Idea Cellular (Q2 FY13) – BUY

India Infoline News Service | Mumbai |

Despite revenue decline, EBIDTA margin improved 69bps qoq vs our expectation of flat margins, primarily due to lower subscriber acq and advertising costs as company cut trade spends

CMP Rs82, Target Rs100, Upside 22%

  • Idea Q2 revenues declined 3.4% qoq in line with our estimate led by lower sequential traffic with rev/min mostly flat qoq
  • Total traffic (MOUs) declined 4% qoq to 125.6bn minutes, (vs est -1.5% qoq) - the decline attributed to seasonal weakness and higher proportion of rural subscribers; total MOU decline was worse than the 2.2% qoq drop seen in Q2 FY12
  • Rev/min inched up to 41.3p vs our estimate of 41p (est. -0.6% qoq) helped by improved non voice contribution whose share jumped 110bps qoq to 15.6%; of this, data revenue share increased 90bps qoq while total data subscriber base (2G+3G) stood at ~19mn (~16% of  user base)
  • Despite revenue decline, EBIDTA margin improved 69bps qoq vs our expectation of flat margins, primarily due to lower subscriber acq and advertising costs  as company cut trade spends
  • Interest cost declined 19% qoq, though this included Rs180mn in FX gain (vs Rs245mn loss in Q1) as INR appreciated during the quarter which led to higher than estimated PAT of Rs2.4bn, up 2.5% qoq
  • Q2 capex at Rs9.7bn excluding FX fluctuation while full year guidance stands at Rs35bn excluding any spectrum payouts
  • Although Q2 volume decline was worse than estimated, we continue with our assumptions of volume revival in H2 and margin improvement over FY12-14; post Q2 results, we retain our estimates and 9-mth price of Rs100 after adjusting for ongoing regulatory risks.
Results table
(Rs m) Q2 FY13 Q1 FY13 % qoq Q2 FY12 % yoy
Net sales 53,140 55,037 (3.4) 46,199 15.0
Access and I/C charges (9,506) (9,687) (1.9) (7,877) 20.7
Network opex (13,449) (13,406) 0.3 (12,064) 11.5
License fees (5,647) (6,017) (6.1) (5,132) 10.0
Personnel costs (2,779) (2,740) 1.4 (2,417) 15.0
S G & A  expenses (7,534) (8,832) (14.7) (6,842) 10.1
Operating profit 14,225 14,355 (0.9) 11,866 19.9
OPM (%) 26.8 26.1 69 bps 25.7 108 bps
Depreciation (8,526) (8,325) 2.4 (7,369) 15.7
Interest (2,164) (2,670) (19.0) (2,939) (26.4)
PBT 3,536 3,361 5.2 1,559 126.9
Tax (1,136) (1,019) 11.4 (501) 126.6
Effective tax rate (%) 32.1 30.3 179 bps 32.1 (3) bps
PAT 2,400 2,341 2.5 1,058 127.0
PAT margin (%) 4.5 4.3 26 bps 2.3 223 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
Pre-exceptional PAT 7,878 6,989 10,543 18,285
Reported PAT 8,987 7,230 10,543 18,285
yoy growth (%) (5.8) (19.6) 45.8 73.4





EPS (Rs) 2.7 2.2 3.2 5.5
P/E (x) 30.0 37.3 25.6 14.7
P/BV (x) 2.2 2.1 1.9 1.7
EV/EBITDA (x) 10.4 8.1 6.8 5.4
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
BSE 93.85 0 (0%)
NSE 93.90 [0.05] ([0.05]%)

***Note: This is a NSE Chart

 

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