IDEA CELLULAR LTD.,

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IDEA CELLULAR LTD.,

• We recommend to Buy with a price target of
  185-230
• Buying Level 130-150
• Target 185-230
• Support levels 120-130
• Resistance 155
• Technical Out Look
• The scrip has taken trend line support at 130
• level.
• The scrip has formed higher top higher bottom
• on monthly and is trending firm to wards the
  target.
• we strongly recommend to buy the stock on
• every dip.

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Company Outlook

• Idea Cellular is a part of the US 24 billion
  Aditya Birla Group and a leading
• GSM mobile services operator with licenses to
  operate in 13 telecom service
• areas in India. The company has operations in
  Delhi, Himachal Pradesh,
• Rajasthan, Haryana, Uttar Pradesh (W)
  Uttaranchal, Uttar Pradesh (E), Madhya
• Pradesh Chattisgarh, Gujarat, Maharashtra
  Goa, Andhra Pradesh and Kerala. With
• the planned expansion into Mumbai, Bihar
  Jharkhand,
• Ideas footprint will cover nearly 70 percent of
  Indias telephony potential. Idea
• Cellular had 16.13 Million subscribers as on June
  30, 2007, and had a market share of
• 15.4 percent as on June 30, 2007 in its 11
  service areas of operation. We think idea
• looks impressive due to the following reasons-

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Business Summary

• Higher subscriber addition
• We expect that the company will see a robust
  growth in its subscriber base in the coming
  months in both new as well as existing circles.
  Moreover it is expected to be allotted spectrum
  in Mumbai in the coming months.
• Improvement in EBITDA margins
• The EBITDA margins are expected to improve both
  in the existing and the new circles. As more and
  more subscribers will be added and company will
  enter into new circles, revenue flow will also be
  higher.
• Hiving off tower business
• Following the footsteps of Bharti and RCom, Idea
  Cellular has also decided to hive off its tower
  business into an independent subsidiary. The
  Board of Directors (BoD) has approved the
  demerger plan. So value unlocking is on the
  cards.

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Valuation Summary

• Tower business Demerger
• The company has planned to hive off its tower
  business for possible transfer of passive
  infrastructure. It would result in significant
  value unlocking. The company had 13,160 cell
  sites as of Q1FY08 compared to 10,114 cell sites
  at the end of Q4FY07. Around 4500 towers are on
  sharing basis. Out of 8.662 towers about 4,900
  are roof top towers and 3,700 are ground based.
  They have a tenancy ratio 0f 1.3x. Company is
  expected to increase its cell sites to 20000 by
  FY08.

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Financials
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Valuation Summary

• Financial Analysis
• Net sales increase by 64 percent
• Net sales increased by 64 percent Y-o-Y on
  account of robust subscriber additions. However
  the companys Average Revenue Per Unit (ARPU) has
  decreased significantly from Rs.362 to Rs.320.
• Aggressive method of recognizing revenue
• Idea recognizes entire processing charge from
  Lifetime prepaid schemes as revenue upfront,
  while RCom and Bharti amortize the same over 48
  months and 24 months, respectively. Thus, Ideas
  ARPU, revenues and margins, to that extent are
  inflated. In Q1FY08 more than 30 percent of net
  additions were from new lifetime prepaid scheme.
  We believe that the policy of booking entire
  processing fee as revenues upfront would have
  contributed almost Rs.6 to ARPU.

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Valuation Summary

• EBITDA grew by 69 percent Y-o-Y.
• The EBITDA margins in its established circles
  including Delhi, Maharashtra, Gujarat, Andhra
  Pradesh, Madhya Pradesh, Haryana, Kerala and
  EBITDA margins increase by 100bps to 34.7
  percent. Uttar Pradesh (W) expanded by 40bps
  Q-o-Q to 38 percent. Losses in 3 new circles have
  come down to Rs24.6crore (-40 percent of
  revenues) from Rs330m (-76 percent of revenues)
  in last quarter. Company saw reduction in network
  and marketing expenses as percentage of sales by
• 160 bps. However access charges increased
  slightly.
• PAT increased 259 percent Y-o-Y due to margin
  expansion, lower depreciation and interest
  expense
• Ideas net profit grew by 259.5 percent Y-o-Y.
  Its depreciation and amortization charge
  decreased by 320bps Y-o-Y as a percentage of net
  sales. Interest expenses also were significantly
  less as percentage of sales.

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Financials
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contained herein is not a complete analysis of
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only. VENKATARAMAN CO., Stock Share
Brokers, New No.2 (Old No.52) Dr. Ranga Road,
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