Without Much "Idea" The Stock "Crashed"
But, buying around 137-132 area may not be a bad "Idea" at all !!
Q2 PAT is at Rs.809.30 cr, up by 7% (YOY) against consensus of 835.20
(YOY and QOQ PAT at 755.9 & 930.85)
Reported Q2 EPS at Rs.2.25 against median estimate of 2.15
(YOY and QOQ EPS at 2.59 & 2.11)
(All are consolidated figure)
CMP: 140
Suggested buying zone: 137-132
TGT: 150-160 (1-3M)
TGT: 185-205 & 250 (12-24M)
TSL<123
Note: Consecutive closing below 123 for any reason, Idea may further fall to 110-105 level, where it may be again accumulated for better investment buying average.
Key takeaways & rationale:
Q2FY16 PAT is tepid (down 7% YOY) and around 3% below median street estimates as earnings were mainly hampered by reduced interconnection & roaming charges (wef May'15).
This is despite, net revenue increased by almost 15% due to increase in active subscribers as well as voice pulses and data usage.
But sequentially, there is 5.4% drop in minutes of uses and 9.6% YOY fall in voice & data pricing. Consequently, ARPU fell to 175 in Q2 against 182 in Q1FY16.
EBITDA margin also fell by 1.5% sequentially.
Sequentially, the data business grew by only 5% against 83% YOY.
The company spent capex of around Rs.1727 cr in Q2 for nearly 10000 2G/3G base stations and 5300 km of optical fibre. Thus the company, backed by a strong group (Aditya Birla) may be gearing itself adequately to face the likely competition from R-JIO & others.
As par analysts, increased sales & distribution costs and intense price competition in the telecom industry are taking a toll and causing lower ROE amid massive balance sheet debt.
Idea has a consolidated debt of around Rs.16810 cr (YOY-18776), D/E of 0.73 (YOY-1.14) and PAT of Rs.2810 (YOY-1689) for FY-15.
Analysts are also pointing out that over 58% of subscribers are from rural area for Idea. Historically Q2 is a tepid period in rural India for lack of sufficient economic activity and mobile callings are also reduced along with various other reasons, such as erratic monsoon this year.
The company also pointed out about pressure on mobile data realization & severe competition there.
Going ahead, Idea plans to roll out 4-G services shortly and by H1FY16, it will launch 4-G in its ten telecom services areas over 750 large & small towns and 4 emerging markets (KA/OR/TN/NE).
Presently its main leadership markets are at MH/GOA/AP/MP/CHT/KE/PU/HR. Idea is also planning to offer various entertainment & e-commerce to its customers in 4-G digital space (like R-JIO).
Market is apprehending that launch of R-JIO will intensify competition further amid sequentially higher capex requirements and call drop issues could also impact all the existing telecom operators, including Idea.
Consequently, all the analysts who were earlier projecting a 12 month price target of Idea to around 190-215 following some "outperforming" quarters, are now slashing it to 150-180 (median projection of around 165) !!
Looking ahead, there will be immense opportunities in "Digital India" and we may see sequentially higher usages of data, specially in metro areas where everything is available online, be it cabs or buying FMCG/daily vegetables apart from worlds of WA/FB etc.
In other words, beside professional office use (PC etc), no person can think of a life without an android in India now-a-days and the android data boom will be the game changer in the telecom industry in the coming days.
"Smart Indians" are now talking less over traditional mobile route and texting more with images & videos or busy with video/voice callings over the net. Thus increasing OTT usages are causing more data demands too !!
R-JIO competition fear may be overdone and pre-mature to some extent as there will be hand set change issues from existing 3G to 4G and adaptation of LTE ecosystem. Thus transformation will be gradual and not be overnight amid price conscious Indian consumers as common people will certainly not throw away their existing costly smart phones for a 4G enabled device, unless its absolutely necessary.
Idea, being the 3-rd largest mobile telecom company in India and backed by a financially strong group might be one of the few strong & large telecos apart from Vodafone, Airtel, Tata who are able to counter the expected aggression by R-JIO in the mobile data space.
Recent price correction and other technicals are also suggesting, Idea scrip may be in the process of bottoming out as the above sets of "bad news" and analyst's "concerns" might be discounted to a great extent by the market.
Thus from the point of lower risk/reward ratio, accumulation from the present zone of 137-132 for target of 160-185 in the near term, may not be a bad "Idea" at all !!
As par BG metrics & current market parameters:
Present median valuation of Idea may be around: 146 (FY:16)
Projected fair valuations might be around: 160-175-190 (FY:17-19)
| SCRIP | EPS(TTM) | BV(Act) | P/E(AVG) | Low | High | Median | 200-DEMA | 10-DEMA |
| IDEA | 9.36 | 55.57 | 14.5 | 148.19 | 143.00 | 145.59 | 161.8 | 150.67 |
| IDEA | 11.1 | 72.05 | 14.5 | 161.37 | 155.73 | 158.55 | 161.8 | 150.67 |
| IDEA | 13.05 | 93.25 | 14.5 | 174.98 | 168.85 | 171.91 | 161.8 | 150.67 |
| IDEA | 15.55 | 120.75 | 14.5 | 191.00 | 184.32 | 187.66 | 161.8 | 150.67 |
Analytical Charts:
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