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Idea Cellular Ltd---------------------------------------------------------------Maintain OUTPERFORM
Growth rebounds; good operating performance
Sagar Rastogi / Research Analyst / 91 22 6777 3851 / sagar.rastogi@credit-suisse.com
● Idea reported strong Dec-10 quarter numbers, with revenue
surpassing rather high expectations with 8% QoQ growth. Net
profits came in 24% above estimates.
● RPM decline at only 1.2% QoQ was the highlight of the quarter,
strongly indicating stable pricing. Thus, a 1.8% MoU increase led
to a 0.6% increase in ARPU for the company.
● EBITDA margins remained flat as expected. 250 bps in savings on
network opex was offset by a similar increase in subscriber
acquisition/advertising costs.
● New circle losses appear to have peaked, with the quarter seeing
a reduction in losses for the first time. We see this as a key margin
driver for the company near term.
● Strong growth and stable pricing reconfirm our positive view on
the telecom sector. We retain our OUTPERFORM rating on Idea.
● Management is hosting a call on Tuesday to discuss results
during which we look for comments on margin outlook, 3G
strategy and MNP feedback
Consolidated results better than expected
Idea reported strong Dec-10 quarter numbers, with revenue growing
8% QoQ, coming 1.4% ahead of our expectations. EBITDA margins
remained flat QoQ at 24%, in line with our estimates. Surprisingly,
network opex decreased 1.5% QoQ in absolute terms, helping
margins by around 250 bps. However, this was completely offset by
an increase in subscriber acquisition costs, which grew 33% QoQ. Our
discussions with management indicated that this was linked to higher
gross additions (up 36% QoQ) and higher advertising expenses during
the quarter.
EBITDA thus came in 1% ahead of estimates. Lower depreciation,
interest charges and taxes led to profits beating estimates by 24%.
RPM fall was checked at 1.2% QoQ, coming after an average 7%
decline over the previous four quarters – clearly indicating a stabilising
pricing environment, in our view. The 1.8% MoU increase thus led to a
small ARPU increase for the company.
New circle margins improve
EBITDA losses in new circles could have passed the peak, with the
Dec-10 quarter seeing a QoQ reduction in losses. Losses in new
circles currently depress the overall margin by 350 bps, and could be
a significant margin driver for the company, in our view.
Management reduced FY3/11 capex guidance to Rs30 bn (earlier
Rs40 bn), with some of this year’s planned capex overflowing to
FY3/11. The company incurred Rs17.5 bn of capex in 9M FY11.
Retaining positive stance
Idea’s Dec-10 results have reconfirmed our positive view on the India
mobile segment – on both growth and pricing stability. In particular, we
are pleased with the improvement in new circle profitability.
Management is hosting a call on Tuesday 2.30pm India time to
discuss results. We look for comments on: the growth outlook; margin
drivers and outlook in the near term; initial feedback and strategy on
MNP; strategy on 3G; and comments on the change in leadership. We
retain our OUTPERFORM rating with a Rs75 target price.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Idea Cellular Ltd---------------------------------------------------------------Maintain OUTPERFORM
Growth rebounds; good operating performance
Sagar Rastogi / Research Analyst / 91 22 6777 3851 / sagar.rastogi@credit-suisse.com
● Idea reported strong Dec-10 quarter numbers, with revenue
surpassing rather high expectations with 8% QoQ growth. Net
profits came in 24% above estimates.
● RPM decline at only 1.2% QoQ was the highlight of the quarter,
strongly indicating stable pricing. Thus, a 1.8% MoU increase led
to a 0.6% increase in ARPU for the company.
● EBITDA margins remained flat as expected. 250 bps in savings on
network opex was offset by a similar increase in subscriber
acquisition/advertising costs.
● New circle losses appear to have peaked, with the quarter seeing
a reduction in losses for the first time. We see this as a key margin
driver for the company near term.
● Strong growth and stable pricing reconfirm our positive view on
the telecom sector. We retain our OUTPERFORM rating on Idea.
● Management is hosting a call on Tuesday to discuss results
during which we look for comments on margin outlook, 3G
strategy and MNP feedback
Consolidated results better than expected
Idea reported strong Dec-10 quarter numbers, with revenue growing
8% QoQ, coming 1.4% ahead of our expectations. EBITDA margins
remained flat QoQ at 24%, in line with our estimates. Surprisingly,
network opex decreased 1.5% QoQ in absolute terms, helping
margins by around 250 bps. However, this was completely offset by
an increase in subscriber acquisition costs, which grew 33% QoQ. Our
discussions with management indicated that this was linked to higher
gross additions (up 36% QoQ) and higher advertising expenses during
the quarter.
EBITDA thus came in 1% ahead of estimates. Lower depreciation,
interest charges and taxes led to profits beating estimates by 24%.
RPM fall was checked at 1.2% QoQ, coming after an average 7%
decline over the previous four quarters – clearly indicating a stabilising
pricing environment, in our view. The 1.8% MoU increase thus led to a
small ARPU increase for the company.
New circle margins improve
EBITDA losses in new circles could have passed the peak, with the
Dec-10 quarter seeing a QoQ reduction in losses. Losses in new
circles currently depress the overall margin by 350 bps, and could be
a significant margin driver for the company, in our view.
Management reduced FY3/11 capex guidance to Rs30 bn (earlier
Rs40 bn), with some of this year’s planned capex overflowing to
FY3/11. The company incurred Rs17.5 bn of capex in 9M FY11.
Retaining positive stance
Idea’s Dec-10 results have reconfirmed our positive view on the India
mobile segment – on both growth and pricing stability. In particular, we
are pleased with the improvement in new circle profitability.
Management is hosting a call on Tuesday 2.30pm India time to
discuss results. We look for comments on: the growth outlook; margin
drivers and outlook in the near term; initial feedback and strategy on
MNP; strategy on 3G; and comments on the change in leadership. We
retain our OUTPERFORM rating with a Rs75 target price.
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