Hold Idea Cellular, target of Rs 160: Edelweiss

Edelweiss’s report on Idea CellularIdea Cellular (Idea) reported sub-par Q2FY16 revenue of INR86.9bn (down 1.2% QoQ) led by 3.2% QoQ voice volume drop and 0.6% QoQ voice realisation dip. Higher subscriber acquisition costs and wage hikes dented EBITDA margin 150bps QoQ to 35.2%. Data revenue growth too moderated to 9.3% QoQ as realisations fell 4.9% QoQ, while volumes grew 14.9% QoQ. The company rolled out 9,947 towers during the quarter, of which 6,246 are 3G, and has maintained rollout target of incremental 30,000-35,000 3G/4G towers till June 2016. Although we are confident of robust data volume growth, we believe the sector remains unattractive due to increased capex requirement to cater to the burgeoning data demand, continued fall in data realisations and heightened competitive intensity. Maintain ‘HOLD’ with DCF-based target price of INR160 (INR167 earlier).Outlook & valuations: Returns to compress; maintain ‘HOLD’We believe the telecom sector is in investment phase, which is bound to compress return ratios for the next 2 years. Competitive intensity is likely to increase further as Reliance Jio (RJIO) enters the fray. Given the sector headwinds, stock valuations at 6.6x FY17E EV/EBITDA are not attractive. We have cut our FY16 revenue/EBITDA estimates by 0.7%/1.9% to factor in weak quarter, but we maintain our FY17 estimates. We maintain ‘HOLD/SP’ with revised DCF-based target price of INR 160, says Edelweiss Securities Limited research report.For all recommendations, click hereDisclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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