We met Idea’s management and conducted channel checks with network vendor. Our key takeaways: ARPU pressure continues due to downtrading towards low tariffs and select offerings below headline tariffs too. However, the impact from RJio’s postpaid plans and Jiophone is limited. Merger completion may be delayed by a month to July/August. Vodafone-Idea may not get a direct waiver, though the Bharti-Telenor deal had received Supreme Court clearance for one-time spectrum fee. There is limited overlapping between both operators’ broadband (3g, 4g) network. This should support coverage expansion for the merged company. FY19E net debt stands at INR1.2t. INR300b cash from recent fund raising will be used to meet FY19E capex requirements and merger integration cost.
The stock is trading at 15x/9x on combined FY19/20E EBITDA. We believe headwinds from APRU downtrading would continue for the next few quarters. This coupled with delay in merger completion and risk of capital dilution lead us to reduce our TP to INR75 (INR85 earlier), assigning 10x to FY20E combined EBITDA of INR187b (including merger synergies). Read More..Idea-Cellular_02-07-2018-1