Idea Cellular Ltd - Initiating Coverage - BUY - BP Equities

Investment Rational
Improved and healthy business environment to benefit Telecom Industry

Idea is well positioned to benefit from the current favorable business environment given the highest exposure to wireless segment and higher rural penetration. We believe that tariff hikes, higher focus on value added services and more focus on generating revenues from existing customers will benefit the company grow its top line along with expansion in margins.

Highest VLR and highest MNP additions reflects optimum quality of service

Idea has the highest VLR (Visitor Location registry) of 91.6% and MNP net additions (port in– port out) of 1.03 mn. It is primarily due to company' strong branding along with superior quality of service which, we believe will benefit the company in the long run.

Strategically well place to reap benefits from 3G launch, will boost ARR and ARPU

Idea has won 3G spectrum for 11 service areas for Rs 57 bn and 9 out of these 11 service areas contribute ~75% of Idea's existing subscribers base. We believe strategic bidding has placed idea at advantageous competitive position in comparison to peers, as it can cross sell it 3G services to its existing 2G customers and increase ARPU and ARR going forward.

New telecom policy (NTP) to bring positive structural changes in the telecom industry, Passive Infrastructure business will grow as tenancy ratio improves NTP-2011 will boost to the telecom industry and will improve its health as it proposes to introduce audit of spectrum usage and spectrum sharing by the operators which is positive for the telecom industry

Valuation & Outlook

In view of improved business environment, tariff hikes, stronger customer addition, continued strong traffic growth and increased data usage post 3G rollouts we expect the company's to post stronger revenue along with significant margins expansion in FY13E.

Source : Equity Bulls

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