Hold Idea Cellular; target of Rs 70: ICICI Direct

In line with its laid out strategy of focusing on data subscriber addition, Idea posted 10.2% QoQ data subscriber growth to 54.1 million users coupled with 15.4% QoQ growth in overall data volume to 107.4 billion MB. However, data realisation fall was steeper at 11.0% QoQ to 18.7 paisa, hence diluting data revenue growth to 2.5% QoQ at Rs 2000.6 crore. Going ahead, as Idea continues to focus on new data subscriber addition and the competitive intensity being high, data tariffs are bound to decline. We expect data tariffs to decline at 29.3% CAGR in FY16-18E, diluting the data revenue growth CAGR to 18.0% to Rs 9565.3 crore despite a data growth CAGR of 66.9% over FY16-18E to 829.5 billion MB in FY18E.

We note that Idea has successfully completed its pan-India mobile broadband footprint with purchase of 274.6 MHz of spectrum at an aggregate bid value of Rs 12,798 crore completing its mobile broadband footprint across all 22 circles with 4G capacity in 20 circles. We have revised our estimates for Idea factoring in the steep cuts in tariffs taken in response to competition. We remain wary of the disruptions in the data space with the ongoing price war. Idea, with relatively lower subscriber quality than the leaders, has higher elasticity to tariff cuts. We maintain HOLD with a revised target price of Rs 70 on a DCF based methodology.