Motilal Oswal neutral on Idea Cellular
Motilal Oswal has maintained its neutral rating on Idea Cellular in its March 26, 2009 research report. “Idea is highly leveraged to mobile RPM movements given lower margins (PAT margin of 8% v/s 22-25% for Bharti and RCOM) and no significant non-wireless business. We believe that risk to tariffs is on the downside in the current environment due to several simultaneous new launches by Aircel, RCOM, Tata Tele, Vodafone, and Idea itself. We model a 15% RPM decline in FY10E (similar to Bharti) v/s 16-17% decline over FY07-09E.”
“Idea is trading at 7.1x EV/EBITDA FY10E and 23.7x EPS based on our revised estimates.Valuation premium reflects depressed earnings due to continued investments in new circles (which are currently loss making). However, given competitive pressure on incumbent circles, possibility of consensus downgrades, and low RoIC, stock performance is likely to remain muted. Maintain Neutral. Any significant margin recovery or positive news flow on M&A/corporate activity would be an upside risk to our Neutral rating,” says Motilal Oswal’s research report.
Tags: HOLD, Idea Cellular, Motilal Oswal, neutral
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