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Idea Cellular Limited Underweight
IDEA.BO, IDEA IN
Strong Q3 - solid operational metrics; bottom line partly helped by lower interest expense
Idea reported a strong set of operational metrics supporting 8% Q/Q revenue
growth but we also note that lower interest expense helped the bottom-line
beat. Consolidated revenue beat JPMe/cons by 3.1%/2.7% while EBITDA
margin of 24.0% (flat Q/Q) was slightly ahead of JPMe of 23.8% but slightly
below consensus at 24.3%. Net profit at INR 2.43bn was 23% ahead of JPMe
and cons. Read-across for Bharti is positive for revenue but we continue to
expect Bharti to see Q3 margin pressure driven by SG&A and network opex.
• Operational metrics strong: Volumes strong, pricing decline in check:
Total minutes carried on Idea’s network increased 10.2% Q/Q (vs. a 3%
Q/Q increase in Q2, 15% in Q3FY10) driven by a 42% Q/Q increase in
monthly net adds and a 1.8% increase in MOUs. ARPM declined by
0.5paise to INR 41.8 paisa, in-line with JPMe. This is a 1.1% Q/Q decline
vs. the 3.4% decline seen in Q2 and the 5.7% seen in Q1. ARPU was INR
168 (+1% Q/Q). A negative metric was blended churn which increased to
10.0% vs. 8.0% in Q2FY11 – driven by a 2.1pp increase in pre-paid churn.
• Standalone revenue (excl. Indus) was INR 39.9bn in Q3 (+8.2% Q/Q),
3.4% above JPMe of INR 38.6 bn. Standalone EBITDA margin was
20.6%, 30bp above JPMe. This is a near stable Q/Q (0.1pp decline) after
the 0.9pp in Q2. We note that margins in Idea’s established circles
declined 30bp to 26.7% and in new circles improved 7.3pp to -34.9%.
• Consolidated revenue of INR 39.6bn (+8% Q/Q), is 3.1%/2.7% above
JPMe/cons. Consolidated EBITDA margin was 24.0% (flat Q/Q) slightly
above JPMe of 23.8% but slightly missing cons 24.3%. Absolute EBITDA
of INR 9.5bn was 3.8%/1.4% above JPMe/cons. Indus margins increased
3.7pp Q/Q to 45.8%.We believe the beat vs. consensus at the EBITDA level
is only ~INR130m (vs. the ~INR 1bn beat on topline). We note that SG&A
increased 32% Q/Q to INR 5.4bn.
• Bottom line also helped by lower net interest expense: Net profit was
INR 2.43bn (+35% Q/Q). Idea reported EPS for Q3FY11 of INR 0.74,
23% above JPMe and consensus estimate of INR 0.60. The bottom line
was helped by stronger revenue but also lower than expected interest
expense in our view. Interest expenses relating to 3G auction fee of INR
1.24bn were capitalized during the quarter.
• 9M Capex at 58% of FY guidance: Idea’s Q3 capex was INR 9.5bn,
24% of sales (JPMe INR 10.8bn, 28%) vs. INR 8bn in H1 FY11. So far
9MFY11 capex is at ~58% of the FY11 guidance of INR 40bn (JPMe INR
35bn). We expect a spill over of capex from FY11 to FY12.
• Update on MNP and 3G: 3G services are expected to be launched in
the next few months. Idea continues to see MNP as an opportunity and
as a brand enhancer and not a game changer.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Idea Cellular Limited Underweight
IDEA.BO, IDEA IN
Strong Q3 - solid operational metrics; bottom line partly helped by lower interest expense
Idea reported a strong set of operational metrics supporting 8% Q/Q revenue
growth but we also note that lower interest expense helped the bottom-line
beat. Consolidated revenue beat JPMe/cons by 3.1%/2.7% while EBITDA
margin of 24.0% (flat Q/Q) was slightly ahead of JPMe of 23.8% but slightly
below consensus at 24.3%. Net profit at INR 2.43bn was 23% ahead of JPMe
and cons. Read-across for Bharti is positive for revenue but we continue to
expect Bharti to see Q3 margin pressure driven by SG&A and network opex.
• Operational metrics strong: Volumes strong, pricing decline in check:
Total minutes carried on Idea’s network increased 10.2% Q/Q (vs. a 3%
Q/Q increase in Q2, 15% in Q3FY10) driven by a 42% Q/Q increase in
monthly net adds and a 1.8% increase in MOUs. ARPM declined by
0.5paise to INR 41.8 paisa, in-line with JPMe. This is a 1.1% Q/Q decline
vs. the 3.4% decline seen in Q2 and the 5.7% seen in Q1. ARPU was INR
168 (+1% Q/Q). A negative metric was blended churn which increased to
10.0% vs. 8.0% in Q2FY11 – driven by a 2.1pp increase in pre-paid churn.
• Standalone revenue (excl. Indus) was INR 39.9bn in Q3 (+8.2% Q/Q),
3.4% above JPMe of INR 38.6 bn. Standalone EBITDA margin was
20.6%, 30bp above JPMe. This is a near stable Q/Q (0.1pp decline) after
the 0.9pp in Q2. We note that margins in Idea’s established circles
declined 30bp to 26.7% and in new circles improved 7.3pp to -34.9%.
• Consolidated revenue of INR 39.6bn (+8% Q/Q), is 3.1%/2.7% above
JPMe/cons. Consolidated EBITDA margin was 24.0% (flat Q/Q) slightly
above JPMe of 23.8% but slightly missing cons 24.3%. Absolute EBITDA
of INR 9.5bn was 3.8%/1.4% above JPMe/cons. Indus margins increased
3.7pp Q/Q to 45.8%.We believe the beat vs. consensus at the EBITDA level
is only ~INR130m (vs. the ~INR 1bn beat on topline). We note that SG&A
increased 32% Q/Q to INR 5.4bn.
• Bottom line also helped by lower net interest expense: Net profit was
INR 2.43bn (+35% Q/Q). Idea reported EPS for Q3FY11 of INR 0.74,
23% above JPMe and consensus estimate of INR 0.60. The bottom line
was helped by stronger revenue but also lower than expected interest
expense in our view. Interest expenses relating to 3G auction fee of INR
1.24bn were capitalized during the quarter.
• 9M Capex at 58% of FY guidance: Idea’s Q3 capex was INR 9.5bn,
24% of sales (JPMe INR 10.8bn, 28%) vs. INR 8bn in H1 FY11. So far
9MFY11 capex is at ~58% of the FY11 guidance of INR 40bn (JPMe INR
35bn). We expect a spill over of capex from FY11 to FY12.
• Update on MNP and 3G: 3G services are expected to be launched in
the next few months. Idea continues to see MNP as an opportunity and
as a brand enhancer and not a game changer.
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