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Idea Cellular
RPM uptick in 1Q + operating leverage; raising price target
We raise PT to Rs106, incorporating core business at
Rs99 on Mar-12 DCF + Indus stake at Rs15 less the
potential regulatory cost from NTP ’11 at Rs(8)/share
EBITDA up 13%/7% for FY12-13E driven by higher
RPMs (+1p/+2p resp.). Earning upgrades limited by
higher deferred tax assumptions for FY12/13E
1Q results were better than expected as RPM uptick of
1% qoq and lower sub acquisition cost resulted in
EBITDA margin uplift of 270bps (adjusted for one-offs)
Maintain OUTPERFORM.
Most leveraged to RPM uptick. We assume RPM of
42/43/44p for FY12-14E vs. 41p/41p for FY12/13E earlier,
on account of the displayed intention of the industry to up
tariffs. Though we assume slightly lower margins to factor in
3G rollout, fuel inflation and higher SG&A, the EBITDA
estimates for FY12-13E are up by 13%/7%. EPS upgrade is
relatively muted at 23/0.4% on account of deferred tax (as in
1Q). Idea is more leveraged to RPM uptick given low
EBITDA/min (9p vs. Bharti’s 14p) and operating leverage.
Meaningful upside despite impending regulatory costs.
Our new Mar-12 target of Rs106 (Rs88 earlier) comprises
(1) Mar-12 DCF of core business at Rs99 (Rs76 on Mar-11
earlier), (2) Indus stake valued at Rs15 (Rs12) and (3)
potential net impact from NTP ’11 from excess spectrum +
renewal charges-license fee savings at Rs(8)/share.
Regulatory cost could be lower if the government decides to
adopt a more market-based approach. Besides, additional
burden on new players would provide a further boost to tariff
uptick.
1Q results – Higher RPM, lower SG&A and operating
leverage. Most of the surprise was in RPM – which went up
1% qoq vs. expectation of 1% decline. Mins growth was in
line at 6.5%. Despite higher network opex (7,000 3G sites +
2G), lower SG&A led to 270bps margin uplift, signifying
operating leverage. PAT at Rs1.5bn came in higher than
expected despite higher depreciation (3G) and interest cost
(3G capitalisation + higher net debt). Net debt was up to
Rs104bn (up from Rs92bn in the previous quarter).
Risks: (1) Higher regulatory costs, (2) lack of follow up tariff
hikes from new entrants and (3) negative impact of higher
tariffs on traffic growth poses downside risks.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Idea Cellular
RPM uptick in 1Q + operating leverage; raising price target
We raise PT to Rs106, incorporating core business at
Rs99 on Mar-12 DCF + Indus stake at Rs15 less the
potential regulatory cost from NTP ’11 at Rs(8)/share
EBITDA up 13%/7% for FY12-13E driven by higher
RPMs (+1p/+2p resp.). Earning upgrades limited by
higher deferred tax assumptions for FY12/13E
1Q results were better than expected as RPM uptick of
1% qoq and lower sub acquisition cost resulted in
EBITDA margin uplift of 270bps (adjusted for one-offs)
Maintain OUTPERFORM.
Most leveraged to RPM uptick. We assume RPM of
42/43/44p for FY12-14E vs. 41p/41p for FY12/13E earlier,
on account of the displayed intention of the industry to up
tariffs. Though we assume slightly lower margins to factor in
3G rollout, fuel inflation and higher SG&A, the EBITDA
estimates for FY12-13E are up by 13%/7%. EPS upgrade is
relatively muted at 23/0.4% on account of deferred tax (as in
1Q). Idea is more leveraged to RPM uptick given low
EBITDA/min (9p vs. Bharti’s 14p) and operating leverage.
Meaningful upside despite impending regulatory costs.
Our new Mar-12 target of Rs106 (Rs88 earlier) comprises
(1) Mar-12 DCF of core business at Rs99 (Rs76 on Mar-11
earlier), (2) Indus stake valued at Rs15 (Rs12) and (3)
potential net impact from NTP ’11 from excess spectrum +
renewal charges-license fee savings at Rs(8)/share.
Regulatory cost could be lower if the government decides to
adopt a more market-based approach. Besides, additional
burden on new players would provide a further boost to tariff
uptick.
1Q results – Higher RPM, lower SG&A and operating
leverage. Most of the surprise was in RPM – which went up
1% qoq vs. expectation of 1% decline. Mins growth was in
line at 6.5%. Despite higher network opex (7,000 3G sites +
2G), lower SG&A led to 270bps margin uplift, signifying
operating leverage. PAT at Rs1.5bn came in higher than
expected despite higher depreciation (3G) and interest cost
(3G capitalisation + higher net debt). Net debt was up to
Rs104bn (up from Rs92bn in the previous quarter).
Risks: (1) Higher regulatory costs, (2) lack of follow up tariff
hikes from new entrants and (3) negative impact of higher
tariffs on traffic growth poses downside risks.
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