Hold Vodafone Idea; target of Rs 40: ICICI Direct

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After Merger With Vodafone Group, Idea Cellular Becomes ‘Vodafone Idea Limited’

ICICI Direct’s analysis report on Vodafone Idea

We attended the analyst meet of Vodafone Idea whereby the administration outlined its technique in phrases of community integration & growth, product segregation & pricing, capital elevating and total synergy fructification timelines. Among noteworthy highlights of the meet was the administration’s reiteration that total synergy advantages of Rs 14,000zero crore (opex Rs 8,400 crore and remaining capex) could be achieved now inside 18-24 months vs. 4 yr’s steering earlier. Furthermore, the corporate additionally laid out fairness capital elevating plans as much as Rs 25,000 crore, with promoter shareholders indicating assist as much as Rs 18,250 crore (Vodafone – Rs 11,000 crore & Idea – Rs 7250 crore). Overall capex is pegged at Rs 27,000 crore (plus ~Rs 6200 crore advantages from reuse of tools) over FY19 and FY20. With a significant driver of earnings restoration being market restore (pricing uptick), which continues to be not seen, we preserve HOLD score.

Outlook

While the merger is basically full and expedited synergy stays a silver lining, the aggressive situation is way from over. Notwithstanding fund elevating & fibre and tower asset sale, business restore stays a key variable for restoration. We decrease our ARPU and margin estimates and bake in proposed Rs 25000 crore fairness elevating (Q4FY19) in our estimates. We preserve HOLD score and decrease our target worth to Rs 40 on a DCF primarily based methodology. We would monitor the business growth intently and switch constructive solely once we witness indicators of a pricing restoration.

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