ValuePickr Forum

Idea cellular potential value

Dear All

Suggestions please
I feel
Company has 15 crore subscribers
Most of the people are moving from voice only to 2 g data
2g data people are moving to 3G and
3G will move to 4 G
Company is going to provide services in more areas after the auctions where it has successfully held its area
Due to consolidation it seems only 4 players will survive like Airtle, Vodafone, idea and reliance jio
Balance all other will either close down or will be sold
Let’s assume it is opalescent to generate Rs 200 rs ebitda per person per month and there is no increase in subscribers for next 3 years
This will translate it 36000 cr ebitda annually
Which at 6 should give an enterprise value of 2.16 lakhs crore with borrowing of let’s assume 50,000 cr the market cap should be 1.66 cr
Up 2.5 times from now
Any idea
I am holding the shares and looking forward to increase my holding

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I have just checked the screener. Its EBIDT for 2014 & trailing is 7323.32 & 10103 crores respectively.
10,103 crores becomes 36,000 crores EBIDT is quite a thing.

How could they triple it ? I mean, what could let this happen ?
1. They cant triple the subscribers.
2.Their dominance is restricted to a few states only.

I think, RELIANCE has a potential to do that because Their commitment to “Digital India” project. If they could implement. They shall be practically minting money. But, I prefer to stay far from it.

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It will be interesting if you could write down the trend in number of subscribers and ARPU numbers for past 3-4 years and your projections for the same for next 2-3 years. It will be even more interesting, if you could do the same for Airtel as well.

Idea is at ARPU of approx. Rs 190and 30 percent ebitda gives it average ebitda per user of approx. rs 60 which at 15 cr subscribers turned to approx.15 1260 gives it at 10,000 cr.
You can see the amount has doubled in last 3 years
Also see
People with only voice connection are moving to voice plus basic data
People with basic data are moving to 3G to use many online. Apps, there the revenue easily increases by more than 150 to 200 Rs
There is an operating leverage in the company as increase revenue will increase ebitda percentage
The only risk I see is that if reliance jio becomes very aggressive and distort the pricing
Which is unlikely that they will distort the pricing however small player like Aircel reliance communication and others will get killed
The story is about increasing data revenue in next 3 to 4 years

Your assumption of Rs.200 EBITDA per person over the next 3 years is difficult to achieve, It’s true that people are moving from basic voice services to data services, but the introduction of Whatsapp Voice calling and other Internet calling features may decrease voice call revenues. The telecom industry employs large amount of capex, with the entry of Reliance Jio in the 4G segment, existing players like Vodafone, Airtel, Idea will have to aggresively bid for 4G spectrum which make take their debt beyond your stated levels. I am an average Vodafone Customer and the revenue I give to Vodafone is roughly Rs.350 over the course of 3 months, I use wi-fi for data services on my phone.So yes, a lot can go wrong in your assumptions.

If IDEA can do this. So, can AIRTEL, RELIANCE, VODAFONE.
Added to the woes, RELIANCE is gearing up 4G & connecting every village with a lots of fancy features.

As sarthak batra said, that will make their Balance Sheet worse [assuming they take debt]

I have come across a research report on IDEA by some firm. As usually its a BUY/SELL recommendation rather than on reasoning.

This is where I think the potential is

All the new apps

All the new apps are data hungry and will require significant increase in data usage among the people
A reduction of voice data revenue will not impact much going forward
Also there are small players who will get consolidated and will go
Away increasing market share for these big players
Will request others to co tribute I will not add my comments now

Himanshu Kapania, MD of the co add the call.Highlights by Capital Mkt
Sequentially, in June 2015 quarter revenues grew 4% to Rs 8798.35 crore primarily driven by a) 4.4 million active subscribers addition (VLR), b) expansion of voice minutes @ 5.8% clocking 195.8 billion minutes on Network and c) 15% Mobile data (2G+3G) volume growth to 62.7 billion Megabytes.Due to changes in the TRAI Interconnect (IUC) regulations (Amendmend XIth and XIIth) effective from March 01, 2015 primarily reducing mobile incoming IUC charges from 20p to 14p/min the revenue figures for June 2015 quarter are not comparable to earlier quarters.The gross revenue for June 2015 quarter is negatively impacted by around Rs 317.0 crore (y-o-y), due to IUC rate changes. Additionally, implementation of TRAI Roaming TTO (Sixtieth Amendment) effective from May 01, 2015 reducing the upper cap for national roaming voice call charges & SMS charges between 20%-75% & increase in service tax rate effective from June 01, 2015 from 12.36% to 14% have also impacted the financial results for this quarter.
OPM improved 30 basis points to 36.7% which saw OP rising 5% to Rs 3228.38 crore.Other income fell 34% to Rs 122.43 crore and interest cost rose 38% to Rs 401.63 crore. After providing for depreciation (Rs 1515.90 crore, up 2%), PBT fell 3% to Rs 1433.28 crore.After providing for taxation (down 5% to Rs 502.45 crore) PAT fell 1% to Rs 930.83 crore.The Voice rate realisation remained under pressure and fell sharply by 11.2% to 32.9p/min, including the impact of TRAI regulation changes and increase in service tax rate.
During the quarter, its average revenue per user (ARPU) was at Rs 182, up 1.7% versus Rs 179 (Q-o-Q) while voice revenue per minute declined for four straight quarters (down 11.3% in a year).44 lakh active subscribers addition, expansion of voice minutes at 5.8% clocking 195.8 billion minutes on network and 15 percent mobile data (2G+3G) volume growth to 62.7 billion MB drove revenue in June 215 quarter…Revenue Market Share (RMS) of 18.2% as on March 2015.In the 15 Established Service Areas, its RMS stands at a strong level of 21.3%.
The company carried around 2.15 billion minutes on a daily basis in June 2015 quarter.Idea is the sixth largest mobile telecommunications company (counted on operations in a single country) in the world based on number of subscribers.The net mobile data customer base has risen by 3.7 million to 37.2 million in June 2015 quarter.
Around 22.9% of overall Idea subscriber base use Idea 2G or 3G platform to access internet
The blended data Average Realisation Per MB (ARMB) fell y-o-y by 6.5% from 26.3p/Mb due to increased competition.The 3G subscriber base for the company has grown by around 90% over last one year.
Capex in June 2015 quarter is Rs 1367.4 crore excluding spectrum, Interest & exchange rate difference capitalization.Capex spend for the quarter was fully funded from quarterly cash profit of Rs 2553.1 crore.
Capex and net debt amounts reflecting in balance sheet are higher by Rs 55.1 crore each due to capitalisation of amount relating to foreign exchange difference during the quarter on long term loans taken for acquiring fixed assets.India today is fastest growing economies. India is largest target market for ICT. PM Modi has correctly identified digitalization to double GDP growth in a decade.Due to digitalization, online will replace paper
Cash economy will transform into cashless economy.As mobility market services expand, Indian telecom business will offers exciting growth opportunities in Mobile broadband & rural voice telephony.
Brand Idea with increasing consumer affinity, strong cash flows, Pan India 2G presence, expanding 3G network footprint & planned 4G network launch is gearing itself to strengthen its market position and improve standing across existing and emerging opportunities.Net Debt to annualised EBITDA ratio stands at 1.49.Net-Worth stands at Rs 23705.4 crore.It has an average (current and preceding three quarters) cash Profit of Rs 2250 crore per quarter provides a solid foundation to support the company’s growth plan.
Idea has also initiated multiple steps towards introduction of 4G LTE services on 1800 MHz spectrum band in 10 service areas, in a phased manner from calendar year 2016 onwards.It is also in the process of revisiting its existing Value Added Services offering and intends to introduce its own range of Digital Services (through inhouse development or partnering with others) across various categories like entertainment, information, communication, utilities and API services etc. in next financial year.500 million people in rural India still do not have sim cards.Idea’s lead over its customers has extended.Depreciation and interest cost grew due to interest charge for upfront payment for Mar’15 auction and for Delhi 900 MHz spectrum.Capex target for FY 2016 increased to Rs 60-65 billion from Rs 50-55 billion.Future growth should come from volume and rate improvement.Competition in voice is on the decline.Competition in mobile data will be more intense.For capex it is difficult to give guidance after FY 2016.

Idea Cellular is one of the few telecom players which has managed debt well during tumultuous times in the recent past in the telecom sector.

I have tried Whatsapp calling but the call quality is frustrating as of now. Also, we had Skype for quite sometime and intuitively, I don’t think has impacted revenues of telecom players in India in any way. If there was no Skype, the users would simply cut down their time calling abroad - like what used to happen when telecom tariffs were sky high (in the 2000s).

hi any one the stock is loosing its stream due to Reliance Jio proposed launch in December
others comment requested, my feeling is that Reliance Jio will create a balance in market and all small players like Reliance Communication, Aircell, Tata Docomo, MPS will get merge with one of the big 4 which will be Airtel, Idea, Vodafone and Reliance Jio

there is a huge market to grow and this should give at least 20% return pa from here onwords.

News on Idea - Providence Equity set to exit Idea, sell its 7% stake

The valuation of Idea is still very attractive. However Reliance Jio is going to launch in Dec 2016 approx.

Guys, what do you think on the valuation of Idea now? Is Mr Market offering the stock at crazily cheap prices or the company all together is going down and down only? The sector is surely facing high competition but isnt the market size is growing tremendously too? I personally think looking at 4-5 years horizon, this stock can yield attractive returns provided they are able to maintain the current market share. Please share your views.

There are too many variables in this industry. even these variables themselves are highly dynamic.
hopes that you have mentioned prevailed at exactly the same stage for quite a few gone by years.
it is a good market (in terms of size) but no visibility of being a good business.
Disruptions are unlimited and very difficult to say where-from they will emerge. that too in highly asset heavy and having tremendous exit barrier kind of industry even for loser. for last decade it is more of a wealth destructing industry which was otherwise considered a sunrise sector.

in my humble opinion, it may be prudent to wait and see an indication of positive change and than take a position, even if that means a little higher price and little lesser profit.

Vodafone has confirmed merger talks with Idea, stock is up 28% intraday.

Sadly i have missed the train!

This train will halt at another station… get on there :wink:

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I have been tracking Idea Cellular for few years. I exited my position when it was in peak during 2015. I have recently re-entered this month.
Do you think the correction it is facing recently is justified? From the levels of 100 in year starting it has halfed. Do you think its because of fear in market? Can Value investor use this fear to their advantage or it is a Value trap?

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Vodafone Idea Ltd:

  • Valuation 35K Crores (Airtel 1.5 Lakh Crore including Africa operations + stake in Bharati Infratel)
  • Assets (Telecom Infra) = equal to or more than Airtel - e.g. Towers, Fibre Km, Spectrum
  • Subscriber share largest for now (32%) - no significant loss in subscribers due to Jio in 6 quarters
  • Debt - 1.09 Lakh Crore (less than Airtel and Jio)
  • Target synergies - 14k Crore annually due to merger
  • Free cash flow - should be anywhere between 10-20K Crore annually (at present ARPU/pricing) - though very less interest coverage ratio, still should be able to service interest part of the debt. (Cash in hand after merger 20K Crore)
  • Revenue per unit lesser than airtel due to less investment/penetration in 4G customers - at present it is INR 100 for v-idea, INR 115 airtel and INR 150 jio (obviously Jio numbers can not be taken at face value)

5G rollouts: This needs significant investment in infrastructure + spectrum prices are too high - banks in no mood to sanction further loans - telcos demanding rationalisation of license pricing, nationalisation of infrastructure and renting it back to them - Jio can play this both ways - It can join Airtel, V-Idea or jump the gun and buy the spectrum

With the present negative sentiment in Telecom sector, also any possible negative event can lead to further loss in valuation. However, the bottom does not look too far. This is looking like classical heads I win and tails I don’t lose much opportunity.

Another interesting perspective to look at the sector is really long term, a decade. CLSA estimates Telecom Market size worth INR 10L Crores by 2025. Analysis consensus is that all three players should have equal market share in range of 30-35% each.

Global top 10 telcos have valuations between $50 Bn to $300+ Bn (China Telecom highest) - Considerings India’s population and GDP growth - our top 3 Telcos should at least figure somewhere in the bottom of the list down the decade… and we have V-idea available at $5 Bn (Airtel already at $21 Bn)- both promoter group (Birla + Vodafone) are reliable enough to stay invested for a decade.

Looking forward to hearing on the points I might have ignored (pardon my biases).

Links:
Outcome of board meeting.pdf (926.1 KB)

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Hi All,
Can anyone help how to apply for Idea rights issue online?
I tried applying through HDFC Netbanking (Apply for IPO). But the rights issue is not displayed. Pls correct me if I am wrong.

Regards,
Selva