Idea Cellular - Good Idea to BUY!!! - ICICIdirect

The lukewarm response to the recently held auctions as well as the subsequent EGoM recommendation of cutting the base price of unsold circles by 30% augurs well for Idea Cellular. The company has won back spectrum for Rs.2031.3 crore in all circles wherein its licenses stood cancelled thereby ensuring complete continuity of its operations. Also, Idea did not have to pay anything in this fiscal year as the company chose to take the option of deferred payment and adjusted its upfront amount against the amount due to be received from the government for cancellation of its licenses. Apart from this, with the reduced reserve price, Idea would witness a reduction in its one-time spectrum fees as well as license renewal charges. Idea has no licenses coming up for renewal till FY15. We have introduced the FY15 financials with an EPS of Rs.5.8. We rate the stock as BUY with a DCF based target price of Rs.108.

Metros remain costly...

Even after the 30% cut in the reserve price announced by EGoM recently, spectrum in metros remains costly with the reserve price to TTM AGR ratio for Delhi and Mumbai at 5.3% and 6.1%, respectively, against a pan-India average of 2.3%. We may not see any new bidders in metros.

Reduction in one-time spectrum fees and license renewal charges...

Idea would gain from a reduced reserve price in terms of lower one-time spectrum charges. The one-time spectrum fee would reduce from Rs.1907 crore to Rs.1611 crore while NPV of spectrum renewal charges would go down from Rs.21684 crore to Rs.19088 crore. If any of the circles do not receive bids, there is further potential for these costs to go down.

Upgrade to BUY...

We have introduced FY15 EPS at Rs.5.8, which is more than double the FY12 EPS. Using the DCF methodology, we have arrived at a target price of Rs.108. We rate the stock as BUY.

Source : Equity Bulls

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