Idea Cellular (Q1 FY15)

India Infoline News Service | Mumbai |

Idea reported yet another stellar set of numbers with all round beat on our estimates.

CMP Rs147, Target Rs170, Upside 16% 
  • Idea reported yet another stellar set of numbers with significant beat on revenues, EBIDTA and PAT driven by robust traffic and realization growth coupled with margin expansion

  • Volumes growth strong at 5.2% qoq on the back of +8.6% in the previous quarter while pricing too surprised on the upside at +3.4% qoq

  • Blended 2G+3G data vols rise 19% qoq while data pricing improves 4% qoq after four quarters of decline

  • Margins expand 154bps qoq on operating leverage tailwind; better than expected topline and EBIDTA performance leads to a large PAT beat 

  • A strong quarter with all round beat on estimates but we refrain from raising target multiple as twin risks of higher renewal payout and impending Reliance Jio entry weighs on incumbents; retain BUY with revised 9-12mth target of Rs170

Result table
(Rs m) Q1 FY15 Q4 FY14 % qoq Q1 FY14 % yoy
Net sales 75,610 70,438 7.3 65,388 15.6
Access and I/C charges (11,444) (11,011) 3.9 (10,951) 4.5
Network opex (18,168) (17,270) 5.2 (15,436) 17.7
License fees (8,352) (7,582) 10.2 (7,465) 11.9
Personnel costs (3,569) (3,121) 14.4 (3,073) 16.1
S G & A  expenses (8,972) (9,152) (2.0) (7,699) 16.5
Operating profit 25,106 22,302 12.6 20,763 20.9
OPM (%) 33.2 31.7 154 bps 31.8 145 bps
Depreciation (11,545) (11,380) 1.4 (11,353) 1.7
Interest (2,342) (1,966) 19.2 (2,211) 6.0
PBT 11,219 8,956 25.3 7,200 55.8
Tax (3,937) (3,058) 28.7 (2,573) 53.0
Effective tax rate (%) 35.1 34.1 94 bps 35.7 (64) bps
PAT 7,282 5,898 23.5 4,627 57.4
PAT margin (%) 9.6 8.4 126 bps 7.1 255 bps
Source: Company, India Infoline Research

Stellar beat on all counts; revs up 7.3% qoq, PAT +23.5% qoq

Idea reported yet another stellar set of numbers with all round beat on our estimates. Q1 FY15 revenues rose 7.3% qoq vs our estimate of 2.9% qoq driven by volumes (traffic up 5.2% qoq) and pricing (+3.4% qoq). EBIDTA margin of 33.2% posted ~150bps qoq improvement boosted by operating leverage and came much ahead of our forecast of 31.4%. Although interest costs rose less than expected at 19.2% qoq, reported PAT of ~Rs7.3bn saw a large beat on our estimate of ~Rs5.5bn driven by better revenue and operating performance.  

 

Revenues up 7.3% qoq on robust volume, pricing

Idea Q1 revenues grew 7.3% qoq and 15.6% yoy vs our expectation of +2.9% qoq and 10.8% yoy respectively. The large topline beat was driven by robust traffic growth as total MOUs jumped 5.2% qoq (vs est. 2.5% qoq) on the back of an even stronger 8.6% sequential growth in the previous quarter. Realization (rev/min) growth of 3.4% qoq mitigate concerns on sustainability of pricing uptick that had surfaced after Q4 rev/min drop of ~3% qoq.

Blended data vols jump ~19% qoq, data price rises after 4 Qs of decline  

Blended data (2G+3G) volumes grew ~19% qoq to 32.5bn MBs of which 3G data volumes at 15.7bn MBs grew at 20% qoq. Blended data pricing (avg rev/MB) jumped 4% qoq after four quarters of decline and has exhibited only the second uptick in the past 8 quarters.  While overall data usage/sub remained flat sequentially, 3G usage amongst 3G sub base surged 15.6% qoq to 534MB with an increase in 3G ARPU to Rs142 from Rs111 in Q4 FY14. Although blended churn rose to 4.6% from 4.2% in Q4 and post paid churn virtually doubled to 4.9% from 2.5% in the previous quarter, company clarified in its conference call that the headline jump is due to a definition change and on a comparable basis churn not much changed from previous quarter.  


Key operating highlights
Parameters Q2 FY13 Q3 FY13 Q4 FY13 Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY14 Q1 FY15
Subscribers (' 000) 115,500 113,900 121,600 125,000 127,200 128,700 135,800 139,000
% qoq (1.5) (1.4) 6.8 2.8 1.8 1.2 5.5 2.4
Net additions (1,700) (1,600) 7,700 3,400 2,200 1,500 7,100 3,200
% qoq - (5.9) - (55.8) (35.3) (31.8) 373.3 (54.9)
Key metrics
ARPU (Rs/sub) 148 158 167 174 164 169 173 181
% qoq (5.1) 6.8 5.7 4.2 (5.7) 3.0 2.4 4.6
MOU per user (mins) 359 384 406 398 368 376 397 401
% qoq (5.3) 7.0 5.7 (2.0) (7.5) 2.2 5.6 1.0
Rev/min 0.413 0.411 0.412 0.437 0.447 0.449 0.436 0.451
% qoq 0.2 (0.5) 0.2 6.1 2.3 0.4 (2.9) 3.4
Total MOU (mn mins) 125,646 132,181 143,366 147,315 138,827 144,571 157,055 165,239
% qoq (4.0) 5.2 8.5 2.8 (5.8) 4.1 8.6 5.2
EoP sites
2G sites 85,779 87,662 90,094 92,208 95,970 101,600 104,778 106,169
% qoq 2.3 2.2 2.8 2.3 4.1 5.9 3.1 1.3
Quarterly additions 1,919 1,883 2,432 2,114 3,762 5,630 3,178 1,391
% qoq
3G sites (Node B) 14,467 15,545 17,140 17,481 18,031 19,904 21,381 22,516
% qoq 8.3 7.5 10.3 2.0 3.1 10.4 7.4 5.3
Data (2G+3G)
VAS % of service rev 15.6 14.6 15.2 16.0 16.1 16.1 16.5 17.8
Data % of service rev 5.4 5.7 6.6 7.2 8.7 9.5 10.1 11.5
Non data VAS 10.2 8.9 8.6 8.8 7.4 6.6 6.4 6.4
Total data subs (mn) 18.9 21.8 26.2 30.9 33.6 25.5 25.3 27.9
% qoq 16.4 19.1 21.6 24.7 26.4 19.8 18.6 20.1
Data vol (mn MB) 8,744 10,040 11,421 13,791 17,452 20,840 27,299 32,516
% qoq 22 15 14 21 27 19 31 19
  of which 3G data vol (MB) - - 5,231 6,334 7,578 9,469 13,084 15,719
% qoq - - - 21 20 25 38 20
Blended data ARMB (paise) 32.1 31.0 33.9 33.5 31.0 29.6 25.3 26.3
% qoq (4.2) (3.4) 9.4 (1.2) (7.5) (4.5) (14.5) 4.0
Data ARPU/data sub (Rs) 50 52 55 54 55 91 104 108
% qoq 6.4 4.0 5.8 (1.8) 1.9 65.5 14.3 3.8
Data usage/sub MB 157 167 163 160 178 309 410 409
% qoq 12.1 6.4 (2.4) (1.8) 11.3 73.6 32.7 (0.2)
3G usage/3G sub (MB) - - 385 398 429 427 462 534
% qoq - - 3.4 7.8 (0.5) 8.2 15.6
3G data ARPU/3G sub (Rs) - - 105 109 116 112 111 142
% qoq - - - 3.8 6.4 (3.4) (0.9) 27.9
Post paid churn 3.0 3.2 2.9 3.6 2.8 3.0 2.5 4.9
Blended churn 10.1 6.9 4.3 5.1 5.3 5.6 4.2 4.6
Source: Company, India Infoline Research

Retain BUY on strong execution record, data upsides; renewal px remain key risk

Idea reported yet another quarter of strong execution which saw robust volume and pricing growth and on the post earnings call too it expressed optimism on pricing trends; we expect company to beat industry metrics in the coming quarters as well. However our key concern on near term spectrum renewal risks remain since Idea is likely to have the largest payouts compared to peers in future auctions. Additionally Reliance Jio’s impending entry would be a key event risk for all incumbents. Hence despite a strong quarter with all round beat, we do not expect a valuation rerating and marginally raise our 9-12mth target to Rs170 (earlier Rs165) with minor tweaks to FY15/16 estimates. 


Financial summary
Y/e 31 Mar (Rs m) FY13 FY14 FY15E FY16E
Revenues 224,074 265,189 308,760 353,777
yoy growth (%) 15.0 18.3 16.4 14.6
Operating profit 59,543 83,337 96,333 111,086
OPM (%) 26.6 31.4 31.2 31.4
Reported PAT 10,109 19,678 22,803 25,358
yoy growth (%) 39.8 94.7 15.9 11.2
EPS (Rs) 3.1 5.9 6.9 7.7
P/E (x) 48.0 24.7 21.3 19.1
P/BV (x) 3.4 3.0 2.7 2.3
EV/EBITDA (x) 10.6 7.3 6.4 5.6
Debt/Equity (x) 1.0 0.8 0.9 0.8
ROE (%) 6.7 12.9 13.3 13.0
ROCE (%) 8.6 12.6 13.3 13.2
Source: Company, India Infoline Research
 

***Note: This is a NSE Chart

 

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