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India Equity Research Reports, IPO and Stock News
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● Idea reported strong June 2011 quarter numbers, with revenues
1%, EBITDA 11% and profits 9% ahead of estimates. The
highlight of the quarter was RPM increase of 1% QoQ (the first
increase in four years). This allowed the company to enjoy full
benefits of scale expansion on margins.
● Impact of reducing promotional offers and lower gross adds (i.e.
lower dealer commissions) are in line with our recent channel
checks, but the impact is showing earlier than our expectations.
● Management explained that after the close of the quarter, it
increased headline (base) tariffs in the strongest six circles by
~20%. Along with Bharti’s similar action, this indicates a return of
pricing power to the segment.
● Post results, our EPS declines 9% for current year (higher taxes)
while it rises 3-5% for FY13/FY14 (increase in RPM est.). We are
still 50%+ ahead of consensus EPS, and expect sharp upgrades
in the coming months. Our DCF-based TP rises to Rs115 (earlier
Rs95, 22% upside). Reiterate OUTPERFORM.
Beats estimates comfortably
Idea Cellular reported strong June 2011 quarter numbers, with
revenue growth of 6.8% (0.6% ahead of estimates), impressive
considering that the two previous quarters saw an average 7.5%+
growth. However, the bigger surprise was on margins, with EBITDA
margin expanding 120 bp QoQ on reported basis (240 bp QoQ on
like-for-like basis) to 26.6% (240 bp ahead of our numbers). EBITDA
thus came 11% ahead of our estimates, growing 12% QoQ.
Higher interest expenses and tax rates resulted in the profit beat
coming smaller than EBITDA beat, at 9.3%.
Tariffs have started going up
During earnings call, management explained that in six of its strongest
circles, company raised headline tariffs by ~20%. This is should start
reflecting in numbers over time (as and when the validity period of old
tariffs for each customer expires). This follows close on the heels of
Bharti making similar changes in its strong circles.
However, while the above event occurred after the close of the quarter,
the Jun-11 RPM still showed an increase of 1% QoQ (first increase in
four years for Idea). Management explained that this was primarily
driven by going slow on promotional vouchers in the market. Our
channel checks (see our note dated 30 June 2011) offer evidence that
rates on special tariff vouchers (STVs) had started rising in the second
half of the Jun-11 quarter, but we expect the impact to hit numbers
only by the Dec-11 quarter. We are thus positively surprised by the
pricing movement.
Further, management explained that the other big drivers for margin
expansion were (1) lower subscriber acquisition as gross adds have
come down and (2) scale benefits – this is something which we were
already building in our numbers from 2H (and the key reason for our
EPS being ahead of consensus).
Increasing TP; retain OUTPERFORM
Post results, we build flat voice RPM for FY13 and FY14 (vs 1% YoY
decline earlier), but note here that there could be upside to our RPM
estimates. Our EBITDA estimates thus rise 4-8% for the next three
years. However, we also increase interest cost and tax rate
assumptions, leading to 9% EPS decline for current year and 3-5%
increase for FY13/FY14.
Our DCF based TP rises to Rs115 (22% upside). Our target price
implies a 12M forward EV/EBITDA multiple of 7.5c, which is justified in
our view given that the company could deliver 25%+EBITDA CAGR
over three years. We reiterate our OUTPERFORM rating on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● Idea reported strong June 2011 quarter numbers, with revenues
1%, EBITDA 11% and profits 9% ahead of estimates. The
highlight of the quarter was RPM increase of 1% QoQ (the first
increase in four years). This allowed the company to enjoy full
benefits of scale expansion on margins.
● Impact of reducing promotional offers and lower gross adds (i.e.
lower dealer commissions) are in line with our recent channel
checks, but the impact is showing earlier than our expectations.
● Management explained that after the close of the quarter, it
increased headline (base) tariffs in the strongest six circles by
~20%. Along with Bharti’s similar action, this indicates a return of
pricing power to the segment.
● Post results, our EPS declines 9% for current year (higher taxes)
while it rises 3-5% for FY13/FY14 (increase in RPM est.). We are
still 50%+ ahead of consensus EPS, and expect sharp upgrades
in the coming months. Our DCF-based TP rises to Rs115 (earlier
Rs95, 22% upside). Reiterate OUTPERFORM.
Beats estimates comfortably
Idea Cellular reported strong June 2011 quarter numbers, with
revenue growth of 6.8% (0.6% ahead of estimates), impressive
considering that the two previous quarters saw an average 7.5%+
growth. However, the bigger surprise was on margins, with EBITDA
margin expanding 120 bp QoQ on reported basis (240 bp QoQ on
like-for-like basis) to 26.6% (240 bp ahead of our numbers). EBITDA
thus came 11% ahead of our estimates, growing 12% QoQ.
Higher interest expenses and tax rates resulted in the profit beat
coming smaller than EBITDA beat, at 9.3%.
Tariffs have started going up
During earnings call, management explained that in six of its strongest
circles, company raised headline tariffs by ~20%. This is should start
reflecting in numbers over time (as and when the validity period of old
tariffs for each customer expires). This follows close on the heels of
Bharti making similar changes in its strong circles.
However, while the above event occurred after the close of the quarter,
the Jun-11 RPM still showed an increase of 1% QoQ (first increase in
four years for Idea). Management explained that this was primarily
driven by going slow on promotional vouchers in the market. Our
channel checks (see our note dated 30 June 2011) offer evidence that
rates on special tariff vouchers (STVs) had started rising in the second
half of the Jun-11 quarter, but we expect the impact to hit numbers
only by the Dec-11 quarter. We are thus positively surprised by the
pricing movement.
Further, management explained that the other big drivers for margin
expansion were (1) lower subscriber acquisition as gross adds have
come down and (2) scale benefits – this is something which we were
already building in our numbers from 2H (and the key reason for our
EPS being ahead of consensus).
Increasing TP; retain OUTPERFORM
Post results, we build flat voice RPM for FY13 and FY14 (vs 1% YoY
decline earlier), but note here that there could be upside to our RPM
estimates. Our EBITDA estimates thus rise 4-8% for the next three
years. However, we also increase interest cost and tax rate
assumptions, leading to 9% EPS decline for current year and 3-5%
increase for FY13/FY14.
Our DCF based TP rises to Rs115 (22% upside). Our target price
implies a 12M forward EV/EBITDA multiple of 7.5c, which is justified in
our view given that the company could deliver 25%+EBITDA CAGR
over three years. We reiterate our OUTPERFORM rating on the stock.
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