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We expect Idea's EBITDA to touch 2.2x in three years led by price stability, minute market share
gains, improvement in network utilisation and a fall in churn rate. We believe ROE will expand to
15.8% by FY14. Initiate coverage with Buy.
We believe revenue growth momentum will improve due to price stability
We expect Idea’s revenue to grow at about a 21% CAGR over FY11-14F led by: 1) a minutes of
use (MoU) CAGR of about 21% over FY11-14 to 639bn minutes; and 2) stable revenue per
minute (RPM) of 43.1p in FY11 to 42.8p in FY14. We expect the company to gain incremental
minute market share (MinMS) of 18% over FY11-14 led by gains from mobile number portability
(MNP), consolidation of leadership in the old circles, and improved market share in the new
circles, including the Punjab and Karnataka circles acquired from Spice. We forecast this will lead
to a MoU CAGR of about 21% over FY11-14.
EBITDA likely to touch 2.2x in three years, in our view
We expect Idea’s EBITDA to grow at a CAGR of 29.6% over FY11-14. We also expect the
EBITDA margin to expand from 24.1% in FY11 (26.6% in 1QFY12) to 29.7% in FY14 led by: 1)
an improvement in network utilisation (from 5.8m minutes/cell site in 1QFY12 to 6.7m by FY14);
and 2) a reduction in the churn rate (from 9.2% in FY11 to 5.4% in FY14). The EBITDA losses
from new circles (Rs5.4bn loss in FY11) could contract.
TRAI recommendations, if implemented, could have a negative impact
We believe it would be difficult to implement the Telecom Regulatory Authority of India’s
recommendations on spectrum charges in their current form because it may lead to an unlevel
playing field among new and existing companies. However, our target price factors in the worstcase
impact of the recommendations: a downside of Rs23/sh, in our view.
We initiate with a Buy; Idea is the biggest beneficiary of structural improvement
We initiate with a Buy and a 12-month target price of Rs121. We believe Idea would outperform
its peers driven by: 1) higher growth: EBITDA CAGR of 29.6% over FY11-14; and 2) an
expansion of ROE to 15.8% by FY14 (from 7.6% in FY11). Our target price implies EV/EBITDA
multiples of 7.2x FY13F and 5.9x FY14F.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We expect Idea's EBITDA to touch 2.2x in three years led by price stability, minute market share
gains, improvement in network utilisation and a fall in churn rate. We believe ROE will expand to
15.8% by FY14. Initiate coverage with Buy.
We believe revenue growth momentum will improve due to price stability
We expect Idea’s revenue to grow at about a 21% CAGR over FY11-14F led by: 1) a minutes of
use (MoU) CAGR of about 21% over FY11-14 to 639bn minutes; and 2) stable revenue per
minute (RPM) of 43.1p in FY11 to 42.8p in FY14. We expect the company to gain incremental
minute market share (MinMS) of 18% over FY11-14 led by gains from mobile number portability
(MNP), consolidation of leadership in the old circles, and improved market share in the new
circles, including the Punjab and Karnataka circles acquired from Spice. We forecast this will lead
to a MoU CAGR of about 21% over FY11-14.
EBITDA likely to touch 2.2x in three years, in our view
We expect Idea’s EBITDA to grow at a CAGR of 29.6% over FY11-14. We also expect the
EBITDA margin to expand from 24.1% in FY11 (26.6% in 1QFY12) to 29.7% in FY14 led by: 1)
an improvement in network utilisation (from 5.8m minutes/cell site in 1QFY12 to 6.7m by FY14);
and 2) a reduction in the churn rate (from 9.2% in FY11 to 5.4% in FY14). The EBITDA losses
from new circles (Rs5.4bn loss in FY11) could contract.
TRAI recommendations, if implemented, could have a negative impact
We believe it would be difficult to implement the Telecom Regulatory Authority of India’s
recommendations on spectrum charges in their current form because it may lead to an unlevel
playing field among new and existing companies. However, our target price factors in the worstcase
impact of the recommendations: a downside of Rs23/sh, in our view.
We initiate with a Buy; Idea is the biggest beneficiary of structural improvement
We initiate with a Buy and a 12-month target price of Rs121. We believe Idea would outperform
its peers driven by: 1) higher growth: EBITDA CAGR of 29.6% over FY11-14; and 2) an
expansion of ROE to 15.8% by FY14 (from 7.6% in FY11). Our target price implies EV/EBITDA
multiples of 7.2x FY13F and 5.9x FY14F.
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