Idea Cellular gets ‘Buy’ rating; target price Rs 128

Idea expects sufficient supply of spectrum to allow it to augment its holding when required. As regards the entry of RJio, Idea maintained that there is sufficient room for a fourth player, especially given the contraction in share of the peripheral operators.

Idea is expected to roll out a slew of digital content services to compete with the offerings of Bharti

Airteland RJio and to help ramp up data usage by Idea customers. These are expected to be launched in Q4FY17. Management also believes there is sufficient headroom for growth in the voice segment, especially in the rural areas.

Idea will consolidate its tower assets in order to help unlock value from the tower business. Idea’s tower assets are currently spread across two 100% subsidiaries — Idea Cellular Services (ICSL) and Idea Cellular Infrastructure Services (ICISL) as well as 16% share in Indus Towers. The combined entity will have 29,017 towers at a tenancy ratio of 2.04x. With CMP at ‘100 and our TP at ‘128 (based on 6x FY18E EV/ EBITDA) the stock offers 27% upside. Hence we rate it as a ‘buy’ (‘hold’ earlier). The stock trades at 16.3x FY17E/15.9x FY18E EPS of ‘6.1/’6.3.

Management reiterated it expects sufficient spectrum to be available on-tap and will not be bidding aggressively in the upcoming auctions to acquire spectrum ahead of ramp-up in data traction.

IDEA Cellular Limited