Angel Broking, Idea Cellular - 4QFY2011 Result Update

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Idea Cellular - 4QFY2011  Result Update

Angel Broking maintains Neutral on Idea Cellular.

Idea Cellular (Idea) reported its 4QFY2011 results which outperformed street as

well as our expectations on all fronts. The revenue growth was majorly led by

strong subscriber addition of 7.7mn in this quarter, however, minor erosion in

KPIs swept off slight revenue gains. We maintain Neutral view on the stock.

Decent revenue growth: For 4QFY2011, Idea reported consolidated revenues of

`4,235cr, up 7.1% qoq. This was on the back of higher subscriber growth of 9.4%

qoq to 89.5mn which overshadowed the negative impact of decline in MOU and

ARPM to 397mn (1.0% qoq decline) and 0.41`/min (2.9% qoq decline) from

401min and 0.42`/min in 3QFY2011, respectively.

EBITDA margin enhance: Despite slight erosion in the KPIs of the mobility

business in 4QFY2011, EPM grew by 4.3% qoq to 0.11`/min. This was partially

due to a one-time cost reversal in NOE of `38cr, which aided overall EBITDA of

Idea and thus contributed to improvement in EPM. EBITDA margin of ESA and

NSA increased by 120bp and 439bp qoq, respectively, which led to 142bp qoq

improvement in consolidated EBITDA margin to 25.4%. Adjusting for reversal in

NOE, consolidated EBITDA margin grew by 52bp qoq to 24.5%.

Outlook and valuation: Idea has recorded robust subscriber net additions over

the past few months with monthly additions of ~2.5mn. However, going forward

we expect the net additions to cool off of for the entire telecom universe and

expect the subscriber base of Idea to grow at a CAGR of 16.2% over

FY2011-13E. We expect ARPM’s to remain stable as we expect the company’s 3G

subscriber base to expand and contribute to data services. At the CMP, the stock

is trading at EV/EBITDA of 6.4x FY2013. We value the stock at EV/EBITDA of 6.5x

FY2013E, i.e. at 10% discount to Bharti Airtel‘s EV/EBITDA multiple, which gives

us a target price of `76. Hence at current levels, we maintain Neutral rating on

the stock.