The company is expected to launch services in seven new circles by December 2009 (two, already launched). Besides, MNP is scheduled to be implemented from September 2009.
We believe this is expected to result in higher selling and ad-spend. Also, we have also assumed the 3G auction amount at Rs48.5bn for the pan-India spectrum.
We expect the company to launch 3G services in FY11, which would result in higher network opex, selling and Ad spend and depreciation. Consequently we expect margins to remain subdued in the short to medium term.
We have revised our target price to Rs 66 (earlier Rs 52) mainly on account of rollover of DCF to the next year; lower WACC and higher valuation from the tower business.
The core business is valued at Rs55/sh whereas net value from the Indus tower is estimated at Rs11/share. At the CMP, the stock indicates 7% downside from current levels; hence we maintain SELL on Idea.
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