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India
Idea Cellular Ltd -------------------------------------------------------------- Maintain OUTPERFORM
Strong growth maintained; positive surprise on capex
● Idea reported March 2011 quarter results with strong revenue
growth of 7% QoQ (1% ahead of our estimates). Net profits beat
estimates by 2.6%.
● While reported EBITDA margins increased 140 bp QoQ (EBITDA
beat estimates by 6%), our discussion with management indicated
that a couple of one-off items helped margins. Adjusting for these,
margins were flat and in-line with our expectations.
● Capex guidance of Rs40 bn should surprise investors positively,
especially with the company targeting a fairly aggressive 3G
rollout (700 towns already covered, March 2012 target of 4,000+).
● Crucially, management disclosed that most 3G BTS are colocated with 2G – implying the same slot/ box is used for both.
This is a key driver for low capex in our view, and in-line with our
view that Indian telcos would benefit on capex due to their late
entry into the technology.
● The earnings call is scheduled for 2.30 PM India time on 14 June
(+91-22-6629 0339). We reiterate our OUTPERFORM rating.
Strong revenue growth
Idea Cellular reported March 2011 quarter results with strong revenue
growth of 7% QoQ to Rs42 bn, 1% ahead of our estimates. This is the
second consecutive quarter of strong top-line growth by the company
(following 8% QoQ in the December 2010 quarter).
Reported EBITDA margins expanded 140 bp QoQ, leading to a 13%
EBITDA growth QoQ and a 6% beat versus our numbers. Higherthan-expected tax rates lead to profits beating estimates only by 3%.
Our discussion with management indicated that there were a couple
of one-off items in the results leading to: (1) network opex coming in
lower by ~Rs350 mn and (2) other operating income coming higher.
Adjusted for these, margins were flat and in line with our expectation.
Looking at operating metrics on the mobile business, RPM came in
line – declining 3% QoQ, while MoU fell 1% QoQ.
Capex guidance surprises on the downside
Management guided to capex of Rs40 bn for FY3/12, versus Rs32 bn
in FY3/11. Note that FY11 was impacted by security clearance issues
in the first half, leading to deferral of some capex to FY12. Our current
capex estimate for Idea in FY3/12 is Rs48 bn.
At the same time, management indicated 3G services have been
launched in around 700 towns (as of end-May). Management has
earlier indicated a plan to add ten towns every day (FY12 target of
4,000+ towns). In this context of a fairly aggressive 3G rollout, we see
the capex guidance as a downside surprise. Further, management
indicated that most 3G BTS are co-located (same slot on the tower)
as the 2G BTS – in-line with our view that Indian telcos would benefit
from coming in late into the 3G technology (for further details see our
report Indian Telecom: Data … is here and now ! published on 23 May
2011).
Potential DoT penalty negligible
Idea disclosed having received notices from DoT for various issues
(roll-out obligations, merger with Spice etc.) amounting to a total
Rs3.3 bn in potential penalty. While management is confident of these
cases being ruled in the company’s favour, we are not concerned as
these amount to less than 1.5% of Idea’s market cap
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India
Idea Cellular Ltd -------------------------------------------------------------- Maintain OUTPERFORM
Strong growth maintained; positive surprise on capex
● Idea reported March 2011 quarter results with strong revenue
growth of 7% QoQ (1% ahead of our estimates). Net profits beat
estimates by 2.6%.
● While reported EBITDA margins increased 140 bp QoQ (EBITDA
beat estimates by 6%), our discussion with management indicated
that a couple of one-off items helped margins. Adjusting for these,
margins were flat and in-line with our expectations.
● Capex guidance of Rs40 bn should surprise investors positively,
especially with the company targeting a fairly aggressive 3G
rollout (700 towns already covered, March 2012 target of 4,000+).
● Crucially, management disclosed that most 3G BTS are colocated with 2G – implying the same slot/ box is used for both.
This is a key driver for low capex in our view, and in-line with our
view that Indian telcos would benefit on capex due to their late
entry into the technology.
● The earnings call is scheduled for 2.30 PM India time on 14 June
(+91-22-6629 0339). We reiterate our OUTPERFORM rating.
Strong revenue growth
Idea Cellular reported March 2011 quarter results with strong revenue
growth of 7% QoQ to Rs42 bn, 1% ahead of our estimates. This is the
second consecutive quarter of strong top-line growth by the company
(following 8% QoQ in the December 2010 quarter).
Reported EBITDA margins expanded 140 bp QoQ, leading to a 13%
EBITDA growth QoQ and a 6% beat versus our numbers. Higherthan-expected tax rates lead to profits beating estimates only by 3%.
Our discussion with management indicated that there were a couple
of one-off items in the results leading to: (1) network opex coming in
lower by ~Rs350 mn and (2) other operating income coming higher.
Adjusted for these, margins were flat and in line with our expectation.
Looking at operating metrics on the mobile business, RPM came in
line – declining 3% QoQ, while MoU fell 1% QoQ.
Capex guidance surprises on the downside
Management guided to capex of Rs40 bn for FY3/12, versus Rs32 bn
in FY3/11. Note that FY11 was impacted by security clearance issues
in the first half, leading to deferral of some capex to FY12. Our current
capex estimate for Idea in FY3/12 is Rs48 bn.
At the same time, management indicated 3G services have been
launched in around 700 towns (as of end-May). Management has
earlier indicated a plan to add ten towns every day (FY12 target of
4,000+ towns). In this context of a fairly aggressive 3G rollout, we see
the capex guidance as a downside surprise. Further, management
indicated that most 3G BTS are co-located (same slot on the tower)
as the 2G BTS – in-line with our view that Indian telcos would benefit
from coming in late into the 3G technology (for further details see our
report Indian Telecom: Data … is here and now ! published on 23 May
2011).
Potential DoT penalty negligible
Idea disclosed having received notices from DoT for various issues
(roll-out obligations, merger with Spice etc.) amounting to a total
Rs3.3 bn in potential penalty. While management is confident of these
cases being ruled in the company’s favour, we are not concerned as
these amount to less than 1.5% of Idea’s market cap
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