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MOSL: Morning India (2/July/18)-1. BRICKs+ Economy: 2Q 2018; 2. Idea Cellular; 3. Automobiles; 4. Aviation Monthly; 5. Telecom; 6. Economy Monsoon

MOrning India (2/July/18): 1. BRICKs+ Economy: 2Q 2018 – India vis-à-vis other Emerging Markets; 2. Idea Cellular; 3. Automobiles; 4. Aviation Monthly; 5. Telecom; 6. Economy Monsoon

 

Today’s top research idea

Idea Cellular: Near-term headwinds persist; High net debt of ~INR 1.2t in FY19E may necessitate further cash infusion

• ARPU pressure continues due to downtrading towards low tariffs and select offerings below headline tariffs too. However, the impact from RJio’s postpaid plans and Jiophone is limited.
• Merger completion may be delayed by a month to July/August. Vodafone-Idea may not get a direct waiver, though the Bharti-Telenor deal had received Supreme Court clearance for one-time spectrum fee.
• There is limited overlapping between both operators’ broadband network. This should support coverage expansion for the merged company.
• FY19E net debt stands at INR1.2t. INR300b cash from recent fund raising will be used to meet FY19E capex requirements and merger integration cost
• We believe headwinds from APRU downtrading would continue for the next few quarters. This coupled with delay in merger completion and risk of capital dilution lead us to reduce our TP to INR75 (INR85 earlier), assigning 10x to FY20E combined EBITDA of INR187b (including merger synergies).
• However, merger synergies should aid in fighting competition. Further, market recovery beyond FY19 should lead to a re-rating, triggered by FCF growth. Maintain Buy.

Piping hot news

FPIs outflow hits 10 year high at Rs 48,000 crore in H1 2018

• Overseas investors have pulled out nearly Rs48,000 crore from Indian capital markets in the first six months of 2018, making it the steepest outflow in a decade, following high crude oil prices and trade war worries.