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1QFY12 Results
While Idea Cellular’s 1QFY12 results were led by the 1% rise in revenue
per minute and 231bps increase in Ebitda margin, but network-traffic
growth slowed to 6.5% QoQ (versus 9% in 4QFY11), despite marketshare
gain, and the margin on new 2G services contracted 230bps to -
29%. Quarter profit was down 35%QoQ, with interest cost 1.9x higher on
end of capitalisation of interest for 3G payments and net debt increased
by Rs12bn. We maintain our forecasts and with the stock trading at
trading at 9x EV/Ebitda, a 70% premium to its regional peers is not
cheap. We maintain our Underperform rating.
RPM up, but slower subscriber and network-traffic growth.
Idea Cellular’s 1QFY12 revenue was up 7.6% QoQ (24%YoY) to Rs45.1bn,
marginally ahead of our estimates. Although the 1% increase in RPM (vs flat
estimates) led the positive surprise, the network traffic increase of 6.5% QoQ was
down on the previous quarter’s 9%, and subscriber additions were 27% QoQ
lower at 5.6m. Further, while Idea’s consolidated Ebitda margin increased
231bps to 26.6%, the new circles / 2G rollouts (launched in FY09-10) incurred a
19% QoQ higher Ebitda loss of Rs1.4bn, driving margins here to -29%. Blended
Arpu of Rs160 was flat QoQ and minutes of use (MoU) was down 1.5% to 391.
Also, Idea’s consolidated Ebitda margin improvement was led by 11ppt lower
subscriber acquisition and servicing costs, which may not be sustained. Profit was
down 35% QoQ to Rs1.77bn, led by 1.9x higher interest costs QoQ, with the end
of capitalisation of interest on 3G payments and a tax increase.
Early days for rate-hike and 3G-rollout upside.
Idea has followed after Bharti Airtel in raising mobile tariffs, by about 20% from
Rs0.01/sec to Rs0.012/second. However, this is mainly for calls on the same
network, for “new” subscribers and in six of the 22 telecoms circles across India.
The new tariff applies to existing subscribers only at the end of the year and/or if
they fail to recharge within six months, which will limit the financial upside.
Management says it is testing the market, and a spill of these hikes in the balance
circles is unlikely at the cost of traffic growth or market share. Meanwhile, despite
Idea having launched 3G at the end of March 2011 and now offering coverage in
15 circles (with bilateral roaming agreements in six), 3G subscribers are still a
mere two million, of which only 25% are active. Incremental 3G revenue growth
will have to be led by highspeed data services and Idea doesn’t own 3G spectrum
in the crucial urban markets of Mumbai and Delhi, which will adversely affect its
competitive positioning.
Increase in net debt; high risk of significant regulatory payments.
Idea’s 1QFY12 capex was Rs11.2bn, with FY12 guidance maintained at Rs40bn.
The company’s Rs118bn net debt increased by Rs12.2bn and may be further
affected by: DoT notices for Rs3.8bn of potential penalties (mainly for the Idea-
Spice deal, although stayed by the TDSAT); a Rs13bn (US$296m) additional onetime
payment for 2G spectrum over 6.2MHz; and an NPV of Rs89bn (US$2bn) for
renewing 2G licences (starting December 2015) - steps the industry strongly
opposes. Unless these are dismissed by the New Telecom Policy 2011 (NTP)
expected in October, the risk of regulatory payments and compulsions for Idea to
complete its 3G footprint will keep the company free-cashflow elusive. Meanwhile,
trading at 9x EV/Ebitda, the stock is at a 70% premium to its regional peers and
is not cheap. We maintain our Underperform rating.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
1QFY12 Results
While Idea Cellular’s 1QFY12 results were led by the 1% rise in revenue
per minute and 231bps increase in Ebitda margin, but network-traffic
growth slowed to 6.5% QoQ (versus 9% in 4QFY11), despite marketshare
gain, and the margin on new 2G services contracted 230bps to -
29%. Quarter profit was down 35%QoQ, with interest cost 1.9x higher on
end of capitalisation of interest for 3G payments and net debt increased
by Rs12bn. We maintain our forecasts and with the stock trading at
trading at 9x EV/Ebitda, a 70% premium to its regional peers is not
cheap. We maintain our Underperform rating.
RPM up, but slower subscriber and network-traffic growth.
Idea Cellular’s 1QFY12 revenue was up 7.6% QoQ (24%YoY) to Rs45.1bn,
marginally ahead of our estimates. Although the 1% increase in RPM (vs flat
estimates) led the positive surprise, the network traffic increase of 6.5% QoQ was
down on the previous quarter’s 9%, and subscriber additions were 27% QoQ
lower at 5.6m. Further, while Idea’s consolidated Ebitda margin increased
231bps to 26.6%, the new circles / 2G rollouts (launched in FY09-10) incurred a
19% QoQ higher Ebitda loss of Rs1.4bn, driving margins here to -29%. Blended
Arpu of Rs160 was flat QoQ and minutes of use (MoU) was down 1.5% to 391.
Also, Idea’s consolidated Ebitda margin improvement was led by 11ppt lower
subscriber acquisition and servicing costs, which may not be sustained. Profit was
down 35% QoQ to Rs1.77bn, led by 1.9x higher interest costs QoQ, with the end
of capitalisation of interest on 3G payments and a tax increase.
Early days for rate-hike and 3G-rollout upside.
Idea has followed after Bharti Airtel in raising mobile tariffs, by about 20% from
Rs0.01/sec to Rs0.012/second. However, this is mainly for calls on the same
network, for “new” subscribers and in six of the 22 telecoms circles across India.
The new tariff applies to existing subscribers only at the end of the year and/or if
they fail to recharge within six months, which will limit the financial upside.
Management says it is testing the market, and a spill of these hikes in the balance
circles is unlikely at the cost of traffic growth or market share. Meanwhile, despite
Idea having launched 3G at the end of March 2011 and now offering coverage in
15 circles (with bilateral roaming agreements in six), 3G subscribers are still a
mere two million, of which only 25% are active. Incremental 3G revenue growth
will have to be led by highspeed data services and Idea doesn’t own 3G spectrum
in the crucial urban markets of Mumbai and Delhi, which will adversely affect its
competitive positioning.
Increase in net debt; high risk of significant regulatory payments.
Idea’s 1QFY12 capex was Rs11.2bn, with FY12 guidance maintained at Rs40bn.
The company’s Rs118bn net debt increased by Rs12.2bn and may be further
affected by: DoT notices for Rs3.8bn of potential penalties (mainly for the Idea-
Spice deal, although stayed by the TDSAT); a Rs13bn (US$296m) additional onetime
payment for 2G spectrum over 6.2MHz; and an NPV of Rs89bn (US$2bn) for
renewing 2G licences (starting December 2015) - steps the industry strongly
opposes. Unless these are dismissed by the New Telecom Policy 2011 (NTP)
expected in October, the risk of regulatory payments and compulsions for Idea to
complete its 3G footprint will keep the company free-cashflow elusive. Meanwhile,
trading at 9x EV/Ebitda, the stock is at a 70% premium to its regional peers and
is not cheap. We maintain our Underperform rating.
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