Visit http://indiaer.blogspot.com/ for complete details Idea Cellular Limited Underweight
IDEA.BO, IDEA IN
Disappointing Q2 results; operational metrics weak
Idea reported a disappointing Q2 (to Sept) with revenue missing JPMe/cons
by 1.2%/3.1% and EBITDA margin in-line with JPMe but slightly missing the
consensus estimate. While Q2 was well highlighted to be a seasonally weak
quarter we note that Q2 EPS of INR 0.54 missed even our below-consensus
estimate of INR 0.57 by 5% and was 9% below the recently reduced consensus
estimate of INR 0.60. We reiterate our UW call on Idea. We believe the weak
operational trends read negatively for Bharti too.
• Operational metrics are weak: Total minutes increased only 3% Q/Q vs.
13% increase (like-for-like) in Q1. Driving this was a 5% decline in MOU to
394 supporting our view that the sharp snapback of volume to Idea was
largely done in Q1. ARPM declined by 1.5p to INR 0.42, in-line with JPMe
of INR 0.42. This is a 3.4% Q/Q decline vs. the 5.7% decline seen in Q1 and
the 9.6% seen in Q4. Management stated that the rate of declines was
improving Q/Q but had not necessarily bottomed out. They also said that
during the quarter some improvements were seen and H2 tends to be better
seasonally. While a reduction in the rate of decline is welcome, we believe
our est and the result was below wider expectations. ARPU was INR 167 (-
8% Q/Q) while churn remained high at 8.0% vs. 8.2% in Q1FY11.
• Standalone revenue (excl. Indus) was INR 36.9bn in Q1 (flat Q/Q), 1%
below JPMe of INR 37.1 bn. Standalone EBITDA margin was 20.7% (-
90bp Q/Q), 30bp below JPMe. Higher staff costs added pressure to margins.
We are concerned to see another qtr of margin decline (60bp to 27.0%) in
the established circles. EBITDA margin for the new circles was -42.2%
(JPMe -43.3%) a 3.5pp improvement sequentially but remain a drag.
• On a consolidated basis, revenue was INR 36.59 bn (+0.2% Q/Q), 1.2%
below JPMe of INR 37.05bn and 3.1% below cons of INR 37.7bn.
Consolidated EBITDA margin was 24.0% (-30bp Q/Q) in-line with JPMe of
23.9% but slightly missing cons 24.3%. Absolute EBITDA was 1%/4%
below JPMe/cons. Net profit was INR 1,797m (-11% Q/Q). Idea reported
EPS for Q2FY11 of INR 0.54 (-11% Q/Q) 5% below JPMe of INR 0.57 and
9% below the recently reduced cons est of INR 0.60
• Capex at 34% of full year, guidance revised down slightly: We estimate
that capex was INR 9.5bn, 26% of sales (JPMe INR 9.3bn, 25%) and so far
in H1 FY11 the capex spend is at ~34% of the new full year budget. We
continue to expect capex to increase as the year progresses resulting in
margin pressure via increased network opex. Idea has revised its capex
budget down slightly to INR 40bn (incl. 3G but excluding 3G spectrum fee
and interest) from INR 40-44bn stated at the time of Q1 results. Capex for
3G (incl. transmission) is expected to be INR 30bn in year 1 of rollouts.
• Management comments on 3G: Extensive 3G rollouts are expected in the
March quarter. Idea is pursuing arrangements with a few telcos for the
service areas where it was not awarded 3G spectrum.
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