Idea Cellular: Signaling strength (ARA)

India Infoline News Service | Mumbai |

FY13 turned out to be a year of consolidation for Idea Cellular as it cemented its place as the third largest operator in terms of revenue market share (RMS) which rose 63bps to 15.7% in Q4 FY13 (and further to 16.2% in Q1).

CMP Rs158, Target Rs200, Upside 26.6%
 

FY13 turned out to be a year of consolidation for Idea Cellular as it cemented its place as the third largest operator in terms of revenue market share (RMS) which rose 63bps to 15.7% in Q4 FY13 (and further to 16.2% in Q1). Annual net revenue growth of 15% yoy beat industry run rate while reduced working capital strain yoy led to ~3x jump in operating cash flow. On both counts of leverage and return ratios (RoE, RoCE) Idea is better placed compared to other large operators like Bharti and Rcom. Company incurred ~Rs20bn in onetime 2G spectrum fee in seven circles while regular operational capex/sales trend has been on the decline; we expect the company to turn free cash flow +ve in the current fiscal. Non voice revenues rose at much faster pace of 25.6% yoy compared to overall growth and similar to commentary from other operators, Idea too views data as the next driver of growth. Stock trades at the lower end of its 1-yr fwd EV/EBIDTA band and given positive sector outlook, we retain BUY with 9-12 mth target of Rs200.


Annual growth beats industry run rate; leverage outlook comfortable

Idea improved its RMS by 63bps yoy to 15.7% in Q4 FY13 and in Q1 FY14 its revenue share is now higher than that of Rcom and Tata combined. FY13 revenue growth of ~15% yoy was much ahead of industry while margin too improved ~70bps. A 24% rise in cash profits and mitigation of working capital strain of previous year led to ~3x jump in FY13 operating cash flows. Net debt position and return ratios both improved yoy and operational capex/sales continued its downward trend.  


Expect ~24% EBIDTA cagr over FY13-15; retain BUY

Idea is expected to clock ~24% EBIDTA cagr over FY13-15 driven by 16.8% revenue rise and ~340bps rise in OPM. Net D/E, already lower as compared to peers like Bharti and Rcom, would reduce further over the next two years while RoE is likely to nearly double from FY13 levels. Although regulatory uncertainty still persists, we believe the worst may be over for the company; retain BUY with unchanged 9-12 mth target of Rs200.   


Financial summary
Y/e 31 Mar (Rs m)
FY12
FY13
FY14E
FY15E
Revenues
194,887
224,074
267,076
305,455
yoy growth (%)
26.2
15.0
19.2
14.4
Operating profit
50,399
59,543
78,253
91,637
OPM (%)
25.9
26.6
29.3
30.0
Reported PAT
7,230
10,109
16,493
22,775
yoy growth (%)
(19.6)
39.8
63.1
38.1
EPS (Rs)
2.2
3.1
5.0
6.9
P/E (x)
72.3
51.8
31.7
23.0
Price/Book (x)
4.0
3.7
3.3
2.9
EV/EBITDA (x)
13.1
11.3
8.4
6.9
Debt/Equity (x)
1.1
1.0
0.8
0.7
RoE (%)
5.5
6.7
10.9
13.5
RoCE (%)
7.9
8.6
11.5
14.2
Source: Company, India Infoline Research
BSE 94.35 0.95 (1.02%)
NSE 94.30 0.95 (1.02%)

***Note: This is a NSE Chart

 

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