6 IdeaCellular IIFL Oct14

8/10/2019 6 IdeaCellular IIFL Oct14

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Sector: Telecom

Sector view: Positive

Sensex: 26,576

52 Week h/l (Rs): 184/125

Market cap (Rscr) : 58,084

6m Avg vol (000Nos): 5,462

Bloomberg code: IDEA IB

BSE code: 532822

NSE code: IDEA

FV (Rs): 10Price as on October 21, 2014

Share price trend

Share holding pattern % Jun 14 Jun 14 Sep 14

Promoters 42.9 42.9 42.3

Insti 26.4 26.2 28.9

Others 30.7 30.9 28.8

50

100

150

Oct 13 Apr 14 Oct 14

Idea Sensex

Change in Estimates Rating Target

Rating: BUY Target: Rs190CMP: Rs162Upside: 17.6%

Idea Cellular

Q2 FY15

Result Update

October 22, 2014

Research Analyst:Bhavesh Gandhi

[email protected]

This report is published by IIFL India Private Clients research desk. IIFL has other business units with independent research teams separated by 'Chinese walls' catering to different sets of customers having varying objectives, risk profiles, investment horizon, etc. The views and opinions expressed in this document may at times be contrary in terms of rating, target prices, estimates and views on sectors and markets.

Idea reported flat revenue qoq vs our expectation of 2.9% qoq decline in what is typically the weakest quarter for the industry

MOUs decline less than anticipated at 1.7% qoq but voice pricing notably

fell by 2.4% qoq Data share continues to rise with gain of 250bps qoq as data volumes

jump 21.3% qoq, blended pricing up 0.8% qoq

Idea execution engine remains on track and expect much stronger H2; however understandable concerns on renewal payouts imply near term stock performance could be muted; retain BUY with lower 912mth target of Rs190

Result table (Rs m) Q2 FY15 Q1 FY15 % qoq Q2 FY14 % yoy

Net sales 75,699 75,610 0.1 63,233 19.7 Access and I/C charges (11,442) (11,444) (0.0) (9,563) 19.6 Network opex (17,894) (18,168) (1.5) (15,862) 12.8 License fees (8,467) (8,352) 1.4 (6,959) 21.7 Personnel costs (4,080) (3,569) 14.3 (3,482) 17.2 S G & A expenses (8,910) (9,039) (1.4) (7,786) 14.4 Operating profit 24,907 25,038 (0.5) 19,581 27.2 OPM (%) 32.9 33.1 (21) bps 31.0 194 bps Depreciation (11,788) (11,545) 2.1 (10,795) 9.2 Interest (2,610) (2,616) (0.2) (2,441) 6.9 Other income 1,166 341 241.9 627 86.0

PBT 11,674 11,219 4.1 6,971 67.5 Tax (4,116) (3,937) 4.5 (2,495) 64.9 Effective tax rate (%) 35.3 35.1 16 bps 35.8 (54) bps PAT 7,559 7,282 3.8 4,476 68.9 PAT margin (%) 10.0 9.6 35 bps 7.1 291 bps

Source: Company, India Infoline Research

Idea Q2: revenue surprise, margins in lineIdea Q2 revenues were surprisingly flat qoq in what is the seasonally the weakest quarter as evidenced by sequential revenue decline of >3% in Q2 FY13/14. Revenue beat was on account of lower than expected fall in total

MOUs and better overall realization. However, voice pricing notably declined 2.4% qoq. Post paid churn declined but overall blended churn inched up to 5% from 4.6% qoq. EBIDTA margin came in along expected lines at 32.9%, marginally down by ~20bps qoq. PAT beat our forecast despite ~200bps higher tax rate and aided by other income.


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Idea Cellular (Q2 FY15)

2

Revenues up 7.3% qoq on robust volume, pricingIdea revenue beat was on account of lower than expected fall in total MOUs (1.7% vs est 5.5% qoq), much less than the decline seen in similar quarters (4% to 5.8%) of past 2 years. Lower qoq traffic was offset by 1.8% qoq rise in ARPM; however, voice RPMs dropped 2.6% qoq while VAS revenues jumped 330bps qoq to 21.1%. Data share continued to increase while non data VAS (mostly SMS) rose after several quarters of decline. Data

volumes jump

21%

qoq

while

blended

data

pricing

also

registered

0.8%

qoq

uptick.

Key operating highlights Parameters Q3 FY13 Q4 FY13 Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY14 Q1 FY15 Q2 FY15 Subscribers (' 000) 113,900 121,600 125,000 127,200 128,700 135,800 139,000 143,600% qoq (1.4) 6.8 2.8 1.8 1.2 5.5 2.4 3.3Net additions (1,600) 7,700 3,400 2,200 1,500 7,100 3,200 4,600% qoq (5.9) (55.8) (35.3) (31.8) 373.3 (54.9) 43.8Key metrics ARPU (Rs/sub) 158 167 174 164 169 173 181 176% qoq 6.8 5.7 4.2 (5.7) 3.0 2.4 4.6 (2.8)

MOU per

user

(mins)

384

406

398

368

376

397

401

384% qoq 7.0 5.7 (2.0) (7.5) 2.2 5.6 1.0 (4.2)

Rev/min 0.411 0.412 0.437 0.447 0.449 0.436 0.451 0.459% qoq (0.5) 0.2 6.1 2.3 0.4 (2.9) 3.4 1.8Total MOU (mn mins) 132,181 143,366 147,315 138,827 144,571 157,055 165,239 162,454% qoq 5.2 8.5 2.8 (5.8) 4.1 8.6 5.2 (1.7)EoP sites 2G sites 87,662 90,094 92,208 95,970 101,600 104,778 106,169 107,605% qoq 2.2 2.8 2.3 4.1 5.9 3.1 1.3 1.4Quarterly additions 1,883 2,432 2,114 3,762 5,630 3,178 1,391 1,436% qoq 3G sites (Node B) 15,545 17,140 17,481 18,031 19,904 21,381 22,516 25,164% qoq 7.5 10.3 2.0 3.1 10.4 7.4 5.3 11.8Data (2G+3G) VAS % of service rev 14.6 15.2 16.0 16.1 16.1 16.5 17.8 21.1 Data % of service rev 5.7 6.6 7.2 8.7 9.5 10.1 11.5 14.0 Non data VAS 8.9 8.6 8.8 7.4 6.6 6.4 6.4 7.1 Total data subs (mn) 21.8 26.2 30.9 33.6 25.5 25.3 27.9 30.9% qoq 19.1 21.6 24.7 26.4 19.8 18.6 20.1 21.5Data vol (mn MB) 10,040 11,421 13,791 17,452 20,840 27,299 32,516 39,428% qoq 15 14 21 27 19 31 19 21 of which 3G data vol (MB)

5,231 6,334 7,578 9,469 13,084 15,719 19,786

% qoq 21 20 25 38 20 26Blended data ARMB (paise) 31.0

33.9 33.5 31.0 29.6 25.3 26.3 26.5

% qoq (3.4) 9.4 (1.2) (7.5) (4.5) (14.5) 4.0 0.8Data ARPU/data sub (Rs) 52 55 54 55 91 104 108 119% qoq 4.0 5.8 (1.8) 1.9 65.5 14.3 3.8 10.2Data usage/sub MB 167 163 160 178 309 410 409 447% qoq 6.4 (2.4) (1.8) 11.3 73.6 32.7 (0.2) 9.3Post paid churn 3.2 2.9 3.6 2.8 3.0 2.5 4.9 2.7Blended churn 6.9 4.3 5.1 5.3 5.6 4.2 4.6 5.0



3/4

Idea Cellular (Q2 FY15)

3

Operationally sound but renewal concerns remain; lower target but retain BUYIdea has managed to deliver decent numbers in a sluggish quarter and we expect it to build on H1 performance with a stronger H2. However, near term payouts related to license renewals remain the key risk around the stock; such concerns are understandable given the potentially high payouts (relative to size of balance sheet) estimated in the next auctions. We retain our estimates but lower 912mth target to Rs190 (earlier Rs200)

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 97,259 112,147 OPM (%) 26.6 31.4 31.5 31.7 Reported PAT 10,109 19,678 25,024 23,195

yoy growth (%) 39.8 94.7 27.2 (7.3)

EPS (Rs) 3.1 5.9 7.0 6.5 P/E (x) 52.9 27.2 23.2 25.0 P/BV (x) 3.7 3.2 2.6 2.3 EV/EBITDA (x) 11.5 9.0 8.7 7.3 Debt/Equity (x) 1.0 1.3 1.2 1.1 ROE (%) 6.7 12.8 12.8 9.8 ROCE (%) 8.6 10.9 10.4 11.1



4/4

Recommendation parameters for fundamental reports:

Buy Absolute return of over +15%

Accumulate Absolute return between 0% to +15%

Reduce Absolute return between 0% to 10%

Sell Absolute return below 10%

Call Failure In case of a Buy report, if the stock falls 20% below the recommended price on a closing basis, unless otherwise specified by the analyst; or, in case of a Sell report, if the stock rises 20% above the recommended price on a closing basis, unless otherwise specified by the analyst

Published in 2014. India Infoline Ltd 2014

This report is for the personal information of the authorised recipient and is not for public distribution and should not be reproduced or redistributed without prior permission.

The information provided in the document is from publicly available data and other sources, which we believe, are reliable. Efforts are made to try and ensure accuracy of data however, India Infoline and/or any of its affiliates and/or employees shall not be liable for loss or damage that may arise from use of this document. India Infoline and/or any of its affiliates and/or employees may or may not hold positions in any of the securities mentioned in the document.

The report

also

includes

analysis

and

views

expressed

by

our

research

team.

The

report

is

purely

for

information

purposes

and

does

not

construe

to

be

investment

recommendation/advice or an offer or solicitation of an offer to buy/sell any securities. The opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice.

Investors should not solely rely on the information contained in this document and must make investment decisions based on their own investment objectives, risk profile and financial position. The recipients of this material should take their own professional advice before acting on this information.

India Infoline and/or its affiliate companies may deal in the securities mentioned herein as a broker or for any other transaction as a Market Maker, Investment Advisor, etc. to the issuer company or its connected persons.

This report is published by IIFL India Private Clients research desk. IIFL has other business units with independent research teams separated by 'Chinese walls' catering to different sets of customers having varying objectives, risk profiles, investment horizon, etc and therefore, may at times have, different and contrary views on stocks, sectors and markets.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to local law, regulation or which would subject IIFL and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.

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6 IdeaCellular IIFL Oct14