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Idea Cellular Limited Underweight
IDEA.BO, IDEA IN
Underlying trends not so strong; risks remain
Idea delivered what appeared to be a strong 4Q at the top line, but adjusting
for one-off gains, we note the EBITDA margin was flat Q/Q and the bottom
line missed consensus estimates. We acknowledge the solid volume
performance delivered in 4Q and the beat vs. our below-consensus estimates,
but are wary of higher network opex in FY12E, increased D&A and interest
expenses. We estimate Rs13/share regulation risk on which we expect clarity
in 2Q FY12 as more policy details from the telecom minister emerge. Idea
also has regulatory demands amounting to Rs3.3B outstanding on it. We
continue to see risks for the stock. Maintain Underweight.
Volumes strong in 4Q: Idea delivered above-peer net-add-driven minute
growth at 9% Q/Q, which drove solid revenue growth of 6.2% (adjusted).
Reported margin increased, but adjusted was flat Q/Q: Idea reported a
strong 1.4pp margin expansion to 25.4% in 4Q when most peers are seeing
wireless margin pressure (Bharti: -1.35pp Q/Q, RCOM: -1.6pp). Lower
reported network opex helped here. However, adjusting for one-offs in
network opex and other income, EBITDA margin was 23.9%, down 10bp
Q/Q and 20bp below consensus. See Table 2 for more details.
A couple of worry-points: The ARPM decline was worse than that of peers
at 3% Q/Q (Bharti: 2.3%, Vodafone: 2.6%), and we expect 1H to be weak
too. Churn increased further to 10.7% and remains ahead of others.
Forecast changes: We increase our FY12/FY13 estimates for revenue by
1%/5% due to higher 3G estimates and for EBITDA by 4%/6%. We
increase our FY12 capex estimate by 22% to Rs40B, in line with guidance.
Our new Mar-12 price target is up slightly to Rs60 (from Rs54
earlier) and implies 18% downside from the current share price. Our PT
is based on a SOTP of Idea’s core business, Indus Towers and Rs13
downward regulation-related adjustment. Idea trades at an FY13E P/E of
18.2x and 6.1x EV/EBITDA, a 47% premium and in-line with Bharti,
respectively, which we see as unjustified. We estimate a two-year EPS
CAGR of 22% for Idea, compared to 37% for Bharti. Key risks include
monetization of tower assets, M&A, and lower pricing pressure.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Idea Cellular Limited Underweight
IDEA.BO, IDEA IN
Underlying trends not so strong; risks remain
Idea delivered what appeared to be a strong 4Q at the top line, but adjusting
for one-off gains, we note the EBITDA margin was flat Q/Q and the bottom
line missed consensus estimates. We acknowledge the solid volume
performance delivered in 4Q and the beat vs. our below-consensus estimates,
but are wary of higher network opex in FY12E, increased D&A and interest
expenses. We estimate Rs13/share regulation risk on which we expect clarity
in 2Q FY12 as more policy details from the telecom minister emerge. Idea
also has regulatory demands amounting to Rs3.3B outstanding on it. We
continue to see risks for the stock. Maintain Underweight.
Volumes strong in 4Q: Idea delivered above-peer net-add-driven minute
growth at 9% Q/Q, which drove solid revenue growth of 6.2% (adjusted).
Reported margin increased, but adjusted was flat Q/Q: Idea reported a
strong 1.4pp margin expansion to 25.4% in 4Q when most peers are seeing
wireless margin pressure (Bharti: -1.35pp Q/Q, RCOM: -1.6pp). Lower
reported network opex helped here. However, adjusting for one-offs in
network opex and other income, EBITDA margin was 23.9%, down 10bp
Q/Q and 20bp below consensus. See Table 2 for more details.
A couple of worry-points: The ARPM decline was worse than that of peers
at 3% Q/Q (Bharti: 2.3%, Vodafone: 2.6%), and we expect 1H to be weak
too. Churn increased further to 10.7% and remains ahead of others.
Forecast changes: We increase our FY12/FY13 estimates for revenue by
1%/5% due to higher 3G estimates and for EBITDA by 4%/6%. We
increase our FY12 capex estimate by 22% to Rs40B, in line with guidance.
Our new Mar-12 price target is up slightly to Rs60 (from Rs54
earlier) and implies 18% downside from the current share price. Our PT
is based on a SOTP of Idea’s core business, Indus Towers and Rs13
downward regulation-related adjustment. Idea trades at an FY13E P/E of
18.2x and 6.1x EV/EBITDA, a 47% premium and in-line with Bharti,
respectively, which we see as unjustified. We estimate a two-year EPS
CAGR of 22% for Idea, compared to 37% for Bharti. Key risks include
monetization of tower assets, M&A, and lower pricing pressure.
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