Idea Cellular - Strong Show in a Seasonally Weak Quarter; Result Update Q2FY15 :: Edelweiss, PDF link

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Idea Cellular (Idea) reported stellar Q2FY15 revenue of INR75.7bn (up 0.1% QoQ), ahead of Street’s INR74.4bn estimate, largely driven by 22% QoQ surge in data revenue. Considering seasonality, while voice volumes were strong (down 1.7% QoQ, up 17% YoY), voice realisation dipped 2.1% QoQ to INR0.368. EBIDTA margin declined 30bps QoQ on higher employee costs (up 67bps QoQ) despite lower network cost (down 40bps QoQ) owing to INR250mn write-back. With Q3 and Q4 being seasonally stronger quarters, we believe Idea will be able to increase RPM through reduction of promotions and discounted minutes. Based on robust Q2FY15 margin and operating leverage, we increase our FY15E and FY16E EBITDA margin 120bps each.

Robust data revenue; new circles score higher

Idea reported 21.9% QoQ data revenue growth on 0.5% increase in realisation and 21.3% volume surge. During Q2FY15, while the company added 3.1mn data subscribers, its 3G subscriber base increased by 1.7mn. MoU fell to 384 minutes (from 401 QoQ) leading to ARPU dipping to INR176 (from INR181 QoQ). Revenue growth was stronger in new circles (5.5% QoQ) compared to established circles (down 0.2% QoQ).

Data market still largely untapped

Despite strong data subscriber addition, only 21.5% of Idea’s total subscriber base is using data and only 9.3% subscribers are availing 3G services. We believe growth in data revenue and ebbing competitive intensity will spur structural improvement in the sector’s fundamentals. In light of Idea’s robust Q2FY15 execution, operating leverage and higher other income due to the recent fund raising, we revise our FY15 and FY16 earnings estimates up 16.7% and 2.2%, respectively.

LINK
https://www.edelweiss.in/research/Idea-Cellular--Strong-Show-in-a-Seasonally-Weak-Quarter;-Result-Update-Q2FY15/27322.html