Angel Broking has maintained its buy rating on Idea Cellular in its June 25, 2008 research report. "We view the deal with Spice favourably and even though it does seem as though the price that Idea is paying for Spice is a bit steep, it should be looked at in light of the benefits that the deal will give Idea over a longer-term time frame. Typically, such acquisitions are always made with a time-frame of at least a few years in mind, given the time taken for the synergies to be realised, cost savings, qualitative benefits to play out and EPS accretion."
"Undoubtedly, in the short-term, Idea's equity will see a 23% dilution, leading to lower EPS and its margins will also witness some pressure due to the lower profitability of Spice, but this can be viewed as 'newer circles' (Punjab and Karnataka) that are already profitable and going ahead, the situation can be improved with better execution skills and operating leverage. We are working on our projections for Idea to factor in the effect after the merger with Spice. We view the deal as a long-term positive, even though a short-term negative impact cannot be ruled out. We maintain a Buy on the stock and our Target Price is under review," says Angel's research report.
"Undoubtedly, in the short-term, Idea's equity will see a 23% dilution, leading to lower EPS and its margins will also witness some pressure due to the lower profitability of Spice, but this can be viewed as 'newer circles' (Punjab and Karnataka) that are already profitable and going ahead, the situation can be improved with better execution skills and operating leverage. We are working on our projections for Idea to factor in the effect after the merger with Spice. We view the deal as a long-term positive, even though a short-term negative impact cannot be ruled out. We maintain a Buy on the stock and our Target Price is under review," says Angel's research report.
