Visit http://indiaer.blogspot.com/ for complete details Idea Cellular (IDEA IN) Rating:4
2Q FY11 results: disappointing all round
What has changed?
• Idea Cellular’s (Idea) 2Q FY11 results were lower than both our forecasts and
those of the Bloomberg consensus.
Impact
• 2Q FY11 results were below our expectations. Idea recorded a net profit of
Rs1.8bn, down 11% QoQ, much lower than our forecast of Rs2.3bn. Revenue
was flat sequentially at Rs37bn, while EBITDA declined by 1% QoQ to Rs9bn,
and the EBITDA margin contracted by 30 basis points QoQ.
• ARPU fell by 8% QoQ. The muted revenue performance for 2Q FY11 was
driven primarily by a decline of 8% QoQ in the average revenue per user
(ARPU) to Rs167. Minutes of usage/user/month (MOU) dropped by 5% QoQ.
Despite the fact that the second quarter is a weak one seasonally, the sharp falls
in ARPU and MOU highlight the intense competition in the sector, particularly
from the new operators, in our view.
• Other highlights. Idea maintained its capex guidance of Rs40bn for FY11, despite
spending only Rs8bn for the first half of FY11. For the second quarter, Idea
capitalised interest costs of Rs1,207m related to the 3G auction fee payment. Idea
expects to launch 3G services at the end of 2010 or in January 2011.
Valuation
• We maintain our DCF-based six-month target price of Rs44.
Catalysts and action
• While Idea enjoyed the benefits of subscribers coming back to its network after
it lowered the tariffs over the past three quarters which resulted in revenue rises
exceeding 5% QoQ for each of the past three quarters, we believe innovative
tariff plans from new operators will bring down further the effective tariffs,
thereby putting pressure on the revenue-growth rates and profit margins of the
incumbent operators. The results reinforce our negative view on the stock and
we maintain our 4 (Underperform) rating for Idea.
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