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Idea Cellular
Weak quarter
Event
Idea reported weak 2QFY12 results today. EBITDA was 4% shy of our
estimate and 2% short of street estimates. Net profit was more than 40%
below our forecast, primarily due to a forex loss related to foreign currency
debt. We still see no reason to chase the stock at an FY12E PER of 39x.
Impact
Weak headline results: Top line (Rs46.1bn) was broadly in line with the
street and our forecast. EBITDA however missed forecasts as strong ARPM
was offset by weakness in MOU, pay hikes and loss in new service area. Net
profit missed our estimate by over 40% and consensus by over 30%. Higher
interest cost was one key reason. Management clarified that there was a
Rs313m forex loss on accounts payables. We had expected this to be lower
due to hedging. D&A was also 2% higher due to aggressive 3G roll out.
Mixed metrics – overall negative: ARPM (42.7p) was up 4% QoQ (our
forecast was 2% growth) - driven by higher contribution from VAS, roaming
revenue and revised promotional tariffs. This was the second consecutive
sequential increase after nine quarters of decline. MOU fell 2.2% QoQ - the
first ever sequential decline. After three quarters of 6-10% QoQ rise, we had
expected MOU growth to slow to 3% QoQ due to seasonal factors. We think
this was also probably due to a high proportion of rural subscribers.
3QFY12 should see some recovery: The seasonally weak quarter is now
behind us. The bulk of D&A and interest costs related to 3G roll-out are now
being recognised. Macquarie’s India economist, Tanvee Gupta Jain, also
does not forecast the current pace of Indian rupee depreciation to persist.
Earnings and target price revision
We roll forward the 2Q results and cut our FY12 PAT estimate by 12%. Our
FY13E and FY14E forecasts and target price are unchanged.
Price catalyst
12-month price target: Rs66.00 based on a Sum of Parts methodology.
Catalyst: News on operating metrics (ARPM/ tariffs/ 3G), spectrum act.
Action and recommendation
Maintain Underperform rating: Idea has missed estimates this quarter after
delivering two good quarters. Meanwhile, Idea continues to trade (39x FY12E
PER and 21x FY13E PER) at a premium to industry peers (Bharti trades at
22x FY12E and 13x FY13E PER) driven by M&A expectations. We maintain
our view that Idea will instead emerge as a consolidator when M&A /
spectrum regulations turn supportive.
Idea is a pure play in the sector with a strong business model and operations.
At some stage, we believe Idea may be an interesting play on the sector.
However, we will wait for clarity on spectrum pricing and valuation premium to
shrink. Switch to Bharti (BHARTI IN, Rs378, Outperform, TP: Rs483), our
preferred (and cheaper) way to play the sector.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Idea Cellular
Weak quarter
Event
Idea reported weak 2QFY12 results today. EBITDA was 4% shy of our
estimate and 2% short of street estimates. Net profit was more than 40%
below our forecast, primarily due to a forex loss related to foreign currency
debt. We still see no reason to chase the stock at an FY12E PER of 39x.
Impact
Weak headline results: Top line (Rs46.1bn) was broadly in line with the
street and our forecast. EBITDA however missed forecasts as strong ARPM
was offset by weakness in MOU, pay hikes and loss in new service area. Net
profit missed our estimate by over 40% and consensus by over 30%. Higher
interest cost was one key reason. Management clarified that there was a
Rs313m forex loss on accounts payables. We had expected this to be lower
due to hedging. D&A was also 2% higher due to aggressive 3G roll out.
Mixed metrics – overall negative: ARPM (42.7p) was up 4% QoQ (our
forecast was 2% growth) - driven by higher contribution from VAS, roaming
revenue and revised promotional tariffs. This was the second consecutive
sequential increase after nine quarters of decline. MOU fell 2.2% QoQ - the
first ever sequential decline. After three quarters of 6-10% QoQ rise, we had
expected MOU growth to slow to 3% QoQ due to seasonal factors. We think
this was also probably due to a high proportion of rural subscribers.
3QFY12 should see some recovery: The seasonally weak quarter is now
behind us. The bulk of D&A and interest costs related to 3G roll-out are now
being recognised. Macquarie’s India economist, Tanvee Gupta Jain, also
does not forecast the current pace of Indian rupee depreciation to persist.
Earnings and target price revision
We roll forward the 2Q results and cut our FY12 PAT estimate by 12%. Our
FY13E and FY14E forecasts and target price are unchanged.
Price catalyst
12-month price target: Rs66.00 based on a Sum of Parts methodology.
Catalyst: News on operating metrics (ARPM/ tariffs/ 3G), spectrum act.
Action and recommendation
Maintain Underperform rating: Idea has missed estimates this quarter after
delivering two good quarters. Meanwhile, Idea continues to trade (39x FY12E
PER and 21x FY13E PER) at a premium to industry peers (Bharti trades at
22x FY12E and 13x FY13E PER) driven by M&A expectations. We maintain
our view that Idea will instead emerge as a consolidator when M&A /
spectrum regulations turn supportive.
Idea is a pure play in the sector with a strong business model and operations.
At some stage, we believe Idea may be an interesting play on the sector.
However, we will wait for clarity on spectrum pricing and valuation premium to
shrink. Switch to Bharti (BHARTI IN, Rs378, Outperform, TP: Rs483), our
preferred (and cheaper) way to play the sector.
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