Visit http://indiaer.blogspot.com/ for complete details Idea Cellular (IDEA.BO) Rs71.80
First Take: More pronounced impact of seasonality; still net profit beat
News
Idea’s 2QFY11 revenue/EBITDA of Rs36.37 bn/Rs8.56 bn missed our
estimates by 3.7%/7.1% due to higher-than-estimated impact of
seasonality. However net profit of Rs1.80 bn was 4.6% higher than our
estimate mainly due to lower than estimated net interest expenses.
Management believes incumbents like Idea continued to gain revenue
market share in 2Q.
Analysis
We believe revenue/EBITDA missed our estimates due to 1) Higher than
expected impact from seasonality as a larger proportion of revenues are
coming from rural areas; and 2) As higher proportion of subs have
migrated to per sec billing from per min billing (making the impact more
severe with lower MOU/sub). Key positives: 1) Net interest expense of
Rs1.0 bn was lower than our est. of Rs1.7 bn implying lower than estimated
interest cost; 2) Idea now expects FY11 capex to be Rs 40 bn vs. earlier
guidance of Rs 40-44 bn; suggesting competitive rates from vendors; 3)
Proportionate Indus revenues/ EBITDA increased 8.7%/23.5% qoq. Key
negatives: 1) MOU/sub at 394 mins declined 5.1% qoq and RPM declined
3.4% qoq to Rs0.42, resulting in Idea missing our revenue estimate by
3.7%; 2) EBITDA declined mainly due to lower revenue (lack of scale
benefits). EBITDA margin declined 70bp qoq and missed our est. by 88bp
mainly due to higher personnel expenses. Bharti (BRTI.BO, Neutral,
Rs337.20) read across: As higher proportion of Bharti’s subscriber net
adds/revenue comes from rural areas, we believe the seasonality impact
might potentially be more pronounced on Bharti’s cellular KPIs.
Implications
We reiterate our TP and BUY rating on Idea.
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