Buy this blue-chip telecom stock under Rs 100 and gain up to 28%, says HDFC Securities

November 16, 2017 17:38 IST

The Telecom Regulatory Authority of India (Trai) noted that data had become affordable due to tariff war in the telecom sector, and that "concern with regard to availability of affordable data services has been mitigated".

The ongoing price war among the Indian telecommunication companies had impacted the stock performance of the telecom players but since 2017 the effect seemed to have diminished. Despite the stressed condition in domestic mobile space, the stock of India’s largest telecom firm Bharti Airtel had beaten the stellar returns of key equity indices Sensex and Nifty. The stock of Airtel had returned more than 60% while Sensex had appreciated about 24-25% in this year. Shares of Idea Cellular have been on a cyclical path in the present year 2017. The stock of Idea Cellular had returned 35% since January this year. The research and brokerage firm HDFC Securities has recommended it with a ‘buy’ and given a target price of Rs 120 from the current market price of Rs 94, which implies a return of 27.65%.

“Our positive thesis on Idea is premised on the proposed merger with Vodafone, and delivery on guided synergies of Rs 140 billion,” HDFC Securities said in a report. “In the medium-term, Idea could deliver superior returns, as its merger consummates in 2HCY18, and EBITDA rebounds in a broadly three-player market,” HDFC Securities added. While the near-term remains challenging, as the down-trading of subscribers will impact ARPU at least in 3QFY18, and so will the impact of the IUC (interconnection usage charge) rate cut. The stake sale in Indus Towers is a potential near-term trigger.

HDFC Securities said that despite subdued 2Q FY 2018, the management of company sounded firmly optimistic. This seems to be driven by accelerated industry consolidation and Reliance Jio’s recent tariff hikes. Idea Cellular’s management strongly believes ARPU (average revenue per user) will inch upwards, HDFC Securities added.

Earlier this week, Idea Cellular reported a consolidated net loss of Rs 1,106.8 crore for the second quarter ended 30 September 2017. The telecom company had reported a net profit of Rs 91.5 crore in same period last year. The total revenue from operations fell 19.72% to Rs 7,465.5 crore in the second-quarter as compared to Rs 9,300.23 crore in the year-ago period. The average revenue per user slipped 6.6% to Rs 132 versus Rs 141 in April-June quarter.

This article was first uploaded on November sixteen, twenty seventeen, at thirty-eight minutes past five in the evening.