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Idea Cellular (IDEA) - Qtr. Update - Dated - August 02, 2013




Axis Capital Limited


03 Aug 2013





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Idea delivered a significant revenue and margin beat to our and consensus estimates in Q1FY14. In a way, this quarter sums up Idea’s 100% stock price appreciation over the last one year. We expect consistent execution (leadership in net subscriber additions, volume growth and margin uptick) over the last 8 quarters to continue led by (a) Improvement in RPM led by continuing withdrawal of promotional minutes and (b) volume growth supported by Idea’s consistent network investments (FY14 capex maintained at earlier levels vs. lower investment by peers). Even as Idea’s margin witnessed sharp improvement, we expect further gains led by RPM uptick and lower subscriber acquisition cost (due to lower churn). Other highlights  Upgrade in estimates: We revise our FY14/ FY15 revenue estimates by 4%/ 6%, EBITDA estimates by ~16% each and PAT estimates by 21%/ 18% respectively. A higher base of margin (Q1 margin beat our estimate by ~250 bps) leads to a higher uptick in EBITDA/ PAT estimates compared to revenue estimates  Valuation: We continue to value Idea at 7.5x FY15E EV/E. Our revised TP stands at Rs 170 (Rs 127 earlier). Our TP is based on (a) Rs 188/sh business value (7.5x FY15E EV/E) and (b) negative impact of regulatory charges at Rs 18/sh (down from Rs 30/sh earlier as we knock off worst case impact from lower roaming charges, 3G intra circle roaming, lower MTR – already resolved and reflected in financials). Our TP implies 7% upside from CMP. Upgrade to HOLD  Enabling resolution taken for capital raising: Management believes capital raising, if any, will only be used for spectrum related payouts (renewal fees, first payment) and for acquiring spectrum if prices turn attractive (on events such as government lowering spectrum reserve prices, or spectrum sharing/ trading being allowed). Management clarified that capital raising shall not be done for funding company’s capex At CMP of Rs 159, the stock trades at 25x FY14E EPS of Rs 6.3 (Rs 5.2 earlier) and 18x FY15E EPS of Rs 8.9 (Rs 7.6 earlier). Regards, Priya Rohira (Executive Director – IT & Telecom) Institutional Equity Research Axis Capital Ltd. Tel.: + 91 22 4325 1104 Nivedan Reddy (Asst VP – Telecom) Institutional Equity Research Axis Capital Ltd. Tel.: + 91 22 4325 1128

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