Idea stock has lost 18% in the past six months, largely driven by concerns around its balance sheet (as the company faces 900 renewals in nine circles accounting for 56% of its revenues).
In our view, with its estimated Ebitda growth of 20%, recent fund raising (it raised $500 million), adequate back-up spectrum in 1,800-MHz band and potential tower monetisation (Bharti Infratel is considering inorganic options including buying Idea-owned towers; as per our analysis, Idea could benefit from cash flow of c$750 million from any such tower monetisation), Idea is well placed to face the upcoming spectrum auctions.
Separately, other potential catalysts not in the price include 3G rollout in Punjab and Delhi as this will allow the company to consolidate market share further with data offerings. We continue to value Idea using DCF-based SOTP with a target price of R165. A key downside risk would be a lower-than-estimated improvement in voice rate per minute. We prefer Idea over Bharti given the recent underperformance of Idea stock.
-HSBC Securities
