The stock had closed almost 10 percent closer on March 20 and fell over 7 percent intraday on Tuesday. CLSA has maintained its sell call on the stock, while Motilal Oswal has upgraded the stock to a buy call.
Idea Cellular continued to see selling pressure on Tuesday, following its merger announcement with Vodafone on Monday.
The stock had closed almost 10 percent closer on March 20 and fell over 7 percent intraday on Tuesday.
CLSA has maintained its sell call on the stock, citing pressure revenue and EBITDA forecasts due to rising competition. It has lowered the target price to Rs 90 from Rs 100.
The brokerage house has lowered its revenue and earnings before interest, taxes, depreciation and amortisation (EBITDA) estimates by 2-27 percent to factor the near term risk due to heightened competition and recently-launched unlimited plans.
On positives, it felt that the merger is tilted relatively in Aditya Birla Group’s favour. “The swap ratio of 1:1 implies a ~3% valuation premium for Idea even after adjusting for the value of its Indus stake. Further, despite having lower economic interest, AB Group will have the same voting rights and board representation as Vodafone,” it said in a report.
The firm said that realising merger synergies are key to deleveraging. “Management expects cumulative merger integration costs of Rs 13,300 crore over the first 4 years of the merger & merger synergies of Rs 14,000 crore annually from the fourth year. Rs 8,400 crore of this is expected to come from lower operating costs & the remaining Rs 5,600 crore is expected from lower capex,” the report added.
Meanwhile Religare highlighted that the valuations, synergy estimates were in line with its expectations. While the merger is positive for Idea, given the scale and access to capital, defending market share will be a challenge. “Idea’s stock price is already factoring in synergy benefits; hence further upsides will hinge on revenue market share (RMS) protection and industry recovery,” the brokerage said in a report.
Motilal Oswal has a different view overall. It has upgraded Idea Cellular to buy with a target price of Rs 120. It feels that the merger with Vodafone will allow the merged company to command a leadership position in spectrum and broadband sites. “This could lead us to revise up our revenue market share estimates. The current sub-30% EBITDA margin could scale up to 36-39% over next 4-5 years, led by synergies and scale benefits,” it said in a report.At 14:09 hrs, the stock was quoting at Rs 92.75, down Rs 4.85, or 4.97 percent on the BSE. It touched an intraday high of Rs 98.95 and an intraday low of Rs 90.15.
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