although future placements or monetisation of Tower
assets, at the time of the proposed listing, may enable Idea to unlock value for
this stake and deleverage faster than the market expects. However, even that
could fail as a trigger, with a likely compromise on valuations (as tower valuations
will now be 20-40% lower). Idea’s Indus stake is of strategic important to its own
mobile business and a sell down may not be in its long-term interest.
Elusive free cash-flows
Unless dismissed by the upcoming NTP 2011, there is risk of further regulatory
payments, by incumbents and Idea at Rs13bn (US$296m), for an additional onetime payment for 2G spectrum over 6.2MHz; and an NPV of Rs89bn (US$2bn) for
renewing 2G licences (starting December 2015) as well as re-farming and
compulsions to complete 3G footprints, particularly in the crucial urban markets of
Mumbai and Delhi. All the contingencies aggregate the investment requirements
at US$4.7bn (Rs64/share). With Idea’s gearing already about 3x net debt to
Ebitda, future free cashflow may remain elusive.
End of 3G capitalisation and ROIC below 6%
Despite the risks posed by Idea 3G miss in Mumbai Delhi, we estimate FY12
Ebitda at 19% growth. However, given the increased burden of interest
depreciation and amortisation, with an end to 3G capitalisation, FY12 profits
should be down 25% YoY. Meanwhile business ROIC is down 12ppt from its peak
to less than 6%. It is unlikely to turn before FY13. Valuation at 8x EV/Ebitda,
leaves no room for a negative surprise. We maintain Underperform call.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Elusive free cashflow
Contrary to market expectations, Idea Cellular may not be a sector M&A
participant. Unlocking value from Indus Tower may be tricky with 20-
40% lower valuation versus the last deal and a risk of change in strategic
positioning. Also, unless dismissed by New Telecom Policy 2011 (NTP),
risk of regulatory payments and compulsions to complete its 3G footprint
may keep free cashflow elusive. Meanwhile 3G capitalisation ends in FY12
and profits should be down 25%YoY. ROIC is down 12ppt from its peak to
less than 6% and is unlikely to turn before FY13CL. Valuation at 8x
EV/Ebitda, leaves no room for a negative surprise. Maintain UPF.
Unlikely M&A participant
Contrary to market expectations, Idea may not be a participant in sector M&A.
Idea India promoters (Birla’s) are committed to the business, although 19.1%
ownership by Axiata may see a change in hands. Even as Axiata views its Idea
investment as long term, the ownership is below even what can be considered a
strategic stake and carries no management role. The company’s stake, at over
Rs156/share (2x the CMP), was a result of a 2008 deal. Because it was a merger,
there was no open offer for minority shareholders. In the future, the structure of a
potential deal or change of ownership will determine the upside for minority
shareholders. Meanwhile, any stake sale by a promoter holding of up to 5% pa
will not trigger an open offer.
Indus tower stake is strategic
After the 16% stake sale in Aditya Birla Telecom (ABTL) in October 2008, Idea still
holds 13% of Indus Tower. Although future placements or monetisation of Tower
assets, at the time of the proposed listing, may enable Idea to unlock value for
this stake and deleverage faster than the market expects. However, even that
could fail as a trigger, with a likely compromise on valuations (as tower valuations
will now be 20-40% lower). Idea’s Indus stake is of strategic important to its own
mobile business and a sell down may not be in its long-term interest.
Elusive free cash-flows
Unless dismissed by the upcoming NTP 2011, there is risk of further regulatory
payments, by incumbents and Idea at Rs13bn (US$296m), for an additional onetime payment for 2G spectrum over 6.2MHz; and an NPV of Rs89bn (US$2bn) for
renewing 2G licences (starting December 2015) as well as re-farming and
compulsions to complete 3G footprints, particularly in the crucial urban markets of
Mumbai and Delhi. All the contingencies aggregate the investment requirements
at US$4.7bn (Rs64/share). With Idea’s gearing already about 3x net debt to
Ebitda, future free cashflow may remain elusive.
End of 3G capitalisation and ROIC below 6%
Despite the risks posed by Idea 3G miss in Mumbai Delhi, we estimate FY12
Ebitda at 19% growth. However, given the increased burden of interest
depreciation and amortisation, with an end to 3G capitalisation, FY12 profits
should be down 25% YoY. Meanwhile business ROIC is down 12ppt from its peak
to less than 6%. It is unlikely to turn before FY13. Valuation at 8x EV/Ebitda,
leaves no room for a negative surprise. We maintain Underperform call.
No comments:
Post a Comment