Brokerage house GEPL Capital is bullish on Idea Cellular and has recommended buy rating on the stock with a target price of Rs 160 in its July 03, 2013 research report.
GEPL Capital's research report on Idea Cellular
Idea Cellular, there is continuous improvement in EBITDA margin as compared to flat to declining margins of RCOM and Bharti. This shows how Idea has better cost management as compared to its peers even though it has to play a role of new entrant in around 8 of its new circles. Idea’s new circle margins were negative 21.2 percent in 4QFY13. Operators expect to breakeven on EBITDA basis at Revenue Market Share (RMS) of around 10 percent-12 percent. Idea’s RMS in Bihar is expected at 10 percent and for FY14e we estimate it at 11.5 percent. Similarly, we expect Mumbai margins to improve from around 8.6 percent to around 10 percent. Both circles combined account for around 56 percent of new circle revenues. Expanding RMS in Mumbai and Bihar circles will be the key to reducing EBITDA losses for new circles.
Benefits from reduction in spectrum price
Valuation: "EBITDA for FY14-FY15 is expected to see increment of 4 percent-5 percent on the backdrop of drop in churn. Idea has lowest debt amongst all its peer group companies (i.e. net debt /EBITDA of 1.00x and Net Debt /Equity of 0.45x on FY15 estimates) followed by highest ROCE at 12 percent. We give a 'Buy' recommendation to the stock with a target price of Rs 160, which implies an exit EV/EBITDA multiple of 8x on FY15 estimates. At CMP of Rs 140, the stock is trading at an EV/EBITDA multiple of 11x on FY13 results. The premium it commands over its peers is justifies looking at the strong balance sheet of the company and healthy return ratios," says GEPL Capital research report.
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