Idea Cellular
Reco price: Rs 54
Current market price: 55.50
Target price: Rs 50
Downside: 9.9%
Brokerage: Ambit Capital The company reported flat revenues on a sequential basis at Rs 2,970 crore. Its standalone ARPU declined 10 per cent whereas Spice’s ARPUs fell 7.4 per cent. The company also reported a decline in EBITDA margins to 27.2 per cent on the back of higher subscriber acquisition cost and personnel expenses. According to the management, seasonality effect has impacted the minutes of usage leading to a sharp decline in ARPUs. Ambit Capital expects ARPUs to continue to fall further due to launch of per second billing in some circles and 50 paisa per minute local and NLD tariffs. Also, probable reduction in roaming charges and a hit on rental income post-MNP will put further pressure on ARPU.
Increasing competition coupled with MNP implementation would lead to higher selling and administration expenses and network operating costs. The brokerage also believes that cash in hand and operating cash flow would not be adequate to meet 3G auction payment and capex. Hence, it expects the company to raise further debt, which would lead to higher interest expense. Owing to this, margins are expected to remain subdued in the short-term. Overall, as a result of these concerns, it continues to expect revenue and profitability growth to remain under pressure, and maintains a ‘sell’ with a target price of Rs 50.
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