Idea Cellular (Q4 FY14)

India Infoline News Service | Mumbai |

Idea Q4 traffic growth of 8.6% qoq was the best since Q4 FY12 and much ahead of our estimate of 5.1% qoq.

CMP Rs141, Target Rs165, Upside 17.4% 
  • Idea Q4 traffic surges 8.6% qoq much ahead of our +5% expectation on the back of strong seasonality tailwind; drives 6.5% sequential increase in revenues

  • Pricing declines 2.9% qoq after four successive quarters of uptick; data now accounts for ~10% of service revenues with blended data volume growth accelerating to ~31% qoq

  • Margin expanded 58bps on lower network opex and staff costs; PAT beats forecasts on robust revenue growth and lower depreciation, tax rates

  • Q4 capex at ~Rs13bn (ex-forex and spectrum buys) and company guided for FY15 capex of Rs35bn

  • 900MHz renewals remain key risk but believe adequate valuation headroom exists to cushion the impact; retain BUY

Result table
(Rs m)
Q4 FY14
Q3 FY14
% qoq
Q4 FY13
% yoy
Net sales
70,438
66,131
6.5
60,614
16.2
Access and I/C charges
(11,011)
(10,090)
9.1
(10,770)
2.2
Network opex
(17,270)
(16,423)
5.2
(14,298)
20.8
License fees
(7,582)
(7,232)
4.8
(7,191)
5.4
Personnel costs
(3,121)
(3,445)
(9.4)
(2,976)
4.9
S G & A  expenses
(9,152)
(8,384)
9.2
(8,649)
5.8
Operating profit
22,302
20,557
8.5
16,731
33.3
OPM (%)
31.7
31.1
58 bps
27.6
406 bps
Depreciation
(11,380)
(11,666)
(2.4)
(9,092)
25.2
Interest
(1,966)
(1,575)
24.8
(2,244)
(12.4)
PBT
8,956
7,316
22.4
5,395
66.0
Tax
(3,058)
(2,639)
15.9
(2,313)
32.2
Effective tax rate (%)
34.1
36.1
(192) bps
42.9
(873) bps
PAT
5,898
4,677
26.1
3,082
91.4
Source: Company, India Infoline Research

Voice traffic ahead of estimate, up 8.6% qoq

Idea Q4 traffic growth of 8.6% qoq was the best since Q4 FY12 and much ahead of our estimate of 5.1% qoq. Pricing however declined much more than expected at 2.9% qoq though the company attributed the drop in pricing to larger minutes contribution from North and Eastern markets which have a lower realized rate as compared to Western market and not due to any accelerated competitive intensity. Revenues grew 6.5% qoq, again ahead of our forecasts due to the large traffic beat.


EBIDTA margins rose 58bps qoq to 31.7% and broadly in line with our estimates. Staff costs declined 78bps qoq due to reduction in retirement liabilities on a higher discounting rate which may not sustain in the future. If one adjusts for this, EBIDTA margin would have remained mostly flat qoq. Interest cost rose qoq due to reduction in treasury income while PAT jump of 26% qoq too was ahead of our forecast. 


Data vols jump 31% qoq, blended data pricing falls steeply

Blended data volumes jumped ~31% qoq to ~27.3bn MBs but realized rate fell 14.5% qoq an indication of strong competitive intensity. VAS share rose to 16.5% while that of data crossed 10% mark. Total data subscribers stood at 25.3mn, down slightly from Q3 level as company revised its data subscriber definition by eliminating casual/incidental users of <1MB/month. Blended churn fell to 4.2% from 5.6% in the previous quarter as company continues its focus on acquisition of quality subscribers which in turn helps lower subscriber acquisition expenses.


Conference call highlights

Key takeaways from Idea’s Q4 post earnings conference call are 1) As and when technology matures, Idea would offer LTE services in 8 circles that account for 57% of Idea revenues with 1800MHz spectrum bought in February 2014 auctions. 2) Higher minutes contribution from North and Eastern circles led to lower RPM as these circles have a lower realized rate compared to western markets and the decline is not due to any pricing battles in market place; company remains confident RPM would increase through FY15 3) Staff costs reduction due to fall in retirement liabilities on higher discounting rates which may not continue in future 4) Company would focus on offering faster EDGE and 3G services and believes ecosystem is not mature enough for 4G services and company does not plan to invest in 4G ahead of demand 5) Voice margin is higher than data margin 6) Company has guided for FY15 capex of Rs35bn    


Retain BUY on robust 4Q results

Idea’s robust 4Q volume growth on a growing base and management confidence of higher pricing levels through FY15 are key +ves in our view. However, Idea is likely to be faced with large renewals in its key 900MHz circles (though it has won 1800MHz in February auctions which would mitigate pressure to an extent) in the next 2-3 years which implies large renewal related payouts. Based on the management guidance of spectrum capitalization depending on their deployment, we raise FY15/16 EPS estimates as amortization shifts ahead. Current valuation leaves enough room for expansion and we retain BUY with unchanged 9-12mth target of Rs165. 


Financial summary
BSE 95.75 [0.40] ([0.42]%)
NSE 95.75 [0.45] ([0.47]%)

***Note: This is a NSE Chart

 

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