Idea Cellular soars 8% on preferential allotment; here's what experts say
ETMarkets.com|
Jan 05, 2018, 10.34 AM IST
NEW DELHI: Shares of Idea Cellular soared 8 per cent in Friday's trade after the company said it will raise Rs 3,250 crore via preferential allotment to promoters by issuing 32.66 crore shares at Rs 99.5 per share.
Overall, Idea has plans to raise a total of Rs 6,750 crore ahead of its merger with Vodafone India to pare debt and free up cash for expansion. The 3,250 crore allotment would be the first tranche that would come from Aditya Birla Group, making it the first promoter fund infusion since it went public in 2007.
Edelweiss Securities expects Idea Cellular to use the proceeds primarily to prune leverage to Rs 47,300 crore from Rs 54,000 crore in Q2FY18.
"Idea will further receive Rs 4,000 crore from sale of its towers to ATC and it is also in the process of monetising 11.15 per cent stake in Indus Towers to further reduce leverage. While reduction in leverage via asset monetisation is positive, we continue to believe that loss of subscriber market share and low capex are key challenges," the brokerage said.
Deriving network cost synergies post merger with Vodafone and revival in capex to maintain broadband subscriber market share are critical for the company, the brokerage said while keeping a 'hold' rating on the stock.
Motilal Oswal Securities in a note said, "The stock appears expensive at an EV/EBITDA of 11x (FY20E), excluding Vodafone numbers. The stock is valued at 8.1 times EV/EBITDA on FY20E combined Vodafone-Idea EBITDA, factoring in debt reduction and EBITDA synergies."
This brokerage estimates Vodafone-Idea EBITDA margin of 30 per cent in FY20, which is still 720 bps lower against Bharti FY20 estimates, despite their similar revenue market shares.
"We have revised our target to Rs 120, with 13 times on Idea's EBITDA. Implied EV/EBITDA for the combined entity is 8.7x on FY20E. We reiterate our Buy rating. "
Mayuresh Joshi, Fund Manager at Angel Broking said that the recent tariff revisions by Reliance Jio suggest that the pricing competition pressure is almost nearing its end.
What it also indicates is as data consumption grows exponentially across circles, the existing telecom players will also benefit, Joshi said.
"The only issue that plagues the balance sheet is excessive debt in terms of spectrum liabilities as well as liabilities for operating purposes which create a huge burden on their cash flows," Joshi said.
Overall, Idea has plans to raise a total of Rs 6,750 crore ahead of its merger with Vodafone India to pare debt and free up cash for expansion. The 3,250 crore allotment would be the first tranche that would come from Aditya Birla Group, making it the first promoter fund infusion since it went public in 2007.
Edelweiss Securities expects Idea Cellular to use the proceeds primarily to prune leverage to Rs 47,300 crore from Rs 54,000 crore in Q2FY18.
"Idea will further receive Rs 4,000 crore from sale of its towers to ATC and it is also in the process of monetising 11.15 per cent stake in Indus Towers to further reduce leverage. While reduction in leverage via asset monetisation is positive, we continue to believe that loss of subscriber market share and low capex are key challenges," the brokerage said.
Deriving network cost synergies post merger with Vodafone and revival in capex to maintain broadband subscriber market share are critical for the company, the brokerage said while keeping a 'hold' rating on the stock.
Motilal Oswal Securities in a note said, "The stock appears expensive at an EV/EBITDA of 11x (FY20E), excluding Vodafone numbers. The stock is valued at 8.1 times EV/EBITDA on FY20E combined Vodafone-Idea EBITDA, factoring in debt reduction and EBITDA synergies."
This brokerage estimates Vodafone-Idea EBITDA margin of 30 per cent in FY20, which is still 720 bps lower against Bharti FY20 estimates, despite their similar revenue market shares.
"We have revised our target to Rs 120, with 13 times on Idea's EBITDA. Implied EV/EBITDA for the combined entity is 8.7x on FY20E. We reiterate our Buy rating. "
Mayuresh Joshi, Fund Manager at Angel Broking said that the recent tariff revisions by Reliance Jio suggest that the pricing competition pressure is almost nearing its end.
What it also indicates is as data consumption grows exponentially across circles, the existing telecom players will also benefit, Joshi said.
"The only issue that plagues the balance sheet is excessive debt in terms of spectrum liabilities as well as liabilities for operating purposes which create a huge burden on their cash flows," Joshi said.
