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Idea Cellular (IDEA.BO) Rs71.95
Equity Research
First Take: Strong 4Q execution: Lower MNP impact, better margins
News
Idea reported 4QFY11 results with revenue, EBITDA, and net profits 3.9%
/8.8%/21.1% above our and 0.3%/1.8%/11.7% above Bloomberg consensus
estimates. 4Q results were delayed as Idea received legal approval for the
vacation of stay of the Spice merger only on June 2, allowing them to
release results. Key positives: 1) Despite a 1% qoq decline in MOU,
revenue rose 6.2% qoq (+3.4% qoq for Bharti) and was 3.9% above our
estimates largely due to higher-than-estimated ARPU/RPM of Rs161/
Rs0.41 vs. our estimate of Rs157/Rs0.39 (MNP impact was lower than our
estimate). 2) 4Q EBITDA margin improved 90bps (+120bps vs. our est.)
mainly due to lower than expected network opex (flat qoq and 2.2% below
our est.). 3) Revenue from new circles grew 11% qoq and EBITDA loss
declined from Rs 1,384 bn in 3Q to Rs1,173 bn in 4Q, suggesting a
disciplined investment approach. 4) The net profit beat (along with strong
EBITDA) was further aided by lower-than-expected net int. expense. Mgmt
stated this was due to timing of cash accruals, int. income from cash
deployment during the quarter, and forex gains. Key negatives: 1) Churn
rate continued to inch up, reaching an all-time high of 10.7% in 4Q vs.
10.0% in 3Q, mainly due to MNP impact, in our view. 2) D&A increased
10.9% qoq and were 7.9% above our est. due to higher 3G-related expense.
3) Tax rate was 17.5% vs. 3Q’s 7.1% and our estimate of 7.8%. Idea guided
for FY12 capex of Rs40bn, largely in line with our est. of Rs 42.5 bn.
Analysis
We see upside risk to consensus estimates post today’s results. We believe
Idea’s consistent strong qoq revenue/EBITDA growth from incumbent
circles and declining losses from new circles should help Idea show double
digit revenue/EBITDA growth going forward. In our view, 3G upside is also
not in consensus estimates.
Implications
We reiterate our Buy rating, but put our estimates and target price under
review pending the earnings call on June 14.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Idea Cellular (IDEA.BO) Rs71.95
Equity Research
First Take: Strong 4Q execution: Lower MNP impact, better margins
News
Idea reported 4QFY11 results with revenue, EBITDA, and net profits 3.9%
/8.8%/21.1% above our and 0.3%/1.8%/11.7% above Bloomberg consensus
estimates. 4Q results were delayed as Idea received legal approval for the
vacation of stay of the Spice merger only on June 2, allowing them to
release results. Key positives: 1) Despite a 1% qoq decline in MOU,
revenue rose 6.2% qoq (+3.4% qoq for Bharti) and was 3.9% above our
estimates largely due to higher-than-estimated ARPU/RPM of Rs161/
Rs0.41 vs. our estimate of Rs157/Rs0.39 (MNP impact was lower than our
estimate). 2) 4Q EBITDA margin improved 90bps (+120bps vs. our est.)
mainly due to lower than expected network opex (flat qoq and 2.2% below
our est.). 3) Revenue from new circles grew 11% qoq and EBITDA loss
declined from Rs 1,384 bn in 3Q to Rs1,173 bn in 4Q, suggesting a
disciplined investment approach. 4) The net profit beat (along with strong
EBITDA) was further aided by lower-than-expected net int. expense. Mgmt
stated this was due to timing of cash accruals, int. income from cash
deployment during the quarter, and forex gains. Key negatives: 1) Churn
rate continued to inch up, reaching an all-time high of 10.7% in 4Q vs.
10.0% in 3Q, mainly due to MNP impact, in our view. 2) D&A increased
10.9% qoq and were 7.9% above our est. due to higher 3G-related expense.
3) Tax rate was 17.5% vs. 3Q’s 7.1% and our estimate of 7.8%. Idea guided
for FY12 capex of Rs40bn, largely in line with our est. of Rs 42.5 bn.
Analysis
We see upside risk to consensus estimates post today’s results. We believe
Idea’s consistent strong qoq revenue/EBITDA growth from incumbent
circles and declining losses from new circles should help Idea show double
digit revenue/EBITDA growth going forward. In our view, 3G upside is also
not in consensus estimates.
Implications
We reiterate our Buy rating, but put our estimates and target price under
review pending the earnings call on June 14.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Coverage View: Neutral
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