Idea can bet on data services to attract higher valuation

Idea Cellular, India’s second-biggest publicly-listed telecom operator in terms of revenues, has fared better on bourses than its peers such as Bharti Airtel and Reliance Communications (RCOM). With a large number of active users and growing presence in data services, Idea is likely to continue attracting the highest valuation.


Over the past six months, Idea’s stock has yielded 23% returns compared with 9% by Bharti’s and 5% by RCom’s stocks. Moreover, only Idea’s stock, among the leading telecom operators, has delivered returns over the past one- and threemonth timeframes.

A similar trend can be seen over the past one year, with Idea delivering 82.4% returns, more than RCOM’s 71% and outperforming Bharti’s 7% by a wide margin. This shows the investors’ preference for a company which has steadily growing operations and a better potential for reaping the benefits of its investments.

On the operational front, Idea has reported an encouraging trend on several counts. Over the past year, blended customer churn has nearly halved to 5.3%. ARPU has increased gradually to 44.7 paise from 41.3 paise. In addition, data as a percentage of service revenue has increased to 8.7% from 5.4%. Total data volume and 3G driven data volume has nearly doubled in one year.





While other operators have reported a similar trend in data traffic, the benefit is far more visible in Idea’s financial performance. The operator has demonstrated a relatively better growth in key financial parameters over the past few quarters. In the 12 months to September, Idea’s revenues grew by 15.5% over the previous year. For Bharti and RCOM, the comparative figures were in single digits. Besides, at 58%, Idea’s net profit growth was the highest among its peers. Bharti reported a drop of 43% in profit while RCom’s profit grew 52% largely on account of higher other income during the quarter to September due to reversal of a past provision.

These reasons are prompting investors to give a higher valuation to Idea’s stock. Its enterprise value relative to operating profit before depreciation (EBITDA) is 9.3 compared with 7.4 for Bharti and 8.5 for RCom. Considering the growth trajectory and potential of data services, Idea is likely to command a higher valuation than its peers