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Buy
Idea Cellular (IDEA.BO)
Return Potential: 11% Equity Research
CEO Meeting: Focus on new rev. streams;“sweating”existing assets
Source of opportunity
Goldman Sachs hosted an investor meeting with the new CEO and CFO of
Idea Cellular. The meeting reinforced our view that Idea will maintain
double digit revenue/EBITDA growth in its incumbent circles (we estimate
FY11-14E revenue/EBITDA CAGR of 13%/14% and reduce its losses from
new circles, while 3G contributions may further provide upside to our and
consensus estimates. The new CEO highlighted Idea’s strategy on: 3G and
its new and incumbent circles; and is focusing on fortifying Idea’s position
in incumbent circles, generating new revenue streams from 3G, and on
shareholder returns.
Catalyst
1) Continued revenue market share gain and faster-than-estimated decline
in new circle losses; 2) Potential newsflow on headline 2G tariff inching up;
3) Improving visibility on 3G revenue uptake.
Valuation
We reiterate our Buy rating on Idea and revise our 12 month SOTP based
target price to Rs86 from Rs77 as we raise our FY12/FY13/FY14 diluted EPS
by 5.7%/4.6%/3.8% to Rs2.80/Rs4.31Rs6.18 to factor in better-than-expected
4Q numbers, limited impact from MNP and continued strong execution.
Idea is trading at 6.5x FY13E EV/EBITDA (vs. 6.1x/6.6x for RCOM/Bharti),
but offers better EBITDA growth (FY11-14E CAGR of 21% for Idea vs. -
1%/19% for RCOM/Bharti). We believe Bloomberg consensus is not fully
factoring in strong execution capability in its incumbent circles, scale
benefits of its pan-India presence and any material contribution from 3G to
revenues/EBITDA. Our EPS estimates are 18%/11% ahead of Bloomberg
consensus in FY12/FY13.
Key risks
Higher competitive intensity; potential cancellation of the proposed IdeaSpice merger; higher-than-expected license renewal fees.
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 �� ��
Buy
Idea Cellular (IDEA.BO)
Return Potential: 11% Equity Research
CEO Meeting: Focus on new rev. streams;“sweating”existing assets
Source of opportunity
Goldman Sachs hosted an investor meeting with the new CEO and CFO of
Idea Cellular. The meeting reinforced our view that Idea will maintain
double digit revenue/EBITDA growth in its incumbent circles (we estimate
FY11-14E revenue/EBITDA CAGR of 13%/14% and reduce its losses from
new circles, while 3G contributions may further provide upside to our and
consensus estimates. The new CEO highlighted Idea’s strategy on: 3G and
its new and incumbent circles; and is focusing on fortifying Idea’s position
in incumbent circles, generating new revenue streams from 3G, and on
shareholder returns.
Catalyst
1) Continued revenue market share gain and faster-than-estimated decline
in new circle losses; 2) Potential newsflow on headline 2G tariff inching up;
3) Improving visibility on 3G revenue uptake.
Valuation
We reiterate our Buy rating on Idea and revise our 12 month SOTP based
target price to Rs86 from Rs77 as we raise our FY12/FY13/FY14 diluted EPS
by 5.7%/4.6%/3.8% to Rs2.80/Rs4.31Rs6.18 to factor in better-than-expected
4Q numbers, limited impact from MNP and continued strong execution.
Idea is trading at 6.5x FY13E EV/EBITDA (vs. 6.1x/6.6x for RCOM/Bharti),
but offers better EBITDA growth (FY11-14E CAGR of 21% for Idea vs. -
1%/19% for RCOM/Bharti). We believe Bloomberg consensus is not fully
factoring in strong execution capability in its incumbent circles, scale
benefits of its pan-India presence and any material contribution from 3G to
revenues/EBITDA. Our EPS estimates are 18%/11% ahead of Bloomberg
consensus in FY12/FY13.
Key risks
Higher competitive intensity; potential cancellation of the proposed IdeaSpice merger; higher-than-expected license renewal fees.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Coverage View: Neutral
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