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Idea Cellular (IDEA.BO)
Buy Equity Research
RPM increase to continue; focus on 3G rollout; reiterate Buy
What's changed
We reiterate our Buy rating on Idea with a revised 12m SOTP- based PT of
Rs107. Takeaways from the conference call: 1) Idea expects a steady
improvement in RPM in coming quarters led by on-net tariff hikes in July
11. Given the seasonality impact, it is difficult for management to
understand if there is any negative elasticity until now. Idea saw MOU
bounce back in Oct-11; 2) On the 3G roaming agreement: mgmt stated that
the NIA (Notice Inviting Applications) document has clarified that the subs
of operators who do not have 3G licenses can roam on other networks.
Also as license is technology agnostic and as 3G auctions did not modify
license conditions, operators can offer 3G services as per management; 3)
Idea is launching branded Smartphones (Android OS) to accelerate subs
migrations from 2G to 3G. Idea will not offer handset subsidies; 4) Idea is
now increasing coverage more in newer circles where it is gaining traction
(like Bihar, Bengal etc). Roaming agreements lead to slight increase in
EBITDA losses in new circles; 5) Idea’s 3G network currently covers over
1,600 towns and is expected to increase to 3,000 before YE; 6) P&L forex
impact was due to accounts payable (part of it is unrealized) and the markto-market capitalized loss was Rs2.77 bn.
Implications
We reduce our FY12E/FY13E/14E EPS estimates by 24.9%/10.9%/8.3% as
we factor in a higher net interest expenses and tax. Our 12-m SOTP-based
TP falls by 1% to Rs107 as we roll forward our TP by three months.
Valuation
Idea is trading at FY13E EV-EBITDA of 8.2X (Asian telco avg. of 6.2X) but
offers FY11-14E EPS CAGR of 31% (Asian telco avg 4.5%). We rate Idea
Buy as we believe it is best positioned to benefit from 2G tariff hikes and
3G uptake and is one of our preferred picks in regional telcos.
Key risks
Lower-than-expected tariff increases/material rollbacks; Lower data uptake
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Idea Cellular (IDEA.BO)
Buy Equity Research
RPM increase to continue; focus on 3G rollout; reiterate Buy
What's changed
We reiterate our Buy rating on Idea with a revised 12m SOTP- based PT of
Rs107. Takeaways from the conference call: 1) Idea expects a steady
improvement in RPM in coming quarters led by on-net tariff hikes in July
11. Given the seasonality impact, it is difficult for management to
understand if there is any negative elasticity until now. Idea saw MOU
bounce back in Oct-11; 2) On the 3G roaming agreement: mgmt stated that
the NIA (Notice Inviting Applications) document has clarified that the subs
of operators who do not have 3G licenses can roam on other networks.
Also as license is technology agnostic and as 3G auctions did not modify
license conditions, operators can offer 3G services as per management; 3)
Idea is launching branded Smartphones (Android OS) to accelerate subs
migrations from 2G to 3G. Idea will not offer handset subsidies; 4) Idea is
now increasing coverage more in newer circles where it is gaining traction
(like Bihar, Bengal etc). Roaming agreements lead to slight increase in
EBITDA losses in new circles; 5) Idea’s 3G network currently covers over
1,600 towns and is expected to increase to 3,000 before YE; 6) P&L forex
impact was due to accounts payable (part of it is unrealized) and the markto-market capitalized loss was Rs2.77 bn.
Implications
We reduce our FY12E/FY13E/14E EPS estimates by 24.9%/10.9%/8.3% as
we factor in a higher net interest expenses and tax. Our 12-m SOTP-based
TP falls by 1% to Rs107 as we roll forward our TP by three months.
Valuation
Idea is trading at FY13E EV-EBITDA of 8.2X (Asian telco avg. of 6.2X) but
offers FY11-14E EPS CAGR of 31% (Asian telco avg 4.5%). We rate Idea
Buy as we believe it is best positioned to benefit from 2G tariff hikes and
3G uptake and is one of our preferred picks in regional telcos.
Key risks
Lower-than-expected tariff increases/material rollbacks; Lower data uptake
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Coverage View: Neutral
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