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| India Infoline Research Team / 10:56 , Jul 26, 2012 |
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CMP Rs78, Target Rs100, Upside 28.2%
- Idea Q1 revenues were in line though the underlying composition showed mixed performance; traffic growth slowed to +5.3% qoq (but ahead of our +4.5% forecast) while RPM declined by a worse than expected 2.4% qoq to 41.2p (vs est -0.6% qoq); rev/min decline implies it is now just 1.5% above its low of 40.6p touched in Q4 FY11
- Strong revenue momentum of Q3/Q4 FY12 was halted as tariff activity remained elevated and due to the introduction of a consumer protection regulation by TRAI at end of Q4 FY12; rev/min decline was also due to part absorption of service tax hike effective from Q1 FY13. Company expects industry growth to be muted in H1 FY13
- Idea had 3.1mn active 3G subscribers with average usage of 375MB and incremental ARPU of Rs88 as of Q1 FY13; it also upped its revenue market share to 15% in Q4, an increase of 140bps in 1 year
- Although reported EBIDTA margin was up 81bps, on an adjusted basis after accounting for Rs1.5bn one-off items in Q4, OPM declined 192bps qoq. Staff costs rose 7.5% qoq due to one time change in gratuity policy
- Reported PAT at Rs2.3bn was lower than expected on higher deprecation (by Rs480mn, on revision of useful life of some fixed assets) and interest expenses; interest cost includes Rs245mn in FX loss due to INR depreciation compared to gain of Rs135mn in Q4
- Q1 capex stood at Rs4.1bn (12% of full year guidance) while net debt was at ~Rs115bn; company indicated in its earnings call that capex would pick up in H2 FY13 as volumes typically improve in the seasonally strong H2 for telcos
- We remain cautious on volume growth in Q2 though H2 could see a revival; however, more than any specific operational metrics, we believe regulatory uncertainty remains the biggest overhang on the stock. Albeit, in view of Q1 results, we lower our PAT estimates for FY13/14 due to higher depreciation impact (additional Rs1.8bn in FY13) and smaller margin gain over FY12-14. Accordingly, we revise lower our 9-mth tgt to Rs100 (earlier Rs106) but retain BUY.
Q1 FY13 results
| (Rs m) |
Q1 FY13 |
Q4 FY12 |
% qoq |
Q1 FY12 |
% yoy |
| Net sales |
55,037 |
53,697 |
2.5 |
45,207 |
21.7 |
| Access and I/C charges |
(9,687) |
(9,144) |
5.9 |
(7,321) |
32.3 |
| Network opex |
(13,406) |
(12,579) |
6.6 |
(11,783) |
13.8 |
| License fees |
(6,017) |
(7,373) |
(18.4) |
(5,116) |
17.6 |
| Personnel costs |
(2,740) |
(2,548) |
7.5 |
(2,110) |
29.8 |
| S G & A expenses |
(8,832) |
(8,483) |
4.1 |
(6,837) |
29.2 |
| Operating profit |
14,355 |
13,571 |
5.8 |
12,040 |
19.2 |
| OPM (%) |
26.1 |
25.3 |
81 bps |
26.6 |
(55) bps |
| Depreciation |
(8,325) |
(7,844) |
6.1 |
(7,026) |
18.5 |
| Interest |
(2,670) |
(2,275) |
17.4 |
(2,463) |
8.4 |
| PBT |
3,361 |
3,453 |
(2.7) |
2,551 |
31.8 |
| Tax |
(1,019) |
(1,063) |
(4.1) |
(778) |
31.0 |
| Effective tax rate (%) |
30.3 |
30.8 |
(45) bps |
30.5 |
(17) bps |
| Reported PAT |
2,341 |
2,390 |
(2.0) |
1,773 |
32.1 |
| PAT margin (%) |
4.3 |
4.5 |
(20) bps |
3.9 |
33 bps | Source: Company, India Infoline Research
Financial Summary
| Y/e 31 Mar (Rs m) |
FY11 |
FY12 |
FY13E |
FY14E |
| Revenues |
154,384 |
194,887 |
236,208 |
275,676 |
| yoy growth (%) |
24.5 |
26.2 |
21.2 |
16.7 |
| Operating profit |
37,260 |
50,399 |
62,595 |
75,259 |
| OPM (%) |
24.1 |
25.9 |
26.5 |
27.3 |
| Reported PAT |
8,987 |
7,230 |
10,543 |
18,285 |
| yoy growth (%) |
(5.8) |
(19.6) |
45.8 |
73.4 |
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| EPS (Rs) |
2.7 |
2.2 |
3.2 |
5.5 |
| P/E (x) |
28.7 |
35.7 |
24.5 |
14.1 |
| P/BV (x) |
2.1 |
2.0 |
1.8 |
1.6 |
| EV/EBITDA (x) |
10.1 |
7.8 |
6.6 |
5.2 |
| Debt/Equity (x) |
1.0 |
1.1 |
1.1 |
0.9 |
| ROE (%) |
6.5 |
5.5 |
7.8 |
12.2 |
| ROCE (%) |
6.0 |
7.9 |
9.3 |
12.0 | Source: Company, India Infoline Research
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