Idea Cellular: Buy Investments with a two-year horizon may be considered in the shares of Idea Cellular (Idea), given the telecom operator’s strong pace of subscriber additions, entry into circles with higher realisations and synergies possible from Indus Towers. Pressures on near term margins and earnings due to entry into new circles and high capital expenditure have seen the stock’s valuation being beaten down to a moderate 13 times forward earnings (estimated 2008-09). At Rs 48, the stock offers a good investment option for investors who are willing to look beyond the next few quarters, for appreciation over a 3-4 year time frame. Once Idea’s capex in new circles tapers off (likely by mid 2010), its overall profitability would start to expand. Mobile number portability, on the anvil for 2009, may also work in Idea’s favour. Idea’s profit margins over the last couple of quarters have come under strain, due to the capex for network rollout in Mumbai and Bihar, heavy rentals for tower...
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