BSE SENSEX
33,845
S&P CNX
10,397
Idea Cellular
CMP: INR83
TP: INR110(+32%)
Creating a war-chest to deal with competition
Raises INR35b via QIP
21 February 2018
Update
| Sector:
Telecom
Buy
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, INRm
Free float (%)
IDEA IN
3,601
124 / 72
-14/-15/-41
305.0
4.7
2058.0
57.6
Financials Snapshot (INR b)
INR Billion
FY18E FY19E FY20E
Net Sales
285.5 284.6 320.8
EBITDA
57.9
57.9
77.6
NP
-46.6 -50.7 -42.3
EPS (INR)
-10.7 -11.6
-9.7
EPS Gr. (%)
865.4
8.8 -16.6
BV/Sh. (INR)
61.6
49.9
49.4
RoE (%)
-18.1 -20.9 -21.4
RoCE (%)
-2.3
-2.5
-1.5
Valuations
P/E (x)
-7.9
-7.3
-8.7
P/BV (x)
1.4
1.7
1.7
EV/EBITDA (x)
13.4
13.9
10.4
Shareholding pattern (%)
As On
Dec-17 Sep-17 Dec-16
Promoter
42.4
42.4
42.5
DII
8.1
8.5
6.9
FII
27.2
26.5
24.3
Others
22.3
22.6
26.3
FII Includes depository receipts
Stock Performance (1-year)
Idea Cellular
Sensex - Rebased
150
130
110
90
70
Idea Cellular (IDEA) announced that it has completed equity issuance of INR35b via
the qualified institutional placement (QIP) route (@INR82.5, 10% equity dilution).
This, along with capital raising of INR32.5b via preferential issue to promoters
(@INR99.5, 8% equity dilution), completes IDEA’s equity funding of INR67.5b (17%
dilution).
Total equity raising by Vodafone and Idea, along with the tower sale, will reduce the
combined entity’s (Vodafone + IDEA) net debt by INR295b to INR811b, thereby
reducing net debt-to-EBITDA to 3.9x on FY20E, assuming combined EBITDA of
INR210b (including synergy gains).
Fund-raising should provide Vodafone-Idea with much-needed liquidity to ramp-up
network and protect market share against deep-pocketed peers, especially in the
current hyper-competitive environment.
We maintain our Buy rating, with a target price of INR110, at 13x Idea’s Dec-19E
EBITDA. Implied EV/EBITDA for the combined entity is 7.4x on FY20E. Our estimated
Vodafone-Idea EBITDA margin of 30% (including synergies) for FY20 is still 650bp
lower than Bharti’s FY20 estimates.
Fund-raising of INR35b via QIP to dilute equity by 10%
IDEA’s board approved raising INR35b via QIP at INR82.5/share by allotting
~424.2m shares (leading to 10% equity dilution). This is at ~17% discount to the
preferential allotment (326.6m shares) price of INR99.5/share to its promoters (to
raise INR32.5b). Thus, the total allotment of 751m shares (to raise INR67.5b)
should lead to overall equity dilution of 17%, with the company’s (ex-merger) EPS
for FY19E at -INR11.6. Giving effect for both the transactions, the promoter’s
holding is expected to inch up to 42.6% (from 42.4% earlier).
Merged entity’s net debt-to-EBITDA to shrink sharply post-merger
The combined entity’s net debt could reduce by INR295b to INR811b, led by a)
Vodafone and Idea each raising INR67.5b prior to the merger, b) INR78.5b
proceeds from the sale of Vodafone and Idea towers to ATC and c) INR82b
estimated value of Idea’s 11% share in Indus. This could reduce the combined
entity’s net debt-to-EBITDA to ~3.9x by FY20, assuming combined EBITDA of
INR210b (including margin synergies of 10pp). However, the key risk is network
integration of the two large entities, which could delay synergy gains and also hurt
its competitive position in the current hyper-competitive environment.
Equity infusion – a key catalyst to remain competitive
In the current hyper-competitive market – where deep-pocketed peers would see
Vodafone-Idea’s vulnerable leverage position as an opportunity to squeeze
liquidity and grab market share, we see fund-raising as a strong proactive action
from management to tackle the challenges posed by competition. We believe fund-
raising should a) support accelerated network investment, b) protect its
revenue/subscriber market share and c) create war chest and also perception in
the marketplace that Vodafone-Idea combined stand in a strong cash liquidity
Aliasgar Shakir
– Research analyst
(Aliasgar.Shakir@motilaloswal.com); +91 022 6129 1565
Hafeez Patel
– Research analyst
(Hafeez.Patel@motilaloswal.com); +91 22 3010 2611
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.

Idea Cellular
position (even as the Vodafone-Idea merger moves in a difficult phase). Equity
infusion will support capex requirements in FY19, by when it should be able to
command strong data capability and free-cash position. This could possibly settle
the dust, as the three large players – Bharti, Vodafone-Idea and RJio – with similar
market shares and steady FCF may drive ARPU accretion instead of undercutting
each other.
Maintain Buy with a TP of INR110
The stock is valued at 7.5x EV/EBITDA on FY20E combined Vodafone-Idea EBITDA,
factoring in debt reduction and EBITDA synergies. We maintain our TP of INR110, at
13x on Idea’s Dec-19 EBITDA. Implied EV/EBITDA for the combined entity is 7.4x on
FY20E. Our estimated Vodafone-Idea EBITDA margin of 30% (including synergies) in
FY20 is still 650bp lower than Bharti’s FY20 estimates, despite their similar revenue
market shares. This highlights the room for margin improvement. We reiterate our
Buy
rating.
Exhibit 1: Valuation Summary (INR b)
Consol. EBITDA
Less Net debt
Total Value
Shares o/s (b)
CMP (INR)
Upside (%)
Methodology
Dec-19 EV/EBITDA
Driver (INR b)
73
Multiple (x)
13
Fair Value (INR b)
974
496
478
4.4
Value/sh (INR)
223
496
110
83.0
32
Source: MOSL, Company
Exhibit 2: Pro forma statement for Vodafone-Idea merged entity (INR b)
Announced
FY17
Topline
Growth
EBITDA
margin
growth
Synergy
EBITDA (post synergy)
margin (post synergy)
Debt
EV
EV/EBITDA
Net Debt to EBITDA
763.1
-3%
219.1
29%
-12%
Approval
stage
FY18E
637.5
-16%
129.3
20%
-41%
Year 1
FY19E
637.5
0%
129.8
20%
0%
0
129.8
20%
811.4
1,549.7
11.9
6.3
Year 2
FY20E
698.4
10%
188.6
27%
45%
21.0
209,6
30%
811.4
1,549.7
7.4
3.9
Year 3
FY21E
749.7
7%
224.9
30%
19%
50.4
275.3
37%
811.4
1,549.7
5.6
2.9
Year 4
FY22E
847.3
13%
271.1
32%
21%
67.2
338.3
40%
971.4
1,709.7
7.8
4.4
811.4
1,549.7
12.0
6.3
811.4
1,549.7
4.6
2.4
Factoring in 200-350bp market
share dilution for Vodafone and
Idea over FY16-21E
Comments
Building recovery from FY19E
219.1
29%
129.3
20%
Opex synergy is 60% of INR140b
total. Building 0% synergy in FY19
and 80% synergy in 4th year - FY22
Factoring in debt reduction of
INR78.5b due to tower sale in FY18
Value accretion only from FY20E
Source: MOSL, Company
21 February 2018
2

Idea Cellular
Exhibit 3: Summary of promoter shareholding
Particulars
Shares o/s as on 3QFY18
Add: Preferential issue (@INR99.5)
Add: QIP (@ INR82.5)
Total new shares issued
Shares o/s post preferential & QIP issue
Shares to be issued to Vodafone India for merger (1:1) pre new shares
issuance
Additional shares to Vodafone India due to Pref & QIP (1:1)
Shares outstanding post-merger
Total No of
shares (m)
3,607.5
326.6
424.2
750.8
4,358.3
3,607.5
750.8
8,716.7
1,855.5
21.3
Source: MOSL, Company
8.3
9.7
17.2
1,855.5
42.6
Promoter group holding
Share dilution
(%)
No of shares (m) Shareholding (%)
1,528.9
326.6
42.4
8.3
Exhibit 4: Net debt to come down significantly post preferential and QIP issue
Pre
FY18 (INR m)
Idea net debt
Vodafone net debt
Combine net debt
Vodafone and Idea tower sale
Idea's 11% Indus Stake sale
Total Net Debt
11,06,360
5,40,780
5,65,580
11,06,360
Change
-67,500
-67,500
-1,35,000
Post
4,73,280
4,98,080
9,71,360
-78,500
-81,500
-2,95,000
8,11,360
Source: MOSL, Company
21 February 2018
3

Idea Cellular
Story in charts
Exhibit 5: Consol. revenue and EBITDA margin (INR b, %)
Revenue (INR b)
EBITDA margin (%)
36 34 35 35 38
33 33 34
33 31
32 31 31 32
Exhibit 6: Subscribers and ARPU trend
Subs (m)
Monthly ARPU
25 26 23
20 19
Source: TRAI, MOSL
Source: Company, MOSL
Exhibit 7: Idea: Active subscriber market share (%)
20.5%
20.0%
19.5%
19.0%
18.5%
Exhibit 8: Idea: Monthly churn (%)
Monthly churn (%)
Source: TRAI, MOSL
Source: Company, MOSL
Exhibit 9: Net debt and net debt/EBITDA
Net debt (INR b)
Net debt/EBITDA (x)
Exhibit 10: 2G cell site base and quarterly additions
Cell sites ('000)
Sites addded (000')
Source: Company, MOSL
Source: Company, MOSL
21 February 2018
4

Idea Cellular
Exhibit 11:
Key Operating Metrics (YoY)
FY13
Subscribers (m)
YoY%
Average Rev Per User (INR/month)
YoY%
Minutes of Use/Sub/Month
YoY%
Data usage/data sub/month (mb)
YoY%
Voice traffic (m min)
YoY%
Data traffic (m MB)
YoY%
Voice revenue per min (p)
YoY%
Data revenue per MB (p)
YoY%
Voice revenue (INR m)
YoY%
Data revenue (INR m)
YoY%
Data revenue as % of total revenue
Non Data VAS revenue (INR m)
Capex (INRm)
Capex / Sales (%)
5.4
21,038
57,145
25.8
12,059
1,88,382
32.3
35.4
37,380
5,31,534
119
378
158
122
FY14
136
12%
169
7%
381
1%
257
116%
5,88,272
11%
79,382
112%
37.2
5%
29.1
-10%
2,18,808
16%
23,105
92%
8.9
19,082
44,388
17.0
FY15
158
16%
177
5%
388
2%
490
91%
6,84,216
16%
1,72,531
117%
35.6
-4%
26.3
-10%
2,43,676
11%
45,404
97%
14.6
22,232
-2,52,290
-81.0
FY16
175
11%
177
0%
394
1%
641
31%
7,87,075
15%
2,97,920
73%
32.4
-9%
23.2
-12%
2,55,135
5%
69,163
52%
19.6
29,148
3,99,829
113.1
FY17
190
8%
159
-10%
383
-3%
843
32%
8,37,449
6%
4,36,423
46%
30.2
-7%
16.4
-29%
2,52,601
-1%
71,654
4%
20.5
24,498
2,08,260
59.7
FY18E
192
1%
121
-24%
479
25%
3781
348%
10,93,905
31%
19,73,003
352%
19.2
-36%
2.4
-85%
2,09,927
-17%
47,576
-34%
17.2
19,237
70,000
25.3
FY19E
200
4%
117
-4%
547
14%
6918
83%
12,85,600
18%
45,75,869
132%
14.6
-24%
1.5
-38%
1,87,982
-10%
68,712
44%
25.1
17,360
65,000
23.7
FY20E
203
2%
128
10%
530
-3%
8955
29%
12,81,925
0%
83,07,443
82%
14.0
-5%
1.4
-8%
1,78,961
-5%
1,14,375
66%
37.0
15,855
65,000
21.0
Source: MOSL, Company
21 February 2018
5

Idea Cellular
Financials and Valuations
Consolidated - Income Statement
Y/E March
Total Income from Operations
Change (%)
Total Expenditure
% of Sales
EBITDA
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
PBT bef. EO Exp.
Share of profits of associates
PBT after EO Exp.
Total Tax
Tax Rate (%)
Minority Interest
Reported PAT
Adjusted PAT
Change (%)
Margin (%)
FY13
2,24,577
14.9
1,64,531
73.3
60,045
26.7
34,778
25,268
9,495
15,773
0
15,773
5,664
35.9
0
10,109
10,109
39.8
4.5
FY14
2,65,189
18.1
1,81,852
68.6
83,337
31.4
45,194
38,143
7,700
30,443
0
30,443
10,765
35.4
0
19,678
19,678
94.7
7.4
FY15
3,15,709
19.1
2,07,592
65.8
1,08,117
34.2
53,036
55,081
5,755
49,325
0
49,325
17,396
35.3
0
31,929
31,929
62.3
10.1
FY16
3,59,494
13.9
2,39,818
66.7
1,19,676
33.3
62,561
57,115
18,831
38,284
4,217
42,501
15,220
35.8
0
27,281
24,574
-14.6
7.6
FY17
3,55,758
-1.0
2,52,995
71.1
1,02,763
28.9
78,272
24,491
37,342
-12,851
4,218
-8,633
-4,636
53.7
0
-3,997
-3,997
-114.7
-1.1
FY18E
2,85,548
-19.7
2,27,611
79.7
57,937
20.3
86,563
-28,625
46,266
-74,891
3,313
-71,578
-24,955
34.9
0
-46,623
-46,623
1,066.4
-16.3
(INR Million)
FY19E
2,84,606
-0.3
2,26,672
79.6
57,934
20.4
90,107
-32,173
46,915
-79,088
3,508
-75,581
-24,855
32.9
0
-50,725
-50,725
8.8
-17.8
FY20E
3,20,848
12.7
2,43,255
75.8
77,592
24.2
96,251
-18,658
44,309
-62,967
3,797
-59,170
-19,427
32.8
0
-39,743
-42,293
-16.6
-13.2
Consolidated - Balance Sheet
Y/E March
Equity Share Capital
Total Reserves
Net Worth
Total Loans
Deferred Tax Liabilities
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Goodwill on Consolidation
Capital WIP
Total Investments
Curr. Assets, Loans&Adv.
Inventory
Account Receivables
Cash and Bank Balance
Loans and Advances
Curr. Liability & Prov.
Account Payables
Provisions
Net Current Assets
Appl. of Funds
E: MOSL Estimates
FY13
33,143
1,11,073
1,44,217
1,40,438
11,180
2,95,834
4,67,357
1,75,818
2,91,539
61
8,811
10,280
53,092
726
9,601
1,429
41,336
67,949
64,719
3,230
-14,857
2,95,834
FY14
33,196
1,32,073
1,65,269
2,06,350
18,133
3,89,752
5,16,970
2,21,012
2,95,958
61
1,14,194
2,155
53,206
683
8,006
1,881
42,636
75,823
68,960
6,863
-22,616
3,89,752
FY15
35,978
1,94,314
2,30,292
2,68,591
19,015
5,17,898
6,18,207
2,62,871
3,55,336
61
51,405
1,15,267
82,598
710
9,789
15,537
56,562
86,769
78,013
8,756
-4,171
5,17,898
FY16
36,005
1,99,500
2,35,505
4,05,413
19,539
6,60,457
7,13,532
61,692
6,51,840
61
60,397
34,709
54,247
1,065
11,424
7,691
34,067
1,40,798
1,36,418
4,380
-86,550
6,60,458
FY17
36,053
2,11,269
2,47,322
5,50,545
13,218
8,11,085
9,06,838
1,39,267
7,67,571
61
75,351
63,783
59,912
588
13,139
827
45,358
1,55,592
1,51,551
4,041
-95,681
8,11,085
FY18E
43,349
2,24,847
2,68,196
5,83,200
13,218
8,64,614
9,76,838
2,25,830
7,51,009
61
75,351
63,783
1,09,476
897
11,723
46,137
50,720
1,35,066
1,31,292
3,774
-25,590
8,64,614
(INR Million)
FY19E
43,349
1,74,122
2,17,471
6,27,521
13,218
8,58,210
10,41,838
3,15,937
7,25,901
61
75,351
63,783
1,27,987
583
11,684
60,666
55,054
1,34,874
1,30,858
4,015
-6,887
8,58,210
FY20E
43,349
1,34,378
1,77,728
6,44,541
13,218
8,35,487
11,06,838
4,12,188
6,94,651
61
75,351
63,783
1,52,191
1,086
13,173
75,818
62,114
1,50,550
1,45,783
4,767
1,641
8,35,487
21 February 2018
6

Idea Cellular
Financials and Valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/Sales
EV/EBITDA
Dividend Yield (%)
Return Ratios (%)
RoE
RoCE
RoIC
Working Capital Ratios
Fixed Asset Turnover (x)
Asset Turnover (x)
Inventory (Days)
Debtor (Days)
Leverage Ratio (x)
Current Ratio
Interest Cover Ratio
Net Debt/Equity
FY13
2.8
13.5
43.5
0.3
11.5
FY14
5.5
19.5
49.8
0.4
7.9
FY15
8.9
23.6
64.0
0.6
8.1
FY16
6.8
24.2
65.4
0.6
9.5
12.4
3.5
1.3
2.0
5.6
0.7
10.6
6.4
8.2
0.5
0.5
1
12
0.4
3.0
1.5
FY17
-1.1
20.6
68.6
0.0
0.0
-76.4
4.1
1.2
2.4
7.7
0.0
-1.7
1.6
1.8
0.4
0.4
1
13
0.4
0.7
2.0
FY18E
-10.7
9.2
61.6
0.0
0.0
-7.9
9.2
1.4
2.9
13.4
0.0
-18.1
-2.3
-2.8
0.3
0.3
1
15
0.8
-0.6
1.8
FY19E
-11.6
9.0
49.9
0.0
0.0
-7.3
9.4
1.7
3.1
13.9
0.0
-20.9
-2.5
-3.2
0.3
0.3
1
15
0.9
-0.7
2.3
FY20E
-9.7
15.0
49.4
0.0
0.0
-8.7
5.7
1.7
2.7
10.4
0.0
-21.4
-1.5
-2.0
0.3
0.4
1
15
1.0
-0.4
2.8
0.3
7.4
5.9
6.0
0.5
0.8
1
16
0.8
2.7
0.9
0.4
12.7
7.5
9.0
0.5
0.7
1
11
0.7
5.0
1.2
0.7
16.1
8.2
11.7
0.5
0.6
1
11
1.0
9.6
0.6
Consolidated - Cash Flow Statement
Y/E March
OP/(Loss) before Tax
Depreciation
Interest & Finance Charges
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
Others
CF from Operating incl EO
(Inc)/Dec in FA
Free Cash Flow
(Pur)/Sale of Investments
Others
CF from Investments
Issue of Shares
Inc/(Dec) in Debt
Interest Paid
Dividend Paid
Others
CF from Fin. Activity
Inc/Dec of Cash
Opening Balance
Closing Balance
E: MOSL Estimates
FY13
10,109
34,778
9,963
-4,110
6,096
56,836
6,135
62,971
-34,766
28,205
0
657
-34,109
248
-10,368
-9,283
-250
0
-19,653
9,209
1,521
1,429
FY14
19,678
45,194
8,564
-6,384
5,354
72,406
9,786
82,192
-36,448
45,744
0
-29,194
-65,642
263
-15,936
-7,682
-1,306
0
-24,661
-8,111
10,729
1,881
FY15
31,929
53,036
9,337
-11,043
5,540
88,800
15,379
1,04,179
-41,576
62,603
0
-15,680
-57,256
37,374
52,355
-6,656
-2,792
0
80,280
1,27,202
3,543
15,537
FY16
42,501
62,561
20,685
-8,611
-3,980
1,13,155
-3,669
1,09,486
-1,29,118
-19,632
1,03,909
2,835
-22,373
175
-86,485
-4,393
-2,598
0
-93,301
-6,188
13,879
7,691
FY17
-8,632
78,272
39,736
-6,808
6,960
1,09,527
-4,154
1,05,373
-1,26,319
-20,946
-33,472
4,626
-1,55,165
-4,453
84,297
-32,800
-2,599
1
44,445
-5,346
6,174
827
FY18E
-46,623
86,563
46,266
0
-24,780
61,426
0
61,426
-70,000
-8,574
0
0
-70,000
67,497
32,655
-46,266
0
390
54,276
45,702
435
46,137
FY19E
-50,725
90,107
46,915
0
-4,174
82,124
0
82,124
-65,000
17,124
0
0
-65,000
0
44,321
-46,915
0
0
-2,595
14,529
46,137
60,666
(INR Million)
FY20E
-39,743
96,251
44,309
0
6,624
1,07,441
0
1,07,441
-65,000
42,441
0
0
-65,000
0
17,021
-44,309
0
0
-27,288
15,152
60,666
75,818
21 February 2018
7

Explanation of Investment Rating
Investment Rating
BUY
SELL
NEUTRAL
UNDER REVIEW
NOT RATED
Expected return (over 12-month)
>=15%
< - 10%
> - 10 % to 15%
Rating may undergo a change
We have forward looking estimates for the stock but we refrain from assigning recommendation
Idea Cellular
*In case the recommendation given by the Research Analyst becomes inconsistent with the investment rating legend, the Research Analyst shall within 28 days of the inconsistency, take appropriate measures to make the recommendation consistent with the investment rating legend.
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Disclosure of Interest Statement
Analyst ownership of the stock
Idea Cellular
No
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21 February 2018
8