Idea Q2 results were a mixed bag with revenues/EBIDTA miss but compensated by better than estimated PAT of ~Rs4.5bn

Revenues declined 3.3% qoq (expected -2.5%) on the back of a larger than estimated 5.8% qoq drop in traffic (est -1.5% qoq); Volumes seem to be impacted by an unusually strong seasonality headwind accentuated by a rising share of rural subscribers. Certain minutes on network have also vanished due to lower incremental subscriber additions

Pricing posted a pleasant surprise, rising 2.3% qoq coming on the back of a 6.1% rise in Q1, as company reaps benefits of clampdown on promotional minutes; VAS share remained mostly flat at 16.1% in Q2 though data VAS continues its upward journey with share of 8.7%. Non data VAS share declined to 7.4% and remains under pressure due to new TRAI regulation of double confirmation as well as threat from free messenger and chat OTT applications

EBIDTA margin declined 58bps qoq to 31.2% impacted by higher network opex and staff costs; however lower interconnect charges (due to reduced network minutes and change in roaming agreements) offset some of the cost increase; PAT of Rs4.5bn was ahead of our estimates due to lower interest expenses 

Net debt fell to ~Rs93bn translating in to FY14E net debt/EBIDTA of ~1.2x while capex during the quarter stood at Rs8.8bn; co retained FY14 capex guidance of Rs35bn ex-spectrum related payouts

We remain +ve on the stock on possibility of reduced spectrum prices and return of traffic growth in H2 FY14 as well as improvement in return profile (RoE, RoCE) over FY13-15; retain BUY for unchanged 9-12mth target of Rs200.