Edelweiss recommended hold rating on Idea Cellular with a target price of Rs 78 in its research report dated April 30, 2018.
Edelweiss' research report on Idea Cellular
Idea Cellular (Idea) reported weak revenue (down 5.7% versus Street’s 4.6% decline estimate), but better profitability (16.4% adjusted EBITDA margin versus 15.8% estimate). We believe, Idea and Vodafone’s data capacity utilisation at ~78% (estimate) is high and they will have to accelerate capacity expansion. Idea’s balance sheet is stretched (8.7x net debt to TTM EBITDA) due to sharp fall in ARPU and market recovery is crucial for EBITDA recovery. Given high operating and financial leverage, we expect the stock to be volatile. Post healthy correction in stock price, any positive market or corporate development is likely to drive strong stock performance.
However, due to uncertainties related to merger and timing of market recovery, we remain cautious. To factor slower recovery in ARPU, we cut FY19/FY20E revenue and EBITDA ~3.5% and ~7.5% each, respectively. Maintain ‘HOLD’ with revised TP of INR78 (INR100 earlier).
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