Motilal Oswal: neutral on Idea Cellular; target of Rs 125

Motilal Oswal's research report on Idea CellularIDEA’s 4QFY16 consolidated EBITDA grew 18% YoY/16% QoQ to INR36.2b (8% above our estimate of INR33.1b) primarily led my lower network/roaming and access charges and SG&A. PAT declined 35%YoY/25% QoQ to INR5.8b as higher depreciation and net finance cost spiraled due to 1) License renewals in 7 new circles, 2) the recent 4G launch in 10 circles, 3) Introduction of 2nd 3G carrier in 2 circles. In spite of higher-than-expected depreciation and finance cost, PAT beat our estimates as EBITDA beat flowed through. Upcoming launch of Reliance JIO and ongoing significant increase in proportion of data revenue could cause disruption in pricing and investment requirement. We largely maintain our EBITDA and earnings estimates for FY17/FY18. The stock trades at EV/EBITDA of 6.1x FY17/5x FY18. Maintain a Neutral rating on the stock with a price target of INR125/sh (unchanged) based on 5.0x EV/EBITDA for core business and ~INR9m/tower for Indus stake.

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