Maintain 'BUY' on Idea Cellular – TP reduced to Rs.95 - Geojit BNP Paribas

- Idea Cellular's Q2 revenue came in below expectations but EBITDA came in above expectations due to lower subscriber acquisition cost (21% decline).

- The company has taken initiatives to curb its trade payouts and reduce discretionary spends and this is expected to help reduce churn in the medium term.

- The second half of the fiscal is seasonally stronger, and subscriber growth is expected to return.

- The Indian telecom industry is facing severe cost pressure with significant regulatory payouts expected and the recent diesel price hike.

- Most operators are highly leveraged and we believe industry tariffs will increase in the medium term. In the management commentary, Idea refrained from commenting on its auction strategy but indicated that the high spectrum cost would have to be passed on.

- The top three Indian telecom operators are well positioned and expected to benefit as the industry consolidates. Idea Cellular, a key beneficiary, is expected to improve its market share.

- We retain our positive view on Idea, but cut our TP from Rs.100 to Rs.95 due to reductions in earnings estimates.

- Key Risk to Target Price: Persisting Regulatory challenges

Source : Equity Bulls

Keywords