IDEA::Takeaways Motilal Oswal Annual Global Investor Conferences

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Key Takeaways
Significant growth opportunity in voice as well as data
 Penetration of voice services in India is still relatively low at ~50% v/s the global
benchmark of 80-90%.
 Data opportunity could be as large as voice over the next few years.
 Share of non-voice services in revenue is set to increase, as subscribers upgrade
handsets over the next few years and the ecosystem for 3G develops.
 Most global companies derive 30-50% of revenue from data v/s ~3% for India.
Key industry trends
 Virtual consolidation in the industry is evident from increase in revenue market
share of top-three operators from ~55% to ~65% in the last 3-4 years despite
hyper-competition.
 While incremental operating cost for 3G is only a fraction of current operating costs,
amortization and finance costs related to 3G spectrum will negatively impact the
bottomline of all operators.
Overinvestment strategy in established circles
 Idea has a strategy of overinvesting in its established circles, which drives its
leadership. It is focused on deepening its coverage and driving rural growth. 67% of
net subscriber additions for Idea come from rural markets.
 Focus on building scale; with 1.2b minutes/day, Idea is the eighth-largest operator
globally in terms of traffic.
 Enhancing revenue market share driven by (1) focus on quality of subscribers, (2)
cash profits to sustain investments, and (3) higher-than-industry traffic growth.
 Idea is expanding its 3G reach and is rolling out 3G services in 10 towns/day, as
significant growth is expected from wireless broadband on the handsets.
New circle losses likely to continue at current levels
 During FY11, Idea had incurred an EBITDA loss of INR5.4b in its nine new circles.
 The loss is likely to remain at similar levels in the near-term, as the company would
keep investing more as economics in these circles improve.
Regulatory issues
 NTP 2011 would be a key event to watch for.
 Continued overcapacity in the industry remains a challenge.
 Potential exit of unviable operators could be an important milestone for the industry.
Valuation and view
The stock trades at EV/EBITDA of 7.9x FY12E and 5.5x FY13E. Buy with a target price of
INR140.