MOSL: IDEA CELLULAR (Buy)-Board approves raising INR32.5b via preferential issue-To provide much-needed liquidity amid high competitive intensity
​IDEA CELLULAR: Board approves raising INR32.5b via preferential issue; To provide much-needed liquidity amid high competitive intensity
(IDEA IN, Mkt Cap USD4.8b, CMP INR105, TP INR120, 15% Upside, Buy)
Idea Cellular (IDEA) announced that the board has approved raising INR32.5b via issuance of preferential shares to the Aditya Birla Group (ABG) at INR99.5/share, implying 9% equity dilution. The board is also considering raising additional INR35b, implying further 9% dilution.
In our view, equity dilution will take away potential gains from existing shareholders, as the telecom market is likely to bottom out in the near term. At the same time, we believe that fund-raising should provide IDEA with much-needed liquidity to ramp-up network and protect market share against its deep-pocketed peers, providing an edge in the current hyper-competitive market.
IDEA's FY18 net debt-to-EBITDA is estimated at a steep 9.3x. However, the combined net debt post the merger with Vodafone could drop by INR225b to INR871b, with net debt-to-EBITDA declining to 4.2x in FY20 and ~3x by FY21.
The stock is valued at 8.1x EV/EBITDA on FY20E combined EBITDA, factoring in debt reduction and EBITDA synergies (720bp lower than Bharti). We have revised our target price to INR120, with 8.7x EV/EBITDA for the combined entity. We reiterate our Buy rating.
Idea Cellular provides Global System for Mobile Communications (GSM) based mobile services and related telephony services to individuals and businesses in India. The company operates through three segments: Mobility Services, which provides GSM based mobile and related telephony services; International Long Distance (ILD), which provides international long distance services; and Passive Infrastructure, which provides passive infrastructure services. Co. offers 2G and 3G services that comprise roaming arrangements; ILD and other services; and a range of mobile broadband devices, including dongles and 3G smartphones that provide 3G applications and data services.
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