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F a s t e s t g r o w i n g d o m e s t i c p l a y e r …
Idea is the fastest growing player and has gained maximum revenue
share, which has increased from 9.3% in Q2FY08 to 14.1% in Q2FY12.
With 74.6% of its subscribers and 82.7% of its revenue coming form 3G
circles, Idea is best positioned to leverage its strong and superior
subscriber base in these circles to generate higher yields from 3G
spectrum. With pricing stability, 3G uptake and reduction in network
rollout intensity we expect EBITDA margins to expand to 27.7% by FY14.
Idea would post revenue and PAT CAGR of 18.5% and 26.5% over FY11-
14E. However, Trai recommendations related to spectrum pricing, if
implemented, would have a greater impact on Idea Cellular. We maintain
Hold on Idea with a target price of | 99.
Growth on fast track
Idea has witnessed the fastest revenue growth in the industry among
listed peers. The company has been gaining revenue market share on the
back of rapid high quality subscriber addition. We expect revenues to
grow at 18.5% CAGR over FY11-14E to | 25714 crore on the back of
17.7% CAGR in the traffic and an improvement of ARPM by ~ 1 paisa to
44 paisa. The subscriber base is expected to increase from 89.5 million in
FY11 to 140 million in FY14 at a CAGR of 16.1%.
3G presence in established circles to drive 3G revenues
Idea has won 3G licenses in circles that contribute 82.7% to its revenue
and 74.6% to its subscriber base. Their strong presence in these 2G
circles is expected to help drive the 3G revenues. We expect the company
to generate ~ | 2780 crore from 3G services by FY14 led by an ARPU of
| 360 and 3G subscriber base of 7.7 million.
High sensitivity to regulatory policy
The sensitivity of the company to regulatory policy remains a concern.
Should Trai’s recommendations be accepted in current form, Idea could
face an impact of ~ | 33 per share.
Valuations
Reducing network rollout intensity and higher 3G uptake margins are
expected to help the margins expand, though spectrum pricing would
remain near term overhang. Assuming revenue CAGR of 12.6% over
FY11-FY20E and terminal growth of 3% thereon, we have arrived at a
target price of | 80/ share for the core business. We have valued the Indus
contribution at | 19/ share to arrive at a target price of | 99/ share.
Company background
Idea Cellular is the third largest mobile services operator in India with a
subscriber base of over 104 million subscribers, as of November 2011.
Idea is a pan-India integrated GSM operator and has its own NLD and ILD
operations and ISP licenses. The company operates across all 22 service
areas with 2G services and 3G services are being progressively rolled out
to cover over 3,000 towns by FY12.
Idea has a network of over 70,000 cell sites, over 3,000 service centres
servicing Idea subscribers across the country including 450 special
Experience Zones for 3G promotion. Idea’s service delivery platform is
ISO 9001:2008 certified, making it the only operator in the country to have
this standard certification for all 22 service areas and the corporate office.
Idea has deep penetration in the non-urban and rural market. It boasts of
the highest share of rural subscribers as a percentage of total subscribers
among GSM players.
Valuation
SOTP based target price of | 99/ share
The company is the fastest growing player in the domestic industry. Idea
has gained maximum revenue share in the past few years. With reducing
network rollout intensity and 3G uptake, margins are expected to go
northwards for the company. However, Trai recommendations related to
spectrum pricing, if implemented in their current from, would have a
greater impact on Idea Cellular. This remains a near term overhang on the
stock.
Using the DCF methodology and assuming revenue CAGR of 12.6% over
FY11–20E and terminal growth of 3% thereon, we have arrived at a target
price of | 80/ share for the core business. We have valued the Indus
contribution at | 19/ share to arrive at a target price of | 99/ share. We
maintain HOLD rating the stock.
Exhibit : DCF Assumptions
| in Crore
WACC 11.4%
Revenue CAGR over FY11-20E 12.6%
Present Value of Cash Flow till FY20E 13,366.0
Terminal Growth 3.0%
Present Value of terminal cash flow 24,698.9
PV of firm 38,065.0
Less: Current Debt 12,070.5
Total present value of the Equity (excluding current cash) 25,994.5
Number of Equity Shares outstanding 330.3
Per Share Value (excluding current cash) 78.7
Add Current Cash Per Share 1.4
DCF - Target price (|) 80
Source: Company, ICICIdirect.com Research
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
F a s t e s t g r o w i n g d o m e s t i c p l a y e r …
Idea is the fastest growing player and has gained maximum revenue
share, which has increased from 9.3% in Q2FY08 to 14.1% in Q2FY12.
With 74.6% of its subscribers and 82.7% of its revenue coming form 3G
circles, Idea is best positioned to leverage its strong and superior
subscriber base in these circles to generate higher yields from 3G
spectrum. With pricing stability, 3G uptake and reduction in network
rollout intensity we expect EBITDA margins to expand to 27.7% by FY14.
Idea would post revenue and PAT CAGR of 18.5% and 26.5% over FY11-
14E. However, Trai recommendations related to spectrum pricing, if
implemented, would have a greater impact on Idea Cellular. We maintain
Hold on Idea with a target price of | 99.
Growth on fast track
Idea has witnessed the fastest revenue growth in the industry among
listed peers. The company has been gaining revenue market share on the
back of rapid high quality subscriber addition. We expect revenues to
grow at 18.5% CAGR over FY11-14E to | 25714 crore on the back of
17.7% CAGR in the traffic and an improvement of ARPM by ~ 1 paisa to
44 paisa. The subscriber base is expected to increase from 89.5 million in
FY11 to 140 million in FY14 at a CAGR of 16.1%.
3G presence in established circles to drive 3G revenues
Idea has won 3G licenses in circles that contribute 82.7% to its revenue
and 74.6% to its subscriber base. Their strong presence in these 2G
circles is expected to help drive the 3G revenues. We expect the company
to generate ~ | 2780 crore from 3G services by FY14 led by an ARPU of
| 360 and 3G subscriber base of 7.7 million.
High sensitivity to regulatory policy
The sensitivity of the company to regulatory policy remains a concern.
Should Trai’s recommendations be accepted in current form, Idea could
face an impact of ~ | 33 per share.
Valuations
Reducing network rollout intensity and higher 3G uptake margins are
expected to help the margins expand, though spectrum pricing would
remain near term overhang. Assuming revenue CAGR of 12.6% over
FY11-FY20E and terminal growth of 3% thereon, we have arrived at a
target price of | 80/ share for the core business. We have valued the Indus
contribution at | 19/ share to arrive at a target price of | 99/ share.
Company background
Idea Cellular is the third largest mobile services operator in India with a
subscriber base of over 104 million subscribers, as of November 2011.
Idea is a pan-India integrated GSM operator and has its own NLD and ILD
operations and ISP licenses. The company operates across all 22 service
areas with 2G services and 3G services are being progressively rolled out
to cover over 3,000 towns by FY12.
Idea has a network of over 70,000 cell sites, over 3,000 service centres
servicing Idea subscribers across the country including 450 special
Experience Zones for 3G promotion. Idea’s service delivery platform is
ISO 9001:2008 certified, making it the only operator in the country to have
this standard certification for all 22 service areas and the corporate office.
Idea has deep penetration in the non-urban and rural market. It boasts of
the highest share of rural subscribers as a percentage of total subscribers
among GSM players.
Valuation
SOTP based target price of | 99/ share
The company is the fastest growing player in the domestic industry. Idea
has gained maximum revenue share in the past few years. With reducing
network rollout intensity and 3G uptake, margins are expected to go
northwards for the company. However, Trai recommendations related to
spectrum pricing, if implemented in their current from, would have a
greater impact on Idea Cellular. This remains a near term overhang on the
stock.
Using the DCF methodology and assuming revenue CAGR of 12.6% over
FY11–20E and terminal growth of 3% thereon, we have arrived at a target
price of | 80/ share for the core business. We have valued the Indus
contribution at | 19/ share to arrive at a target price of | 99/ share. We
maintain HOLD rating the stock.
Exhibit : DCF Assumptions
| in Crore
WACC 11.4%
Revenue CAGR over FY11-20E 12.6%
Present Value of Cash Flow till FY20E 13,366.0
Terminal Growth 3.0%
Present Value of terminal cash flow 24,698.9
PV of firm 38,065.0
Less: Current Debt 12,070.5
Total present value of the Equity (excluding current cash) 25,994.5
Number of Equity Shares outstanding 330.3
Per Share Value (excluding current cash) 78.7
Add Current Cash Per Share 1.4
DCF - Target price (|) 80
Source: Company, ICICIdirect.com Research
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