Buy Idea Cellular; target of Rs 133: FinQuest Securities

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Buy Idea Cellular; target of Rs 133: FinQuest Securities

FinQuest Securities is bullish on Idea Cellular and has recommended buy rating on the stock with a target of Rs 133 in its January 25, 2012 research report.

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FinQuest Securities is bullish on Idea Cellular and has recommended buy rating on the stock with a target of Rs 133 in its January 25, 2012 research report.

"Idea Cellular which is the country's third largest mobile operator in terms of revenue posted improved performance during Q3FY12. The consolidated revenue increased 27% Y-o-Y (9% Q-o-Q) to Rs 50.20 bn, which was in line with our estimation of Rs 48.51 bn. Improvement in revenue was a result of rise in Average revenue per minute (ARPM) to 43.3 paisa in Q3FY12 as compared to 42.7 paisa in the previous quarter. Besides the VAS contribution to the total voice revenue increased to 13.7% in Q3FY12 as compared to 13.2% in Q2FY12, while the minutes on the network of the company rose by 7.3% to 113.96 bn minutes during the quarter. At a time when major incumbents witnessed slowdown in subscriber growth, Idea Cellular witnessed healthy growth in subscriber addition during Q3FY12. Subscribers grew by 6.2 mn during the quarter, to take the company's total subscriber base to 106.4 mn, thus increasing the company's subscriber market share by 100 bps to 11.9% at the end of December 2011."

"The eight new circles of the company continued to make EBIDTA loss, however during the quarter the EBIDTA loss was lower at Rs 1.72 bn as compared to Rs 1.78 bn in Q2FY12. In most of the new circles the company holds spectrum in 1800 MHz band and holds 3G licenses in the Uttar Pradesh (East) and Himachal Pradesh circle, where the network expansion cost for 2G and 3G services is high. The consolidated EBIDTA margin improved 266 bps Y-o-Y (108 bps Q-o-Q) to 26.6%, despite sharp rise in roaming & access charges as the rest of the cost heads as a percentage of sales witnessed marginal fall during the quarter under review. The improvement in margins was primarily due to improved tariffs and increase in VAS business."

"Idea Cellular is expanding its 3G network in the major circles of operation and is now available across 2,300 towns in 20 service areas (including roaming arrangements) in India. During the previous quarter company introduced affordable Idea branded 3G smart-phones starting from Rs. 5,850 onwards thereby helping Idea's 106 mn subscribers to move to the new exciting digital age. Company has improved its competitive standing to 14% revenue market share and extended its MNP leadership with net gain of 2.2 mn customers (as on 14th January, 2012) from other existing operators."

"Considering such impressive subscriber acquisition during the quarter and the healthy pricing environment, we revise our revenue forecast for FY12 and FY13 upward from Rs 190.85 bn and Rs 242.17 bn to Rs 194.58 bn and Rs 243.58 bn respectively. However due to high operating expenses we marginally revise our EPS estimate for FY12 and FY13 downward from Rs 2.3 and Rs 5 to Rs 2.25 and Rs 4.1 respectively. However we continue to remain positive on the company's operational front although there are some regulatory concerns at this stage. We maintain our one year price target at Rs 133. We are positive on the company and we believe that the operating performance of the company going ahead will witness excellent growth driven by 2G tariff increase and pick up of the 3G business, besides the turnaround of operation in company's new service areas. We are however marginally bothered by the regulatory uncertainty for the sector. At CMP of Rs 94, the stock is trading at PE and EV/EBITDA of 22.8x and 6.6x respectively of its FY13E earnings. We maintain our BUY rating on the stock with target price unchanged at Rs 133," says FinQuest Securities research report.        

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