Idea closing in on bigger rivals

Market worth has risen to half that of Airtel and double that of RCom

At the time of its listing in 2007, Idea Cellular’s market worth was a sixth of industry bellwether Bharti Airtel’s and a fourth of Reliance Communication’s. Just six years later, the Aditya Birla Group company is riding high: Its m-cap is only half of Airtel’s and nearly twice RCom’s.

Analysts attribute Idea’s performance to its ability to grow its revenue market share. “In last five years, Idea has consistently increased its revenue market shares across the circles it operates in. The trend is likely to persist, given that the company is still a challenger in many circles and might grow at the expense of the small operators that are running out of capital to invest further,” says Shobhit Khare, telecom analyst, Motilal Oswal Financial Services. Idea Cellular, which has a silent period before its second-quarter results, likely to be announced later this month, refused to comment.

In the past six years, Idea has nearly doubled its share of the national wireless market. In the first quarter of the current financial year, it accounted for 16.2 per cent of the industry’s combined revenue from mobile telephony, compared with 9.7 per cent in 2007-08. During this period, Vodafone’s revenue share increased 470 basis points, while Bharti Airtel’s was up 140 basis points. RCom’s revenue share halved during the period, while Tata Teleservices’ was down 160 basis points (see chart).

Given its low revenue share in many circles, Idea Cellular is expected to maintain its growth momentum. “Nearly a third of Idea’s revenue comes from the circles where it has less than 15 per cent revenue shares. This provides it an opportunity to raise its share through incremental investment in network, marketing and sales & distribution,” says Khare.

Others attribute Idea’s success to its financial conservatism. “Bharti Airtel’s finances and management bandwidth has been stretched by its African venture, while high debt remains a problem for RCom, Tata Tele and Aircel.

Idea has no such issues and has one of the industry’s best balance sheets,” says G Chokkalingam, managing director & chief investment officer, Centrum Wealth Management. At the end of 2012-13, the company had a debt-to-equity ratio of 0.9 — lower than RCom’s 1.2 and Bharti Airtel’s 1.44.

This has also made Idea Cellular an investors’ favourite. Idea is now the only telecom operator to have delivered positive returns to its shareholders in the past six years, including the 2008 market crash. At present, Idea’s stock price is ruling 32 per cent higher than that at the beginning of 2008, when the stock market was at its peak. In comparison, the Bharti Airtel stock has fallen by a third from its 2008 highs, while RCom’s has fallen 80 per cent during the period.

Compared to the beginning of this financial year, Idea’s stock price has risen 76 per cent, while Bharti Airtel’s is up five per cent and RCom’s has appreciated 104 per cent. According to the bulls, there would still be some juice left in the stock if the company is able to maintain its growth momentum in the current quarter as well.

“In the past year, we upgraded Idea thrice and more than doubled the target price to Rs 200 a share, from Rs 90 in January this year. We are now keeping our fingers crossed, but it has the potential to surprise us on the upside again,” says Khare.