Retain ‘hold’ on Idea Cellular, target Rs 150: Religare Institutional

We maintain ‘hold’ on Idea Cellular with a target price of R150 per share. While Idea’s 4G launch will strengthen its high-speed data offering, the coverage is not only thin but also in circles where 4G device penetration is low. We would hence wait to see the company’s pricing strategy for major cities where device penetration is better. Hence, we remain cautious.

Idea last week announced the launch of 4G LTE services in 75 tier III and tier IV towns in four telecom sectors of South India – Andhra Pradesh & Telangana, Karnataka, Kerala and Tamil Nadu.

The company currently has 1.8 million 4G devices registered in these circles, and has tied up with smartphone manufacturers (Samsung, Intex, Lava and Lenovo) to improve the device ecosystem. By June 2016, Idea plans to roll out 4G services across 10 telecom circles.

To accelerate 4G adoption, Idea is offering 1GB of 4G data at towns R149 (trial pack) and will offer 1GB of 4G data at 3G prices.

The aggressive pricing strategy – similar to that adopted by other players – appears to be compensating subscribers for lower coverage versus 3G and is unlikely to translate into market share gains.

We note that Idea, like its peers, is moving towards content integrated data plans and pushing for higher data usage.

We think content integration is critical for telcos to drive customer stickiness and average revenue per user.

IDEA Cellular Limited