IDEA Cellular: Weak 2Q on Seasonality and Competition : Citi

Visit http://indiaer.blogspot.com/ for complete details �� ��


IDEA Cellular (IDEA.BO)
Alert: Weak 2Q on Seasonality and Competition


 Operationally and financially weak – Idea’s 2Q EBITDA at Rs7.6bn (-4% qoq, +4%
yoy) came in below expectations. The slight disappointment in the top line was
compounded by 90bps qoq margin contraction primarily from higher staff costs.
Network opex was however flat qoq but not surprising given slowed capex due to
security-related restrictions on equipment import. Meanwhile losses in new circles
were contained at Rs1.4bn (flat qoq). PAT came in at Rs1.6bn (-17%qoq)
 Slower traffic growth due to seasonality – After the strong traffic growth witnessed
in the last 3 quarters, Idea’s mins growth expectedly slowed to 3% qoq due to 2Q
being seasonally weak. Rev/min however continues to remain under pressure
declining 2p during the quarter from circle-level tactical tariff interventions.
Overall ARPU dipped 8% qoq to Rs167.
 Churn levels continue to remain high – Pre-paid churn continues to remain high at
8.2%. The high churn is primarily a result of Idea’s new launches while also
highlighting the still-prevailing high competitive intensity (read multi-SIMs).
 Margins may come under pressure from easing network restrictions – Slower
equipment imports would have helped increase capacity utilisation thereby
supporting margins. However, with restrictions now easing, the pent-up capex
need may result in some margin pressure notwithstanding the minutes growth
which should revive in the next quarter. The slowed capex has however helped
reduce net debt by Rs4bn during the quarter.
 Stock pricing in the positives – Idea has run-up in the last 2-3 months on the back
of 1) improving business environment, 2) expectations of declining competitive
intensity, 3) regulatory risk slipping out of mind and 4) expectations of Idea
participating in industry consolidation. We believe that while it is pricing in the
positives, the Street has become complacent on regulatory issues that have only
been delayed and not diminished. IDEA Cellular (IDEA.BO; Rs71.80; 3M).