idirect technofunda ideacellular apr15

ICICI Securities Ltd. | Retail Equity Research

Idea Cellular (IDECEL) CMP- | 191.00 Buying range: | 186.00-191.00 Target: | 240.00 Stop loss: | 168.00

Key technical observations The share price of Idea Cellular has emerged out of its one and a half year hibernation phase by scaling new life-

time highs, thereby signalling the end of the elongated corrective phase and resumption of the larger degree uptrend. We believe the stock is set to embark upon its next directional up move and, thus, provides a good entry point for medium-term players to ride the expected price rally from hereon

The stock witnessed a stellar run up from its 2012 low of | 63 and rallied to a life-time high of | 188 towards October 2013. After amassing nearly two-fold gains, it went into hibernation mode to work off the excesses of the preceding rally. The initial price correction halted precisely at the 50% retracement of the 2012-13 rally at | 125. Thereafter, the stock witnessed a basing formation for over five months between February and July 2014 before witnessing a gradual recovery towards the second half of 2014

Significantly, the share price underwent an elongated correction over several months while digesting various

uncertainties related with spectrum albeit holding key long term supports (| 130). More recently, as the spectrum auction drew to a conclusion, the share price posted faster retracement of last falling segment by overhauling six month decline (| 178-143) in just a week, which highlights a sentimental turnaround as strong investor interest is coming back into the stock

The renewed appetite to own the stock even at historical highs has anchored declines over the past couple of

weeks and eventually launched the share price in a higher orbit. Volumes doubled their 50-week average (3 crore shares) over the past three weeks underscoring the growing appetite to own the stock

We expect the stock to rally towards | 240 over the medium-term being the depth of the rounding pattern (188-

130=58 points) as projected from the historical highs of | 188 (188+58=| 246) Among oscillators, the weekly MACD indicator that flattened above the signal line (reading of 0) is seen diverging

from its nine week average signalling a strong undercurrent in the share price from a medium-term perspective, thus validating the positive trend in price

Time frame: 6 months

Key Technical Data Recommended Price 186-191

Price Target 240.00

Stoploss 169.00

52 Week High 193.05

52 Week Low 129.15

50 days EMA 166.00

200 days EMA 157.00

52 Week EMA 158.00 *Recommendation given on i-click to gain on April 06, 2015 at 09:35 hrs

Stock price movement vs. BSE Small cap

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Idea Cellular BSE100 Price performance over last five years

20% 18% 26%

65%

-8%

-60%

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100%

2010 2011 2012 2013 2014Year

Techno Funda PickApril 6, 2015


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Exhibit 1: Idea Cellular Weekly Bar Chart

Source: Bloomberg, ICICIdirect.com Research

Research Analyst

Dharmesh Shah [email protected] Karan Mittal [email protected]

The share price is seen concluding five quarter rounding consolidation pattern signalling next medium term up leg Pattern implication suggests the price target of 240 over medium term

The renewed appetite to own the stock is evident from the rising volumes which doubled 50-week average

188

23.6% retracement @ 160

50% retracement @ 125

MACD diverging from its 9 week average highlights the underlying momentum in the stock

Pattern implication @ 240

63

Basing pattern at key supports

Faster retracement of last falling segment


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Fundamental view

Idea cellular is the third largest telecom operator and has exhibited higher than industry subscriber and revenue growth over the past few years. Subscribers have grown at 33.5% CAGR (FY08-14) while revenue has grown at 25.7% CAGR over the same period. Also, its subscriber and revenue market share have increased from 11% and 9.6% in FY08 to ~18.1% and 17.2%, respectively. Also, Idea has been able to garner highest share in net adds with a net adds market share of 28.7%. Going ahead, we expect subscriber growth to remain higher than industry at 7.9% CAGR over FY14-17E to reach 171 million subscribers.

After years of bleeding ARPM, a decline from 53 paisa in 2011 to 41 paisa in FY13, telcos are finally able to take price hikes. With several new operators scaling down operations, telcos have been able to curb discounted minutes at a rapid pace. ARPMs have expanded from a low of 41 paisa in Q4FY13, to 46.3 paisa in Q3FY15. This has also been aided by increasing data usage, which has increased from 11.4 billion MB in Q4FY13 to 46.0 billion MB in Q3FY15 while revenue from data offerings has increased from | 393 crore to 1247 crore in the same period. Led by higher data usage and sustained price hikes, we expect the ARPM to expand to 50.3 paisa by FY17E. The company has been able to pass on price hikes effectively as visible from increasing MoUs. Going ahead, with the expansion in the voice ARPMs we expect voice volumes to grow at a decent rate of 8.7% over FY14-17E to 756.2 billion minutes.

Data revenue has grown at an exponential rate of 88% in FY14 reaching | 2325.2 crore from | 1234.0 crore a year

ago. With the increased penetration of smart phones, data subscribers for Idea rose from 2.6 crore in FY13 forming 21.6% of the total subscribers. We expect it to reach 5.3 crore in FY16 forming 30.8% of the total subscribers. The data usage per subscriber has also risen from 148 MB in FY13 to 270 MB in FY14, hence reaching 793 billion MB data traffic by FY14. Recently, Idea has invested about | 41000 crore to augment its spectrum portfolio. The company has been able to buy back sufficient spectrum in all its expiring circles, which remained a major concern before auctions. The expiring circles had over 70% contribution to overall revenues. Hence, the positive emanating from the winning back of spectrum outweighs the more than expected payout concern

Although the spectrum related payout will increase the debt burden by about | 14016.8 crore and, hence, lead to an additional interest cost burden and depreciation cost causing a PAT dilution of about 8%, it would be offset by imminent price hikes. In addition, its ability to now corner the upcoming data boom would improve the revenue profile of the company. Moreover, the overhang of spectrum expiry has passed, which should aid investor sentiments. We arrive at a revised target price of | 215 valuing it on a DCF methodology with revised revenue assumptions.

Stock Data

Particular AmountMarket Capitalization (| Crore) 69,629.2 Total Debt (FY14) (| Crore) 18,775.6 Cash and Investments (FY14) (| Crore) 188.1 EV (| Crore) 88,216.7 52 week H/L 194 / 126 Equity capital 3,597.5 Face value | 10 DII holding (%) 4.4 FII holding (%) 24.3

Exhibit 1: Key metrics FY14 FY15E FY16E FY17E

P/E 32.7 22.5 19.7 16.0Target P/E 36.3 25.0 21.9 17.7 EV / EBITDA 10.6 10.3 8.3 7.0P/BV 3.9 3.0 2.6 2.3 RoNW (%) 11.9 13.3 13.3 14.1RoCE (%) 10.8 8.4 10.5 12.4

Exhibit 2: Financial highlights | Crore FY14 FY15E FY16E FY17ENet Sales 26,519 31,654 36,045 38,771 EBITDA 8,334 10,707 12,771 14,017 Net Profit 1,968 3,095 3,533 4,364 EPS (|) 5.9 8.6 9.8 12.1

Source: Company, ICICIdirect.com Research


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NOTES:

It is recommended to enter in a staggered manner within the prescribed range provided in the report

Once the recommendation is executed, it is advisable to keep strict stop loss as provided in the report on closing basis

The recommendations are valid for three to six months and in case we intend to carry forward the position,

it will be communicated through separate mail. Trading Portfolio allocation

It is recommended to spread out the trading corpus in a proportionate manner between the various technical research products

Please avoid allocating the entire trading corpus to a single stock or a single product segment

Within each product segment it is advisable to allocate equal amount to each recommendation

For example: The Daily Calls product carries 3 to 4 intraday recommendations. It is advisable to allocate

equal amount to each recommendation


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Recommended product wise trading portfolio allocation

Allocations Return Objective

Products Product wise allocation

Max allocation in 1 stock

Number of Calls Frontline Stocks Mid-cap stocks

Duration

Daily Calls 8% 2-3% 3-4 Stocks 0.50-1% 2-3% Intraday Short term Delivery 6% 3-5% 7-10 p.m 4-5% 7-10% Opportunity based Weekly Calls 8% 3-5% 1-2 Stocks 5-7% 7-10% 1 Week Weekly Technical 8% 3-5% 1-2 Stocks 5-7% 7-10% 1 Week Monthly Call 15% 5% 2-3 Stocks 7-10% 10-15% 1 Month Monthly Technical 15% 2-4% 5-8 Stocks 7-10% 10-15% 1 Month Techno Funda 15% 5-10% 1-2 Stocks 10% and above 15% and above 6 Months Technical Breakout 15% 5-10% 1-2 Stocks 10% and above 15% and above 3-6 Months Cash in Hand 10% - - - - -

100%


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Pankaj Pandey Head Research [email protected] ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC Andheri (East) Mumbai 400 093 [email protected]


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Disclaimer ANALYST CERTIFICATION We /I, Dharmesh Shah, Karan Mittal Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

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ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months. ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. It is confirmed that Dharmesh Shah, Karan Mittal Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ICICI Securities or its subsidiaries collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report.

idirect technofunda ideacellular apr15

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