Shares of Idea Cellular Ltd have been under pressure after the company announced results for the fourth fiscal quarter of FY17. The company’s share price tumbled around 7% on Monday inspite of the results beating analysts estimates. However, the scrip has recouped some of its losses by gaining around 1.45% in the last two trading sessions. Before considering the recent dip in Idea’s share price a good opportunity to buy, read what analysts have to say.
Bank of America Merrill Lynch
“Net loss in 4Q of Rs 3.2 bn was lower than our/consensus est. of Rs 11.8 bn/Rs 7.5 bn. Idea guided FY18 capex of Rs. 60 bn (vs. our est. of Rs 85 bn/FY17: Rs. 78.5bn) for rolling out 4G network and VoLTE. We consider this to be much lower than Jio/Bharti and consider Idea to be vulnerable for market share loss to Jio/Bharti before its announced merger with Vodafone gets completed. In our view, the stock is not trading on fundamentals, but on the possibility of the potential merger with Vodafone. Hence, we maintain a “No rating” on the stock,” Bank of America Merrill Lynch said in a research report.
“We always knew it would be bad as the relentless pressure from Jio did not abate during the quarter. Service revenue was down a further 6.2% QoQ to bring the YoY decline to 14.3%. While the good opex control in the quarter will help, the current consolidated net losses will continue. We expect Idea to continue to be under significant pressure until they are able to merge with Vodafone to gain scale. We continue to rate the stock Underperform with a target price of INR 80/share,” Bernstein said in a research report.
“It seems a large part of the EBITDA margin expansion came from ‘other expenses,’ which could be related to forex gains as hinted in the press release. However, even adjusted for this, there seems to have been decent cost control (number of network sites has come down). We continue to believe that high competitive pressures will sustain, and the cost pressures from Jio would start showing up only from 1QFY18 (channel commissions, marketing spends etc.),” Credit Suisse said in a research report. The brokerage has given a rating of Underperform on Idea Cellular with a target price of Rs 74/share.
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Idea reported 14.3% YoY decline in 4QFY17 revenues, but this was largely in line with expectations (-0.2%/-1.5% vs GSe/Bloomberg consensus). However, the surprise was on EBITDA, which came in +26%/+14% vs GSe/consensus. However we note that Idea’s voice realization at Rs0.259 per minute is now 7% higher than Bharti’s (has historically been at a discount to Bharti), suggesting the impact of bundled plans may not be fully reflected in Idea’s numbers yet, and we could potentially see a faster voice revenue decline for Idea vs Bharti in the next quarter. We are Not Rated on Idea Cellular,” Goldman Sachs said in a research report.
“On a full year basis, Idea reported a yoy decline of 1%/14% in Revenue/EBITDA in FY17. We see scope for upgrade in FY18 EBITDA forecast, but still see EBITDA declining on yoy basis,” JM Financial said in a research report. The brokerage house has maintained a rating of ‘Hold’ on Idea Cellular with a 12-month target price of Rs 95/share.
“Idea’s (NR) 4QFY17 performance excelled on the cost management front even as a sequential revenue decline materialized as estimated. The Street will likely take heart from Idea’s cost management. So much so, the opex decline exceeded the revenue decline, boosting EBITDA margins. Idea’s data sub base declined materially for the second straight quarter. Data realizations continue the steep downward trend (down 49.8% Y/Y and 27.7% Q/Q) taking away substantially from volume growth,” J.P. Morgan said in a research report. The brokerage house is not rated on Idea Cellular.
“Amidst a tough quarter, Idea surprised on margins. Idea reported in line revenue, but better EBITDA and net loss numbers. On the proposed merger with Vodafone, management indicated that joint merger notification has been filed with Competition Commission of India and scheme of arrangement has been filed with SEBI. We maintain Neutral because potential synergies from merger with Vodafone are already in the price, in our view. Also, risks of execution remain. The stock is currently trading at 10.6x/9.3x FY18E/19E EV/EBITDA which we view as fair,” UBS said in a research report. The brokerage house has given a 12-month target price of Rs 95/share.