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Beats estimates again; wireless EBITDA growth accelerates to 37% yoy. There was little not to like about Idea’s 3QFY15 earnings report even as the bears are likely to focus excessively on the weak voice RPM trajectory. We continue to assess performance on the overall ‘volumes * pricing = revenues – costs = EBITDA’ equation and Idea’s execution engine continues to churn out solid numbers on this overall equation. We stay positive even as performance in the near term will likely be driven by developments on the two key externalities – spectrum auctions and R-Jio news flow.
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
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3QFY15 results beat expectations again Idea’s 3QFY15 was another solid, above expectations quarter with the company beating our Street-leading EBITDA estimates by 4.4% at the consolidated level and 4.6% at the standalone level. Standalone EBITDA growth of 37% yoy (which translated into consolidated EBITDA growth of 34% yoy) was the key highlight of the quarter. Idea delivered an industry-leading 21.2% yoy/6% qoq growth in standalone revenues (21.6% yoy growth in pure wireless services revenues) and a 360 bps yoy/170 bps qoq EBITDA margin expansion. Revenue growth was aided by sustained strength in voice volumes and data revenues. Key headline financials – consolidated revenues grew 21% yoy and 5.9% qoq to `80.2 bn, in line with our estimates while consolidated EBITDA grew 34% yoy and 12% qoq to `27.5 bn, 4.4% ahead of our expectations. Reported PAT of `7.7 bn (+64% yoy, +1.5% qoq) was impacted by another change in depreciation policy. Idea reduced the estimated depreciable life of core network assets further to 9 years from 10; this resulted in excess depreciation charge of `2.6 bn for the quarter. Adjusted PAT of `9.4 bn would have meant a growth of 100% yoy. 9MFY15 revenues, EBITDA and PAT grew 19%, 27% and 62% respectively. EPS for 9MFY15 was `6.2 (up 49% yoy) on an expanded post-QIP share count. Internals solid; voice RPM trajectory weakens but more than compensated by other metrics Idea’s pure wireless services revenue growth accelerated further to 21.6% yoy, a combination of 18.1% yoy voice volume growth (nearly 3X industry voice traffic growth, per our estimates) and 3% overall RPM expansion. Voice RPM declined further by 1.7% qoq (and 5.6% yoy) to 35.6 paise/min and is now almost back to the pre-improvement levels of around 35 paise/min. We do expect the bears to focus disproportionately on this aspect; we discuss our thoughts on why this is not a negative later in the note. Data revenue momentum sustained with 101% yoy data revenue growth on the back of 121% yoy data volume growth. Data realizations inched up qoq while being down 9% yoy at 26.9 paise/min. Strong data growth was expectedly led by 3G business, which saw volume and revenue growth of 164% and 152% yoy, respectively. We believe that Idea once again gained share on all fronts – be it voice volumes, voice revenues, data volumes, data revenues, overall revenues and EBITDA.
Why the negative surprise on voice RPM does not worry us Prima facie, the 1.7% sequential and 5.6% yoy decline in voice RPM was clearly a negative versus expectations and also contrary to the general expectations of voice RPM improvement. Two numbers why it does not worry us – 18.1% voice volume growth – Idea’s aggressiveness on voice pricing clearly is a well thought-through volume market-share gain strategy and the company is delivering on the strategic intent, and 37% standalone wireless EBITDA growth – why use the voice RPM lever (and we continue to believe that this lever is available to the incumbents should they choose to use it) when the overall equation (of pricing, volumes, data growth and costs) is yielding the requisite/ desired/ target EBITDA growth; under-pressure voice RPM keeps challengers’ P&Ls from improving, a clear long-term positive. Another aspect to consider (and we, by no means, are discounting this) is the likely reaction of Bharti and Vodafone, who are both underperforming Idea materially on voice volume growth. Two points here – (1) underperformance is not as stark on voice revenue growth; each company plays a different volume/ pricing equation and has a different target growth rate; Bharti and Vodafone may not necessarily be as concerned about underperformance on voice volumes as some sections of Street may portray them to be, and (2) empirical data clearly shows that Idea’s voice volume market share gains over the past few years have not necessarily been driven by pricing differential alone; in fact, we would go to the extent of saying that pricing has not been the major driver. Attributing Idea’s market share gains to pricing is easy/ convenient but misses the point, in our view. Other key highlights from the quarter Idea ended the quarter with 34.2 mn data subs (23% of overall subs), of which 13 mn were 3G subs. Idea added an impressive 7 mn 3G subs yoy, more than doubling its 3G subscriber base from last year. 3G volumes grew a staggering 164% yoy on the back of both subscriber growth and increase in usage; 2G volume growth wasn’t far behind at 86% yoy. The fact that less than 50% of Idea’s smartphone (18.7% of Idea’s subs base) users use 3G indicates that the 3G volume growth trajectory is likely to sustain. R-Jio’s intent and actions will likely play a role in how much of this volume growth translates into revenue growth in the future; to that extent, our model already assumes sharp deceleration in overall data revenue growth from the current 90-100% levels. Data ARPU stood at `126/data sub/month increasing 6% qoq and 39% yoy. This was largely driven by high overall data usage, which increased 5% qoq and 52% yoy to 470 MB/data sub/month and a marginal increase in data realizations of 1.5% qoq (down 9% yoy). In addition to the explosive data growth, SMS/VAS revenues had another surprisingly positive quarter – growing at 11% qoq to `5.9 bn. Churn also came down qoq to 4.2% from 5% in 2QFY15. Wireless capex stood at `9.5 bn for 3QFY15 and `23.5 bn for 9MFY15 with the management retaining its capex guidance at `35 bn (ex-Indus, ex-spectrum) for FY2015. During the quarter, 2,300 2G and 2,700 3G sites were added taking their count to 110,000 and 27,700 respectively. We expect acceleration in 3G capex ahead. Balance sheet improved further with standalone and consolidated net debt at `111 bn (net debt to quarterly annualized EBITDA of 1.12X) and `120 bn (1.09X) respectively. We estimate FCF generation of nearly `11-11.5 bn for 3QFY15.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily28012015po.pdf
Beats estimates again; wireless EBITDA growth accelerates to 37% yoy. There was little not to like about Idea’s 3QFY15 earnings report even as the bears are likely to focus excessively on the weak voice RPM trajectory. We continue to assess performance on the overall ‘volumes * pricing = revenues – costs = EBITDA’ equation and Idea’s execution engine continues to churn out solid numbers on this overall equation. We stay positive even as performance in the near term will likely be driven by developments on the two key externalities – spectrum auctions and R-Jio news flow.
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
3QFY15 results beat expectations again Idea’s 3QFY15 was another solid, above expectations quarter with the company beating our Street-leading EBITDA estimates by 4.4% at the consolidated level and 4.6% at the standalone level. Standalone EBITDA growth of 37% yoy (which translated into consolidated EBITDA growth of 34% yoy) was the key highlight of the quarter. Idea delivered an industry-leading 21.2% yoy/6% qoq growth in standalone revenues (21.6% yoy growth in pure wireless services revenues) and a 360 bps yoy/170 bps qoq EBITDA margin expansion. Revenue growth was aided by sustained strength in voice volumes and data revenues. Key headline financials – consolidated revenues grew 21% yoy and 5.9% qoq to `80.2 bn, in line with our estimates while consolidated EBITDA grew 34% yoy and 12% qoq to `27.5 bn, 4.4% ahead of our expectations. Reported PAT of `7.7 bn (+64% yoy, +1.5% qoq) was impacted by another change in depreciation policy. Idea reduced the estimated depreciable life of core network assets further to 9 years from 10; this resulted in excess depreciation charge of `2.6 bn for the quarter. Adjusted PAT of `9.4 bn would have meant a growth of 100% yoy. 9MFY15 revenues, EBITDA and PAT grew 19%, 27% and 62% respectively. EPS for 9MFY15 was `6.2 (up 49% yoy) on an expanded post-QIP share count. Internals solid; voice RPM trajectory weakens but more than compensated by other metrics Idea’s pure wireless services revenue growth accelerated further to 21.6% yoy, a combination of 18.1% yoy voice volume growth (nearly 3X industry voice traffic growth, per our estimates) and 3% overall RPM expansion. Voice RPM declined further by 1.7% qoq (and 5.6% yoy) to 35.6 paise/min and is now almost back to the pre-improvement levels of around 35 paise/min. We do expect the bears to focus disproportionately on this aspect; we discuss our thoughts on why this is not a negative later in the note. Data revenue momentum sustained with 101% yoy data revenue growth on the back of 121% yoy data volume growth. Data realizations inched up qoq while being down 9% yoy at 26.9 paise/min. Strong data growth was expectedly led by 3G business, which saw volume and revenue growth of 164% and 152% yoy, respectively. We believe that Idea once again gained share on all fronts – be it voice volumes, voice revenues, data volumes, data revenues, overall revenues and EBITDA.
Why the negative surprise on voice RPM does not worry us Prima facie, the 1.7% sequential and 5.6% yoy decline in voice RPM was clearly a negative versus expectations and also contrary to the general expectations of voice RPM improvement. Two numbers why it does not worry us – 18.1% voice volume growth – Idea’s aggressiveness on voice pricing clearly is a well thought-through volume market-share gain strategy and the company is delivering on the strategic intent, and 37% standalone wireless EBITDA growth – why use the voice RPM lever (and we continue to believe that this lever is available to the incumbents should they choose to use it) when the overall equation (of pricing, volumes, data growth and costs) is yielding the requisite/ desired/ target EBITDA growth; under-pressure voice RPM keeps challengers’ P&Ls from improving, a clear long-term positive. Another aspect to consider (and we, by no means, are discounting this) is the likely reaction of Bharti and Vodafone, who are both underperforming Idea materially on voice volume growth. Two points here – (1) underperformance is not as stark on voice revenue growth; each company plays a different volume/ pricing equation and has a different target growth rate; Bharti and Vodafone may not necessarily be as concerned about underperformance on voice volumes as some sections of Street may portray them to be, and (2) empirical data clearly shows that Idea’s voice volume market share gains over the past few years have not necessarily been driven by pricing differential alone; in fact, we would go to the extent of saying that pricing has not been the major driver. Attributing Idea’s market share gains to pricing is easy/ convenient but misses the point, in our view. Other key highlights from the quarter Idea ended the quarter with 34.2 mn data subs (23% of overall subs), of which 13 mn were 3G subs. Idea added an impressive 7 mn 3G subs yoy, more than doubling its 3G subscriber base from last year. 3G volumes grew a staggering 164% yoy on the back of both subscriber growth and increase in usage; 2G volume growth wasn’t far behind at 86% yoy. The fact that less than 50% of Idea’s smartphone (18.7% of Idea’s subs base) users use 3G indicates that the 3G volume growth trajectory is likely to sustain. R-Jio’s intent and actions will likely play a role in how much of this volume growth translates into revenue growth in the future; to that extent, our model already assumes sharp deceleration in overall data revenue growth from the current 90-100% levels. Data ARPU stood at `126/data sub/month increasing 6% qoq and 39% yoy. This was largely driven by high overall data usage, which increased 5% qoq and 52% yoy to 470 MB/data sub/month and a marginal increase in data realizations of 1.5% qoq (down 9% yoy). In addition to the explosive data growth, SMS/VAS revenues had another surprisingly positive quarter – growing at 11% qoq to `5.9 bn. Churn also came down qoq to 4.2% from 5% in 2QFY15. Wireless capex stood at `9.5 bn for 3QFY15 and `23.5 bn for 9MFY15 with the management retaining its capex guidance at `35 bn (ex-Indus, ex-spectrum) for FY2015. During the quarter, 2,300 2G and 2,700 3G sites were added taking their count to 110,000 and 27,700 respectively. We expect acceleration in 3G capex ahead. Balance sheet improved further with standalone and consolidated net debt at `111 bn (net debt to quarterly annualized EBITDA of 1.12X) and `120 bn (1.09X) respectively. We estimate FCF generation of nearly `11-11.5 bn for 3QFY15.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily28012015po.pdf
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