Monday, October 12, 2009


Idea Cellular (Idea), part of the Aditya Birla Group, is one of the leading providers of wireless communication services in India. Currently, the company is operating in 17 of 22 telecom circles in India, is set to become a pan-India player by end-2009. The company is a unique wireless play—strong incumbent in a tough industry environment with superior spectrum profile, as well as a new entrant capitalising on new growth opportunities. Idea’s expansion into new circles is expected to provide a leg up to its subscriber and revenue growth in the near term and offer long-term profit growth opportunities. It is slated to launch operations in five circles over the next two quarters—three category C circles (Assam, NE, J&K), one category B circle (West Bengal), and one Metro circle (Kolkata). On valuation front, Idea’s consolidated EBITDA and net profit to post a healthy CAGR of 20% and 14%, respectively, over FY10-12E. The company is in a comfortable funding position (ex-3G) post stake sale to Axiata and Providence Equity We expect Idea (incl Spice) to post a healthy revenue CAGR of 14% with new circles driving revenue growth; old circles are expected to post a 10% CAGR over FY10-12E. Revenue share of new circles is expected to touch 15% in FY12E.However the Idea Cellular stock has been de-rated by the markets over the last couple of days, and has been trading much below its issue price on the back of worries about declining revenues. Along with the Key risks that include irrational bidding for 3G spectrum and execution risks on new launches, news that hammered the stock was the TRAI’s planning to make per second billing option mandatory. Tariff cuts will intensify the pressures on the sector in the near-term.

Technicals: The counter has been witnessing a steep downtrend. The third part of the down
trend that commenced from the Rs 77 peak is currently in motion and has dragged the stock
towards its long-term support at Rs 62. The stock can form a long-term trough at this level and
move up towards Rs 72-75 again. However, the long-term outlook for this stock will turn
positive only if it moves above Rs 75. Counter bottomed out in the beginning of 2009 at the
level of 43-45 and since then it started to retrace back along with good amount of volumes and
touched the high of 92.

To see full report: IDEA CELLULAR