Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strong performance but weak FCF; target price Rs105, maintaining Hold
Idea’s operating performance has been the strongest among its incumbent
peers. It has creditably defended its revenue-share in legacy markets and
managed to improve its cost competitiveness relative to the sector leader,
Bharti. We have increased FY13E/14E EBITDA by 16%/18%, EPS by 0%/10%
and target price by 50% implying a rerating which reflects its competitive
position. The two concerns are a) relatively higher impact of likely regulatory
costs and b) weaker FCF profile compared to its peers. Our EPS factors the
cost of excess spectrum.
Closing the cost gap with sector leader Bharti
Over the last eight quarters, Idea has maintained its revenue-share in its legacy
markets at c.21% despite dramatic changes in competitive dynamics. More
recently (last 2 quarters), it has improved EBITDA margin in these markets by
c.150bps to 29.4%, driven by improving revenue per minute. We estimate that
Idea has largely closed the gap with Bharti on network and SG&A cost/min
and its lower EBITDA per minute (Rs0.09 vs Rs0.15 for Bharti) is primarily due
to higher regulatory and interconnect costs.
Regulatory costs and FCF are the key concerns
We estimate Idea’s cost for ‘excess spectrum’ and license extension at
Rs19bn and Rs46bn. While the excess spectrum cost is factored in our EPS
estimates, the cost of extension should be incurred in FY15/16. Though Idea’s
debt/EBITDA at 2.5x is manageable, its FCF in FY12E/13E/14E of Rs-
30/15/24bn is low relative to its likely cost of license extension. We note that
Idea could monetise its stake in Indus towers (valued at Rs32bn) to bridge
cashflow gaps.
Three-year EBITDA CAGR (FY11-13E) of 33%, trading at 6xFY13E EV/EBITDA
We value Idea on a sum-of-the-parts (SoTP) basis by valuing the core telecom
business using DCF. Our DCF-based target price is Rs105/share: Rs95/share
for core operations and Rs10/share for its 13.5% effective stake in Indus
Towers. Our DCF assumptions are RFR of 6%, risk premium of 8.5%, WACC of
13.5%/10.8% for Idea/Indus and terminal growth rate of 2%. Upside risks
include lower-than-expected spectrum and license extension costs. Adverse
policy decisions are key downside risks.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strong performance but weak FCF; target price Rs105, maintaining Hold
Idea’s operating performance has been the strongest among its incumbent
peers. It has creditably defended its revenue-share in legacy markets and
managed to improve its cost competitiveness relative to the sector leader,
Bharti. We have increased FY13E/14E EBITDA by 16%/18%, EPS by 0%/10%
and target price by 50% implying a rerating which reflects its competitive
position. The two concerns are a) relatively higher impact of likely regulatory
costs and b) weaker FCF profile compared to its peers. Our EPS factors the
cost of excess spectrum.
Closing the cost gap with sector leader Bharti
Over the last eight quarters, Idea has maintained its revenue-share in its legacy
markets at c.21% despite dramatic changes in competitive dynamics. More
recently (last 2 quarters), it has improved EBITDA margin in these markets by
c.150bps to 29.4%, driven by improving revenue per minute. We estimate that
Idea has largely closed the gap with Bharti on network and SG&A cost/min
and its lower EBITDA per minute (Rs0.09 vs Rs0.15 for Bharti) is primarily due
to higher regulatory and interconnect costs.
Regulatory costs and FCF are the key concerns
We estimate Idea’s cost for ‘excess spectrum’ and license extension at
Rs19bn and Rs46bn. While the excess spectrum cost is factored in our EPS
estimates, the cost of extension should be incurred in FY15/16. Though Idea’s
debt/EBITDA at 2.5x is manageable, its FCF in FY12E/13E/14E of Rs-
30/15/24bn is low relative to its likely cost of license extension. We note that
Idea could monetise its stake in Indus towers (valued at Rs32bn) to bridge
cashflow gaps.
Three-year EBITDA CAGR (FY11-13E) of 33%, trading at 6xFY13E EV/EBITDA
We value Idea on a sum-of-the-parts (SoTP) basis by valuing the core telecom
business using DCF. Our DCF-based target price is Rs105/share: Rs95/share
for core operations and Rs10/share for its 13.5% effective stake in Indus
Towers. Our DCF assumptions are RFR of 6%, risk premium of 8.5%, WACC of
13.5%/10.8% for Idea/Indus and terminal growth rate of 2%. Upside risks
include lower-than-expected spectrum and license extension costs. Adverse
policy decisions are key downside risks.
No comments:
Post a Comment