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    Idea Cellular: Will the stock gain sustain?

    Synopsis

    A better than expected performance in the March 2013 quarter and a renewed traction in the voice and data business has supported the stock.

    A better than expected performance in the March 2013 quarter and a renewed traction in the voice and data business has supported the stock.

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    MUMBAI: Idea Cellular has earned over 32% returns to investors in the current calendar year so far. A better than expected performance in the March 2013 quarter and a renewed traction in the voice and data business has supported the stock.

    In the coming quarters, the impact of the recent price cut by major telecom players in the third generation (3G) data tariffs will be visible in the financial performance of these companies. For the strategy of reducing fares to succeed, higher growth in data volumes will be crucial.

    The second largest telecom operator in the country in terms of revenue reported Rs 6,061.4 crore in sales, 8.7% higher than the previous quarter on account of a growth of similar percentage in network voice minutes.

    Net profit rose sequentially by 35% to Rs 308.2 crore during the March quarter helped by better operating performance, lower finance costs and lesser foreign exchange loss compared with the previous quarter.

    Of its reported subscriber base of over 12 crore, 98% were active at the end of March 2012. This is the highest proportion of active user base in the industry. In addition, the number of subscribers opting for data services has been rising gradually.

    Analysts, however, seem to be divided on the future prospects of the company. In its latest report, Religare Institutional Research downgraded the stock to "Sell" recommendation citing concerns over relatively lower investments of the company in data infrastructure compared with other peers .

    "Idea's levered balance sheet is a constraint and it needs more capital to compete effectively in data," it mentioned. It expects the stock price to fall to Rs 110. The stock fell by 3.9% to Rs 137.3 on the BSE on Wednesday.

    Motilal Oswal Securities on the other hand expects the stock to rise to Rs 175 given the continued revenue market share gain and strong execution in the established as well as new circles. It expects the future cash flows would help the company to reduce the borrowings.

    The company's long-term debt increased to Rs 14,031.6 crore in FY13 from Rs 10,772.7 crore a year ago. While it appears to be on a strong footing in terms of volume growth and per minute revenue, the future performance will be shaped by regulatory policies related to spectrum pricing and renewal.
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    The Economic Times