Valuation of Idea Cellular Essay

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Equity Research Report
19th July 2012

Idea Cellular Limited
CMP:INR81.4
Stock Information IDEA.NS/ IDEA.BO Sector Telecom Market Cap.(INR Mil) 280,832 Avg. Daily Volume 1,560,228 Beta 0.94 PE Ratio 38.7 52 Week High/Low 103.7/65.6 SENSEX/Nifty 117266.6/4159.0 Price Perfromance Idea 1 Month 3 Month 6 Month 12 Month 10.2% -6.1% 0.5% 5.4% S&P CNX 500 1.9% -2.8% 4.9% -9.2%

“Rating:Hold (on watch)”

Target Price: INR96

Our DCF valuation indicates upside of almost 18% from current price level in next 12 months but consideration of potential regulatory cost makes it unattractive at the moment. We should rather wait for regulatory uncertainty to get over.

Key Highlights
 Tariff rates: We see strong likelihood for tariff hike
…show more content…
Idea is a pure play GSM player with presence in all over India. It recently acquired two circles of Punjab and Karnataka through acquisition of Spice Communication. Idea is market leader in three circles of Maharashtra, Haryana and Uttar Pradesh (West).

Business Analysis
Chart 1: A-Subscriber base (mln); B-ARPU (INR); C-ARPM (Paisa)
120
100

Subscriber base (mn) % growth (RHS)

12.0% 190
10.0% 180 8.0% 170 6.0% 160 4.0% 2.0% 150

ARPU (INR) % growth (RHS)

4.0%

45

ARPM (Paisa) % growth (RHS)

8.0%

80 60
40

0.0%
-4.0%

42 39

4.0%
0.0%

20 0
Dec'10 Dec'11 Sep'10 Sep'11

-8.0%

-4.0% -8.0%

0.0%

140
Dec'10 Dec'11

-12.0% 36

Jun'10

Jun'11

Mar'11

Mar'12

Dec'10

Mar'11

Dec'11

Sep'11

Sep'11

Sep'10

Sep'10

Jun'10

Jun'11

Jun'11

Jun'10

Source: Company reports

Subscriber base: Idea has seen consistent growth in its subscriber base. Although, growth rate in subscriber base has slowed down, it has been almost stable in last four quarters at around 6%. 3G subscribers’ base stood at 2.6 mln at

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