Shares of Idea Cellular Ltd. rose the most in nine months after brokerages gave a thumbs up to its capital infusion plan.
The telecom firm's stock is likely to rise 20 percent this year, said brokerage CLSA, as it upgraded the stock to ‘Buy' from 'Neutral'. CLSA's target price of Rs 130 implies an upside of 19.6 percent from yesterday's close.
This is the highest target among 26 analysts covering the Idea Cellular, Bloomberg data showed.
The Adiya Birla Group-led firm returned 46 percent last year, clocking its best performance in four years. It rose as much as 13.7 percent to Rs 118.9 today.
The telecom operator plans to infuse Rs 6,750 crore in two tranches: investment arms of Kumar Mangalam Birla will subscribe to preferential shares worth Rs 3,250 crore and the company would raise another Rs 3,500 crore via share sale, it said in an exchange filing.
Here's what brokerages had to say about Idea Cellular's capital infusion plans:
CLSA
- Stock Rating: Upgraded to ‘Buy' from ‘Sell'
- Target Price: Raised to Rs 130 from Rs 77, implying a potential upside of 19.6 percent from yesterday's close.
- The merged company offers compounded growth rate of 38 percent in operating income over the next three financial years.
- The merger is crucial to address inadequacy in data spectrum.
- Expect integration costs and full merger synergies of Rs 14,000 crore annually by March 2023.
Goldman Sachs
- Capital infusion to increase market confidence in the commitment of promoter entities.
- Fundraising would help lower debt, but leverage ratios are likely to stay elevated given the ongoing rapid decline in operating income.
- Do not foresee any meaningful pickup in capital investment by Idea as a result of its announced initiatives given leverage ratios will still be high.
- Idea could continue to underperform Bharti Airtel Ltd.'s revenue growth.
Deutsche Bank
- Promoter group underlines commitment by subscribing to 48 percent of the issue.
- Fundraising to provide further headroom for the merger to defend its revenue-share against the aggressive competition.
Edelweiss
- Stock Rating: Maintained ‘Hold'
- Target Price: Unchanged at Rs 95, implying a potential downside of 0.3 percent from yesterday's close.
- The fundraising has been necessitated by the Vodafone merger pact limiting peak leverage.
- Idea is likely to use the proceeds primarily to prune leverage to Rs 47,300 crore from Rs 54,000 crore in the second quarter of the current financial year.
- While the reduction in leverage via asset monetisation is positive, we continue to believe that loss of subscriber market share and low capex are key challenges.
- Deriving network cost synergies post-merger with Vodafone and revival in capex to maintain broadband subscriber market share are critical for the company.
- Idea's debt would increase in the second half of the current financial year owing to lower operating income due to interconnection user charges reduction and sustained competitive intensity.
IDFC Securities
- Stock Rating: Maintained ‘Underperform'
- Target Price: Unchanged at Rs 90, implying a potential downside of 13.9 percent from yesterday's close.
- Capital infusion was much needed in Idea, considering the company's leveraged balance sheet and the need to catch up with incumbents on 4G networks.
- We view the capital infusion as necessary (given impending network capex) but not sufficient enough to address our concerns on the company's market share.
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