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16 August 2008

An IDEA Can Change Your Life

Till date I kick myself for the biggest investment blunder made by me. Back in 2001-02 I invested in Bharti at Rs 30 per share, banking solely on the technology being launched. However, soon the trader in me took over and I sold the stock at a grand profit of Rs 15 per share. Thereafter I was an observant spectator of the meteoric rise of indian telecom industry in general and Bharti(most sadly) in particular.Watching from the sidelines for so long has now paid dividend. I now observe another shining star,an IDEA whose time has come.....

I can give a lot of numbers which say why one must invest in Idea Cellular Ltd; like its over 71 % growth y-o-y in subscribers, 50 % growth in revenue, doubling of net profit and a rise in ARPU(Average Revenue Per User)(in an era when other ARPU souffles are deflating!).However in this case one must take a call on the business.

Promoted by Kumar Mangalam Birla, a part of the Aditya Birla Group, Idea Cellular boasts impeccable management pedigree. It operates in 11 circles with a subscriber base of 24 million(compared to Bharti's 64 mn). With a market cap of about Rs 26,000Cr IDEA is a good option since it is a pan India player with an existing UASL and is already providing 2G services.

IDEA has a subsidiary called Aditya Birla Telecom Ltd which operates the Bihar circle. A private equity player Providence has invested $640 Mn or Rs 2780 Cr for a 20% stake of ABTL, valuing it at Rs 13700 Cr. The market capitalisation of IDEA is Rs 26000 Cr. So for the balance Rs 12,300 Cr($2.86 Bn) one gets to buy - Punjab, Delhi, HP, UP(West),Uttrakhand, Rajasthan, MP, Chattisgarh, Mumbai, Goa, Karnataka, AP, Tamil Nadu including Chennai and Kerala. Quite the mouthwatering treat it is!The topping on the cake is the 16% stake in Indus Towers valued at Rs 37 per share, a Unified Access Service License (UASL) and a 3 G licence. Thus if I were an FDI player or an FII, $ 3 Bn is all I need to have the cake and eat it too.

But before you all start ordering the cake,a few words of caution- the FDI/FII player would need deep pockets - to roll out services in six out of eleven circles where IDEA is holding a license and for pan India 3G services. And not to forget the stiff competition being offerred by Bharti, Reliance, BSNL(dont laugh!) and Vodaphone, all of whom are similarly placed.

However with telecom penetration at 22%, well below the developed market levels, there is scope for improvement and co-existance of 7-8 pan-India operators.

So go ahead and buy with a time horizon of 2-3 years for a multibagger.To paraphrase a popular jingle - 'This IDEA can change your portfolio'

1 comment:

talespinner said...

Hi Puneet,

Excellent analysis. How's the news about Tata Teleservices going to affect its shares? Would Idea still be a better buy?


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