Visit http://indiaer.blogspot.com/ for complete details IDEA CELLULAR 2QFY11: Operating performance broadly in line; Positive surprise from Indus; Buy
- Idea Cellular’s (IDEA IN, Mkt Cap US$5.2b, CMP Rs72, Buy) 2QFY11 results were broadly in line with flat revenue and EBITDA QoQ.
- Consolidated PAT declined 18.4% YoY and 10.8% QoQ to Rs1.8b (est of Rs1.7b).
- Mobile traffic (+3.1% QoQ growth) and RPM (3.4% QoQ decline) were ~0.7% below estimates.
- However, this was offset by higher-than-expected revenue (+8.7% QoQ) and EBITDA (+23.5% QoQ) for Indus (consolidated on a 16% proportionate basis).
- Higher-than-expected PAT was driven by higher EBITDA growth (from Indus) and lower finance cost but offset by higher tax rate.
- 2QFY11 consolidated revenue grew 23% YoY and 0.1% QoQ to Rs36.6b (0.5% below estimate).
- Consolidated EBITDA grew 8.6% YoY but declined 1.1% QoQ to Rs8.8b (1% above estimate).
- Consolidated EBITDA margin stood at 24% (down 30bp QoQ); there was a negative 120bp impact due to increase in employee costs (annual increments).
- ARPU declined 8.2% QoQ to Rs167 (est of Rs170); MOU per subscriber declined 5.1% QoQ to 394 minutes (est of 398 minutes).
- Idea has largely maintained its capex guidance at Rs40b (excl. 3G spectrum payment) for FY11.
- While QoQ RPM decline in 2QFY11 is lower than preceding quarters, absolute arrest in tariff declines remains challenging.
- Idea would be launching 3G service in 4QFY11 and is also pursuing long-term arrangements with other quality operators to achieve a nation wide 3G service footprint.
- Idea trades at an EV/EBITDA of 9.8x FY11E and 7.1x FY12. We expect 27% EBITDA CAGR over FY11-13E led by lower RPM decline, continued volume momentum and 3G launch. Maintain Buy.
- More details awaited in earnings call scheduled on Tuesday, 26th October at 2.30pm IST (+91 22 3065 0126 / 6629 0339). We would look forward to management commentary on 1) potential acceleration in traffic growth during 2HFY11, 2) RPM outlook, and 3) drivers for robust performance from Indus.
In line results
- Consolidated revenue grew 23% YoY and 0.1% QoQ to Rs36.6b vs our estimate of Rs36.8b.
- Revenue for established circles increased 23.7% YoY but declined 1% QoQ to Rs33.5b.
- EBITDA in 13 established circles (including Spice) was Rs9b implying an EBITDA margin of 27%.
- New circles reported combined revenue of Rs3.4b (v/s Rs3.1b in 1QFY11) and EBITDA loss of Rs1.4b (flat QoQ).
- We expect new circle EBITDA loss to decline meaningfully from FY12 onwards.
- Net finance cost of Rs1b was lower than our estimate of Rs1.3b; interest cost of Rs1.2b for 3G spectrum payment of ~Rs58b has been capitalized.
- Idea had a forex gain of Rs51m in 2QFY11 vs Rs28m loss in 1QFY11.
Mobile traffic grew ~3.1% QoQ; RPM declined 3.4% QoQ to Rs0.42
- Idea reported 2QFY11 ARPU of Rs167 (1.8% below estimate), down 20.1% YoY and 8.2% QoQ.
- RPM declined 23.9% YoY and 3.4% QoQ to Rs0.42.
- Total volumes carried on the network (incl Spice) increased 51.3% YoY and 3.1% QoQ to 84.8b minutes.
- Minutes of use per subscriber increased 5.1% YoY but declined 5.1% QoQ to 394.
- MOU has declined after three quarters of MOU growth primarily due to seasonal weakness.
- Churn levels remain alarming at 8% per month.
Indus EBITDA up 23.5% QoQ
- Idea’s share of 16% of Indus revenues for the quarter was Rs2.77b while revenue eliminations stood at Rs3.08b. Proportionate EBITDA from Indus increased 23.5% QoQ to Rs1.2b.
- Indus revenue and EBITDA were 5.6% and 17% above our estimates respectively.
- As of Jun-10, Idea had 67,980 cell sites (including erstwhile Spice). Idea owns 8,838 towers while the balance sites are rented (of which 36,618 sites have been rented from Indus).
FY11 capex guidance of Rs40b largely unchanged; net debt down 3.4% QoQ
- Idea incurred capex (including addition to CWIP) of ~Rs4.8b in 1QFY11 and Rs8b for 1HFY11 (excluding 3G spectrum fees and interest capitalized).
- FY11 capex (ex-3G payments) guidance of Rs40b remains largely unchanged.
- Consolidated net debt declined to Rs106.8 vs Rs110.5b in 1QFY11.
- Idea has net debt /annualized EBITDA of 3x (3.1x in 1QFY11) and net debt/equity of 0.9x at the consolidated level.
- We expect consolidated net debt/EBITDA to decline to ~2.2x by FY12.
Growth to rebound in 2HFY11; trades at ~7x FY12 EV/EBITDA; maintain Buy
- We expect revenue growth to rebound to 4.5% QoQ in 2HFY11.
- Lower tariff pressure, continued volume growth, 3G launch, and lower new circle losses are expected to drive a strong 27% EBITDA CAGR for Idea over FY11-13E
- At CMP of Rs72 Idea trades at an EV/EBITDA of 9.8x FY11E and 7.1x FY12E. Maintain Buy.
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