Unfazed by competition Idea says m-share won't be hurt, stock up

With new entrants joining the telecom space, Idea Cellular feels that its revenue market share is unlikely to be affected. In an analysts meet, Idea Cellular management said that it is comfortable with revenue market share estimate being largely flat at 19.5 percent for next 3-4 years despite Jio launch as it is well-placed to consolidate tail at the low-end.  The stock jumped 5 percent intraday on Tuesday.Idea has 18.9 percent overall revenue market share and 31.1 percent  market share in top 8 circles, gaining incremental market share of 33.5 percent and 51.6 percent respectively in last 12 quarters. 

The management is confident that after Reliance Jio launch, top three telecom companies overall market share may not get impacted benefitting by adding low-end subs although they may lose some high-end subscribers. Idea considers low-end customer to be profitable and does not see margin dilution from this subscribers base.

However, Bank of America Merrill Lynch thinks Idea may face increased competition from Bharti and Vodafone, which may make it difficult for Idea to keep gaining market share. The brokerage firm has a neutral rating on the stock with a target of Rs 109 per share.

Goldman Sachs agrees that Idea’s market share may come under pressure, given a number of 3G/4G gaps.  It warns that Idea’s debt levels may stay elevated, with USD 2.6 billion of spectrum purchase in FY17/18 to fill gaps in coverage. 

Morgan Stanley also believes that Reliance Jio launch in 2016 is likely to be disruptive, thus increasing competitive intensity. With an underweight rate on Idea, the brokerage firm warns that data cannibalising voice is the risk and upcoming spectrum auctions would be an overhang on the industry.

The management of Idea, however, also does not see near-term risk of equity dilution for the upcoming auction but see longer-term need for equity as Idea may look to acquire the expensive 700 MHz spectrum as its ecosystem improves. Idea thinks price of spectrum will come down over time.  Idea expects significant availability of spectrum in the 1800Mhz band in the medium term and intends to buy spectrum largely on a 'just-in-time' basis.

Deutsche Bank says current forecast assumes Idea will be spectrum-constrained in the medium term and hence, it should defend its revenue share at the cost of margin and cash flow in the medium term and hence, it should defend its revenue share at the cost of margin and cash flow. The brokerage firm maintains buy rating on the stock with a target price of Rs 137 per share.

Idea does not intend to hold 100 percent stake in its tower subsidiary and will be looking at ways to monetise the asset. The company expects to maintain debt at reasonable levels.

Meanwhile, UBS has a buy rating on the stock with a target of Rs 180 per share.

At 10:39 hrs Idea Cellular was quoting at Rs 105.00, up Rs 4.65, or 4.63 percent on the BSE.

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