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A strong quarter; regulatory overhang persists.. BUY
Idea Cellular reported numbers were inline with estimates. The
company reported net sales of Rs 5370crs, strong growth of 27% Y-o-
Y. This growth was driven by both increase in subscriber base as well
as higher ARPU. EBITDA for the quarter was Rs 1357crs, a growth of
26% over Q4FY11.EBITDA margins slightly dipped by 10bps to 25.3%
on account of higher networking cost and spectrum charges. Net profit
was Rs 239crs which declined by 13% y-o-y due to higher amortization
cost and sharp increase in interest expenses. Net profit margin for the
quarter was 4.5% down by 200bps y-o-y. Steady growth in GSM
subscriber addition and increase in ARPU backed by pick up in 3G
services gives strong revenue visibility for FY13E. Cost rationalization
and lower interest outgo will help to improve margins going forward.
Better than industry net subscriber addition led the revenue growth:
Idea’s subscriber base increased from 106.4mn in Q3FY12 to 112.7mn in
Q4FY12. In spite of weak quarter compared to last quarter, the company
reported slight growth in ARPU. ARPU for the quarter was Rs 160. MoUs also
increased by 2% Q-o-Q to 379mins. However the average realized rate
declined from Rs. 433 to Rs. 422. The company reported higher mobile value
added services contribution from 13.7% in Q3FY12 to 14.3% in Q4FY12. Pick
up on 3G services front is clearly visible. We believe going forward data
revenue will go up with increase in penetration of 3G users.
Increase in networking cost & licence fees dented operating profit:
The company reported increase in networking cost 9% Q-o-Q to Rs 1258crs
and licence fees increased by whopping 31% Q-o-Q to Rs 737crs. It dragged
EBITDA margins from 140bps to 25.3% from 26.7% in Q3FY12.
Regulatory overhang persists:
With recent TRAI’s proposal of increasing spectrum pricing has dented market
capitalization of the company. The management said the association of telecom
operators has opposed the proposals and suggestions have been sent to higher
authority. The company is confident that such proposals would be taken into
consideration before actual implementation. We believe such regulatory
changes are overhang for the company’s performance.
Our View:
Idea’s another strong performance shows growth is back on track with
increasing trend in ARPU and higher MVAS revenue contribution. The company
has been adding higher net GSM subscribers than the industry average which is
contributing to strong sales in FY13E. Increase in ARPUs driven by higher
realized rate, improvement in traffic and 3G being operational, Idea is on track
of growth. The stock is trading at 5.8x EV/EBITDA to its FY13E earnings. We
recommend BUY on the stock with a target price of Rs 95 by assigning 6.5x
EV/EBITDA to its FY13E earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
A strong quarter; regulatory overhang persists.. BUY
Idea Cellular reported numbers were inline with estimates. The
company reported net sales of Rs 5370crs, strong growth of 27% Y-o-
Y. This growth was driven by both increase in subscriber base as well
as higher ARPU. EBITDA for the quarter was Rs 1357crs, a growth of
26% over Q4FY11.EBITDA margins slightly dipped by 10bps to 25.3%
on account of higher networking cost and spectrum charges. Net profit
was Rs 239crs which declined by 13% y-o-y due to higher amortization
cost and sharp increase in interest expenses. Net profit margin for the
quarter was 4.5% down by 200bps y-o-y. Steady growth in GSM
subscriber addition and increase in ARPU backed by pick up in 3G
services gives strong revenue visibility for FY13E. Cost rationalization
and lower interest outgo will help to improve margins going forward.
Better than industry net subscriber addition led the revenue growth:
Idea’s subscriber base increased from 106.4mn in Q3FY12 to 112.7mn in
Q4FY12. In spite of weak quarter compared to last quarter, the company
reported slight growth in ARPU. ARPU for the quarter was Rs 160. MoUs also
increased by 2% Q-o-Q to 379mins. However the average realized rate
declined from Rs. 433 to Rs. 422. The company reported higher mobile value
added services contribution from 13.7% in Q3FY12 to 14.3% in Q4FY12. Pick
up on 3G services front is clearly visible. We believe going forward data
revenue will go up with increase in penetration of 3G users.
Increase in networking cost & licence fees dented operating profit:
The company reported increase in networking cost 9% Q-o-Q to Rs 1258crs
and licence fees increased by whopping 31% Q-o-Q to Rs 737crs. It dragged
EBITDA margins from 140bps to 25.3% from 26.7% in Q3FY12.
Regulatory overhang persists:
With recent TRAI’s proposal of increasing spectrum pricing has dented market
capitalization of the company. The management said the association of telecom
operators has opposed the proposals and suggestions have been sent to higher
authority. The company is confident that such proposals would be taken into
consideration before actual implementation. We believe such regulatory
changes are overhang for the company’s performance.
Our View:
Idea’s another strong performance shows growth is back on track with
increasing trend in ARPU and higher MVAS revenue contribution. The company
has been adding higher net GSM subscribers than the industry average which is
contributing to strong sales in FY13E. Increase in ARPUs driven by higher
realized rate, improvement in traffic and 3G being operational, Idea is on track
of growth. The stock is trading at 5.8x EV/EBITDA to its FY13E earnings. We
recommend BUY on the stock with a target price of Rs 95 by assigning 6.5x
EV/EBITDA to its FY13E earnings.
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