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Tuesday, August 02, 2016

Idea Cellular Ltd: Buy
CMP: Rs.103.50
Target: Rs.111
SL: Rs.99
One of the major drawbacks of the GST regime could be the direct spike in the service tax rate from 14% to 20-25%. 

Being a regressive taxation system that India follows, the burn of increased tax rates will directly be faced by the end consumers unless the credit is passed on to the next in the business chain. 

Now given the importance of communication services in our lives, they could easily qualify as "Necesary Services". Thus it is expected that the government of India will consider allotting telecom services under the lower rates category and in turn, charged a reduced GST rate reserved only for Necessity Goods.

Moreover, Deutsche Bank has given a buy on  July 4, 2016 on Idea Cellular, with a target price of Rs.137. The report says: Idea expects the data market to be driven by subscriber growth rather than ARPU (average revenue per user), similar to the trajectory of the voice market. There is space for Reliance Jio without affecting the revenue shares of the incumbents if sector growth remains at the current level of 8-9%. Idea expects significant availability of spectrum in the 1800Mhz band in the medium term and intends to buy spectrum largely on a ‘just-in-time’ basis.

Now I feel the rally will be more broad based, as the passage of the GST bill, is almost certain in this monsoon session. Or in other words, the rally in the large caps, will be accompanied by SHARP RALLIES in the SMALL and MID CAP space. 
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