Idea Cellular has shown impressive performance by recording a 53.9% increase in revenue to Rs67.2 billion in FY08. EBIDTA at Rs22.6 billion surged 53.9%, while the net profit rose to Rs10.4 billion.
Revenue was propelled by a 71.3% increase in subscriber base to 24 million and an 80% increase in total minutes of usage to 27,824 mn. While, the 53.9% EBITDA growth and 108% adjusted net profit growth was attributed to the revenue growth.
Nevertheless, the economies from expanding operational scales supported the EBITDA margin to remain intact at 33.6% and net profit margin to increase by 406 bps to 15.6% despite increasing network operating costs.
Idea plans to foray its mobile services in four new circles — Tamil Nadu (including Chennai), Mumbai, Bihar, and Orissa. Operations are targeted to commence in Mumbai and Bihar by Q2’09, and in Tamil Nadu by Q3’09.
A private equity firm, Providence Equity Partners would invest $640 million in Idea’s unit, Aditya Birla Telecom (ABTL). The funds will be used for network rollout and ongoing operations of Aditya Birla Telecom, which has a licence in eastern Bihar state. The deal is expected to close by August 2008.
Presently, the stock is trading at current market price of Rs99.65, which is at forward P/E of 23.6x FY08E and 14x FY09E. Keeping in view the robust growth opportunities in the Indian telecom market and the ongoing capex plans, we maintain our BUY rating on the stock with a target price of Rs137.