03 May 2015

Capex woes Idea's 4QFY15 results :: HDFC Securities

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Capex woes Idea's 4QFY15 results exceeded estimates with revenue and EBITDA growing at 20%YoY/5%QoQ and 37%YoY/11%QoQ. Idea continues to grow faster than the industry, benefiting from operating leverage. However, to keep pace with rapid data growth, the company ended up spending more than budgeted in FY15 (Rs 40bn versus guidance of Rs 35bn), and has announced an elevated capex guidance of Rs 50- 55bn for FY16. Further, Idea’s voice RPM declined by 7%YoY/5%QoQ due to a combination of factors such as (1) increased contribution of new circles to incremental minutes (2) continued competitive pressures (3) the reduction in termination rate (w.e.f 1st March 2015). Notwithstanding the stellar operational performance, the company faces a grim outlook due to (1) elevated competitive intensity in the voice business (2) increased capex for supporting robust growth (3) the threat of Reliance Jio, which could pressure growth and result in increased competition. We resume coverage on Idea Cellular with a SELL rating, valuing the company at 6x FY17 EV/EBITDA assigning a target price of Rs159.  4QFY15 highlights : Idea’s revenue stands at Rs 84.2bn, up 20%YoY/5%QoQ. EBITDA grew 37%YoY/11%QoQ aided by operating leverage and sequential decline in network cost and admin expenses. The sequential decline in these cost heads is on account of (1) reduced energy rates (recurring) (2) write-back of provisions (seasonal, but not predictable). PAT grew 60%YoY/23%QoQ on the back of the robust EBITDA growth.  Capex sharply rises : Idea incurred capex of Rs 40bn in FY15, higher than its prior guidance of Rs 35bn. The company’s FY16 capex guidance stands at Rs 50-55bn. Management has indicated that these investments will yield quick returns, but we remain concerned on the escalation of capex, which in our view, is likely to remain elevated on account of the rapid growth in data volumes as well as competitive capex owing to the imminent entry of Reliance Jio.

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 http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3012284

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