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COMMENT
Idea Cellular (IDEA.BO) Rs69.30
Equity Research
First Take: Strong results; 9%/10% qoq rev/EBITDA growth; capex cut
News
Idea reported 3QFY11 results with revenues, EBITDA and net profit being
0.6%/1.3%/21.2% above our and 2.4%/1.4%/19.8% above Bloomberg
consensus estimates. Net income beat was largely due to lower finance
charges (which came in at Rs941 mn vs. our estimate of Rs1,378 mn). Key
positives: 1) Revenue grew by 8.7% qoq and 26.0% yoy and was 0.6%
above our estimate largely driven by better ARPU (Rs168, up 0.6% qoq)
and uptick in MOU (up 1.8% qoq at 401 mins) 2) Proportionate Indus
EBITDA margins improved 365 bps qoq and came in at 45.8% in the
quarter. 3) Capex guidance for FY11 was revised downwards by 25% to
Rs30 bn primarily due to savings from earlier est. and competitive rates
from vendors in our view. Key negatives: 1) Indus revenues at Rs2.8 bn
were flat qoq vs. our estimate of a 4.3% qoq growth. 2) Subs acquisition
and promotion costs were 16.3% above our estimates (+33.1% qoq, +26.0%
yoy). However, this was offset by lower personnel costs (9.0% below our
est) and network expenses (8.0% below our estimates). In addition, 8% qoq
decline in net finance charges (32% below our est.) surprised us. We
believe this could likely be driven by some accounting changes ahead of
3G interest being expensed from 4Q in an effort to reduce the overall new
interest expense. We remain unclear on this and await further clarity from
mgmt in the earnings call (on Jan 25).
Analysis
The strong operational performance (9%/10% qoq increase in
revenue/EBITDA) indicates that Idea is fortifying its position in its incumbent
circles and reducing/containing losses in new circles. The result reaffirms
our view that incumbent operators will likely grow faster than new entrants
due to similar tariffs but better coverage. We now see upside risks to our
Bharti (BRTI.BO, Buy (Conviction List), Rs333.85) revenue estimates (but
believe margins will not benefit due to impact from Africa business).
Implications
We reiterate our Buy rating and target price on Idea.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
COMMENT
Idea Cellular (IDEA.BO) Rs69.30
Equity Research
First Take: Strong results; 9%/10% qoq rev/EBITDA growth; capex cut
News
Idea reported 3QFY11 results with revenues, EBITDA and net profit being
0.6%/1.3%/21.2% above our and 2.4%/1.4%/19.8% above Bloomberg
consensus estimates. Net income beat was largely due to lower finance
charges (which came in at Rs941 mn vs. our estimate of Rs1,378 mn). Key
positives: 1) Revenue grew by 8.7% qoq and 26.0% yoy and was 0.6%
above our estimate largely driven by better ARPU (Rs168, up 0.6% qoq)
and uptick in MOU (up 1.8% qoq at 401 mins) 2) Proportionate Indus
EBITDA margins improved 365 bps qoq and came in at 45.8% in the
quarter. 3) Capex guidance for FY11 was revised downwards by 25% to
Rs30 bn primarily due to savings from earlier est. and competitive rates
from vendors in our view. Key negatives: 1) Indus revenues at Rs2.8 bn
were flat qoq vs. our estimate of a 4.3% qoq growth. 2) Subs acquisition
and promotion costs were 16.3% above our estimates (+33.1% qoq, +26.0%
yoy). However, this was offset by lower personnel costs (9.0% below our
est) and network expenses (8.0% below our estimates). In addition, 8% qoq
decline in net finance charges (32% below our est.) surprised us. We
believe this could likely be driven by some accounting changes ahead of
3G interest being expensed from 4Q in an effort to reduce the overall new
interest expense. We remain unclear on this and await further clarity from
mgmt in the earnings call (on Jan 25).
Analysis
The strong operational performance (9%/10% qoq increase in
revenue/EBITDA) indicates that Idea is fortifying its position in its incumbent
circles and reducing/containing losses in new circles. The result reaffirms
our view that incumbent operators will likely grow faster than new entrants
due to similar tariffs but better coverage. We now see upside risks to our
Bharti (BRTI.BO, Buy (Conviction List), Rs333.85) revenue estimates (but
believe margins will not benefit due to impact from Africa business).
Implications
We reiterate our Buy rating and target price on Idea.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
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