Idea Cellular : Impending auctions pose risk…: ICICI Securities, PDF link

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Impending auctions pose risk…
• Revenues came in at | 7569.9 crore, up 19.7% YoY, slightly lower
than our expectations of | 7623.1 crore. There was a 2.2% QoQ
decline in voice ARPMs, which weighed down on revenues. The
decline in voice realisations was partially offset by the 21.3% and
0.8% volume and realisation growth in the data segment
• EBITDA came in at | 2490.7 crore, up 26.3% YoY and 12.6% QoQ
due to higher revenues & operating leverage.
• The company reported a PAT of | 755.9 crore (vs. expectation of
| 696.9 crore), up 68.9% YoY due to other income on account of high
treasury income.
Quarterly drop in voice ARPM to be ignored, pricing discipline to remain
The sector saw two to three years of intense competition with over seven
or eight players in a circle and a price war in voice tariffs. Idea’s ARPM
declined to 41 paisa in FY13 from about 53 paisa in FY11. However, with
quashing of 122 licenses by the Supreme Court and marginal operators
reducing scale of operations, telcos have started to gain pricing power,
reflected in a steady up tick in ARPM. In the quarter, the QoQ growth of
1.8% in ARPM to 45.9 paisa could have been higher but for the 2.2%
decline in the voice ARPM to 36.2 paisa owing to higher growth from
newer circles. Going ahead, the company would continue to strive for
ARPM expansion, which would aid margins as well. We expect blended
ARPM to expand to 46.2 and 48.6 paisa in FY15 and FY16E, respectively.
Data continues to grow at a robust pace
Voice volume grew 10.7% to 587.8 billion minutes in FY14 whereas data
volume has grown 119.4% to 79.3 billion MB. Also, the data in the quarter
has reached 11.5% of mobility revenue, up from 6.6% in Q4FY13. Going
ahead, we expect data revenue to grow at 54.7% FY14-16E CAGR to
| 5566.3 crore, forming 16.6% of mobility revenue. Idea reversed the
trend of a decline in data realisation by posting growth since the past two
quarters, reaching 26.5 paisa. However, we believe the realisations per
MB would remain flat as the industry strives towards data volumes. Data
revenues may grow at 63.4% CAGR in FY14-16E to | 6210.6 crore.
Inadequate spectrum, auctions could pose a business risk for Idea
Idea has spectrum expiring in the circles of Andhra Pradesh, Gujarat,
Haryana, Kerala, Madhya Pradesh, Maharashtra and Uttar Pradesh (West)
which form about 70% of the revenues of Idea as per FY14. Though with
the rights issue and private placement aggregating | 3750 crore, the
company has the necessary financial muscle for the auctions, competition
from Vodafone with licenses expiring in most of the similar circles and the
threat of a new entrant remains a overhang. Moreover, no fall-back option
in 1800 MHz band imposes further business risk on the ability to operate
of those circles. If the government is unable to procure the spectrum from
the defence by February, the auctions would be very aggressive.
Operationally strong but impending auctions a concern; Hold
Though the debt issue has been taken care of with the rights issue (| 3000
crore) and private placements (| 750 crore), owing to the lack of adequate
spectrum we remain cautious on the stock. Operationally, the company
continues to post robust voice and data volume growth. We expect
revenue and PAT to grow at 13.2% and 72.0% CAGR (FY14-16E). We
change our stance to HOLD and maintain the target price at | 170.

LINK
http://content.icicidirect.com/mailimages/IDirect_IdeaCellular_Q2FY15.pdf