IDEA: Raise EBITDA estimates and target price; reiterate BUY :: Kotak Sec, report

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Raise EBITDA estimates and target price; reiterate BUY. We incorporate the strong 3QFY15 EBITDA outperformance and change in depreciation policy into our model and (1) raise EBITDA estimates for FY2015-17E by 2-5% and (2) cut FY2016-17E EPS estimates by 7-10%. DCF rollover to September 2016E drives target price increase to `200 (from `192) even as we revise our spectrum payout assumptions up marginally. We reiterate our BUY rating on the stock


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--> 3QFY15 EBITDA outperformance drives 2-5% EBITDA estimate upgrades Exhibit 1 depicts the key changes to our earnings model for Idea. We have raised our revenue and EBITDA estimates for FY2016-17E by 2-5% even as the revised depreciation policy on network assets (estimated useful life revised down to 9 years from 10) drives a 7-10% cut in our EPS estimates for FY2016-17E. We now expect Idea to grow consolidated EBITDA by 20% in FY2016E to `127 bn. Our EPS estimates for FY2016E and FY2017E now stand at `8.8 and `8.5, respectively; EPS decline in FY2017E reflects full amortization/interest cost impact of February 2014 and expected March 2015 spectrum payouts. We discuss the key assumptions driving our earnings model below –  Standalone wireless revenue growth of 16.6% in FY2016E and 12.8% in FY2017E, with data contributing 45% of incremental revenues in FY2016E and 48% in FY2017E.  We expect voice revenue growth to decelerate gradually and build in 10.7% voice revenue growth in FY2016E (+8.5% volumes, +2% voice RPM) and 8.8% voice revenue growth in FY2017E (+7.2% volumes, +2% voice RPM). We expect Idea to keep growing voice volumes ahead of the market even as our assumptions bake in some moderation in the extent of market share gains.  We build in material slowdown in data revenue growth rates to 51% in FY2016E and 32% in FY2017E to bake in the potential impact of Reliance Jio launch. Our estimates call for a 64%/48% growth in volumes and 8%/9% decline in average data realizations for FY2016/17E. We estimate Idea to have 60 mn data subs at end-FY2017E versus 34 mn at end-3QFY15 and expect 3G data subs base to expand to 31 mn by end-FY2017E versus 13 mn at end- 3QFY15.  We expect Idea’s standalone wireless margins to expand to 31.4% in FY2016E and 32.1% in FY2017E versus 31% reported in 3QFY15 and 30.3% average for FY2015E.  We build in spectrum payouts of `300 bn in the upcoming auctions – `180-220 bn for renewals and `80-120 bn for fresh spectrum purchases. We note that we had been building a similar total payout over FY2015-17E cumulatively. We have now bunched the entire payout upfront in the upcoming auctions.

LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily29012015tg.pdf