Idea Cellular 2011 Results and Valuation



Idea Cellular has reported net profit of Rs 275 crore in the quarter ended March 2011, a growth of 13% as compared to Rs 243.1 crore in previous quarter. Revenues increased 7% to Rs 4,235 crore in fourth quarter of FY-11 as against Rs 3,955.6 crore in previous quarter.

For fiscal year 2011 the company reported Rs. 15,638 crores of revenue and Rs. 837 crores of profit. Though the revenue is up around 29% over fiscal year 2010, net profit came down by
18% over 2010 because of fierce competition which dragged down the average call rates for idea to as low as 40.6 p per minute in Q4 of current fiscal.

But the telecoms tariff war seems to be getting over and some kind of pricing power is expected to return in the industry in next few months. For fiscal year 2012 Ideas cellular is expected to achieve a revenue of approx. Rs. 20,000 crores and net profit of Rs. 1200 crores on the back of higher user base and 3G launch.

At the current market price of Rs. 72 the company is available at a market cap of Rs. 23,700 crores and a PE multiple of around 20 on FY 12 EPS. Though it appears to be a bit expensive on the forward year multiple, but considering its 16% stake in Indus Tower which is valued at approx Rs. 9000 crores, the company is trading below its intrinsic value.

If the pricing power returns to the sector and the stake in Indus tower is divested the EPS of the company would rise exponentially and hence could provide good return from the current levels.



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