Idea Cellular Result Updated

8/2/2019 Idea Cellular Result Updated

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Please refer to important disclosures at the end of this report 1

(` cr) 4QFY12 3QFY12 % chg (qoq) 4QFY11 % chg (yoy)Net revenue 5,370 5,031 6.7 4,235 26.8EBITDA 1,357 1,345 0.9 1,075 26.2

EBITDA margin (%) 25.3 26.7 (146)bp 25.4 (12)bp

PAT 239 201 18.8 275 (12.9)Source: Company, Angel Research

For 4QFY2012, Idea Cellular (Idea) reported a healthy set of numbers. The

companys total network minutes grew strongly by 9.1% qoq, but its average

revenue per minute (ARPM) declined by 2.5% qoq to `0.42/min, which the

company said was due to marketplace battle and overcapacity. The worryingthing is that the current round of tariff wars is being fought among incumbents,

with an eye on revenue market share. Although Ideas operating performance

remains robust, it is surrounded by regulatory uncertainties, which could

negatively impact its profitability. We maintain our Neutral view on the stock.Quarterly highlights: For 4QFY2012, Idea reported consolidated revenue of`5,370cr, up 6.7% qoq, on the back of 2.7% qoq growth in minutes of usage

(MOU) and subscriber growth of 5.9% qoq with end-of-period (EoP) subscriber

base standing at 112.7mn. EBITDA margin declined by 146bp qoq to 25.3% due

to one-off provision created by the company for certain regulatory charges

(revenue sharing) of ~`150cr, which resulted in increased license fee and WPC

charges. Adjusting for these charges, EBITDA margin actually grew by 134bp qoq

to 28.1% during the quarter.

Outlook and valuation: Idea continued to deliver strong operational performancebut the decline in ARPM due to marketplace battle reflects that there will be limited

upsides in tariff rates in the near term. The company is continuously reporting net

subscriber addition number higher than other incumbents, though in absolute

terms net subscriber additions have been cooling off. This will, in turn, scale up

total traffic on the network. With higher VAS share as a percentage of total

revenue, stable ARPM and rising number of subscribers for 3G services, we expect

revenue to witness a 13.28% CAGR over FY2012-14E. Idea remains surrounded

by lot of regulatory uncertainties after the cancellation of its licenses in nine

circles. To regain its licenses in the auction, the company will have to incur

additional costs, which will, in turn, hamper the overall profitability of thecompany. Hence, we maintain our Neutral rating on the stock.Key financials (Consolidated, Indian GAAP)Y/E March (` cr) FY2010 FY2011 FY2012E FY2013E FY2014ENet revenue 12,447 15,503 19,541 22,558 25,326% chg 22.9 24.6 26.0 15.4 12.3

Net profit 954 864 723 1,064 1,565% chg 8.3 (9.4) (16.3) 47.1 47.1

EBITDA margin (%) 27.4 24.5 26.1 26.4 27.5

EPS (`) 2.9 2.7 2.2 3.2 4.7P/E (x) 28.2 29.9 37.2 25.3 17.2

P/BV (x) 2.3 2.2 2.1 1.9 1.7

RoE (%) 8.0 7.0 5.5 7.5 10.0

RoCE (%) 7.0 5.5 7.8 9.5 11.8

EV/Sales (x) 2.8 2.4 2.0 1.7 1.4

EV/EBITDA (x) 10.1 9.9 7.9 6.3 5.2

Source: Company, Angel Research

NEUTRALCMP `81

Target Price -

Investment Period -

Stock Info

Sector

Bloomberg Code

Shareholding Pattern (%)

Promoters 46.0

MF / Banks / Indian Fls 6.2

FII / NRIs / OCBs 15.3

Indian Public / Others 32.6

Abs. (%) 3m 1yr 3yr

Sensex (0.6) (11.9) 50.7

Idea (13.6) 17.7 35.8

Face Value (`)

BSE Sensex

Nifty

Reuters Code

26,895

0.5

104/63

643,345

Telecom

Avg. Daily Volume

Market Cap (`cr)

Beta

52 Week High / Low

10

17,134

5,191

IDEA.BO

IDEA@IN

Ankita Somani+91 22 3935 7800 Ext: 6819

[email protected]

Idea CellularPerformance highlights

4QFY2012 Result Update | Telecom

April 27, 2012


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Idea Cellular | 4QFY2012 Result Update

April 27, 2012 2

Exhibit 1:4QFY2012 Financial performance (Consolidated, Indian GAAP)(` cr) 4QFY12 3QFY12 % chg (qoq) 4QFY11 % chg (yoy) FY2012 FY2011 % chg( yoy)Net revenue 5,370 5,031 6.7 4,235 26.8 19,541 15,503 26.0Operating expenditure 4,013 3,686 8.9 3,160 27.0 14,449 11,713 23.4EBITDA 1,357 1,345 0.9 1,075 26.2 5,093 3,791 34.3Dep. and amortization 784 757 3.6 657 19.3 2,981 2,432 22.6

EBIT 573 587 (2.5) 418 37.0 2,111 1,359 55.3

Interest charges 227 288 (21.0) 85 166.3 1,056 396 166.3

Other income - - - - -

PBT 345 299 15.4 333 3.8 1,055 963 9.6

Income tax 106 98 8.3 58 83.1 332 98 238.4

PAT 239 201 18.8 275 (12.9) 723 864 (16.3)Minority interest - - - - -Adj. PAT 239 201 18.8 275 (12.9) 723 864 (16.3)

EPS (`) 0.7 0.6 18.9 0.8 (12.9) 2.2 2.7 (19.6)

EBITDA margin (%) 25.3 26.7 (146)bp 25.4 (12)bp 26.1 24.5 161bp

EBIT margin (%) 10.7 11.7 (101)bp 9.9 80bp 10.8 8.8 204bp

PAT margin (%) 4.5 4.0 45bp 6.5 (203)bp 3.7 5.6 (187)bp


Exhibit 2:4QFY2012 KPI data for the mobility business4QFY12 4QFY12E Var. (%) 3QFY12 % chg (qoq) 4QFY11 % chg (yoy)

ARPM (`/min) 0.42 0.43 (2.8) 0.43 (2.5) 0.41 3.9

MOU (min) 379 368 2.9 369 2.7 397 (4.5)ARPU (`/month) 160 160 0.1 159 0.6 161 (0.6)

Subscriber base (mn) EoP 112.7 111.6 1.0 106.4 5.9 89.5 25.9

EPM (`/min) 0.11 0.11 (3.1) 0.12 (7.4) 0.11 3.4


Exhibit 3:4QFY2012 Actual vs. Angel estimates(` cr) Actual Estimate % Var.Net revenue 5,370 5193 3.4

EBITDA margin (%) 25.3 26.1 (79)bp

PAT 239 191 25.0


Robust revenue growth

Idea reported a healthy performance for 4QFY2012. The companys consolidated

revenue came in at `5,370cr, up 6.7% qoq. The mobility segments revenue also

posted healthy 6.5% qoq growth to `5,315cr on the back of strong traffic growth,

as Ideas subscriber base grew by 5.9% qoq with EoP subscriber base standing at

112.7mn. MOU during the quarter increased by 2.9% qoq to 379min from

269min in 3QFY2012. However, the effect of these positive factors was partially

overshadowed by the negative impact of the decline in ARPM by 2.5% qoq to`0.422/min from `0.433/in in 3QFY2012. Total volumes carried on the network

grew by 9.1% qoq to 124bn min.


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April 27, 2012 3

Exhibit 4:Trend in MOU


Management indicated that the decline in ARPM was due to marketplace battle and

overcapacity. The worrying thing is that the current round of tariff wars is being

fought among incumbents, with an eye on revenue market share.

Exhibit 5:Trend in ARPM


Idea has consistently been able to increase its VAS as a share of total revenue since

the past four quarters (unlike Bharti Airtel). Ideas VAS share increased to 14.3% in

4QFY2012 from 13.7% in 3QFY2012.

2.3

4.3

(5.1)

1.8

(1.0) (1.5)

(6.9)

1.42.7

(9)

(6)

(3)

0

3

6

350

375

400

425

450

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

(

%)

(min)

MOU (min) qoq growth (%)

(7.8)

(6.4)

(4.5)

(0.5)

(2.9)

1.0

4.1

1.4

(2.5)

(12)

(8)

(4)

0

4

8

0.35

0.40

0.45

0.50

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

(%)

(`/

min)

ARPM (`/min) qoq growth (%)


4/12


April 27, 2012 4

Exhibit 6:Trend in VAS share in mobility revenue


Idea reported net subscriber addition of 6.3mn subscribers in 4QFY2012 (highest

amongst all incumbents), with the companys total subscriber base, as of EoP

March 2012, standing at 112.7mn.

Exhibit 7:Trend in subscriber net additions


Thus, increased MOU, higher VAS share and modest subscriber net additions in

4QFY2012 arrested the downfall in average revenue per user (ARPU), which was

negatively affected by declining APRM. ARPU stood almost flat qoq at `160/month

during the quarter.

12.4

12.612.9 13.0

12.1 12.1

13.2

13.7

14.3

11

12

13

14

15

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

(%)

VAS share (%)

6.2

5.1 5.3

7.6 7.7

5.65.1

6.2 6.3

0

2

4

6

8

10

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

(mn

)

Subscriber net addition (mn)


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April 27, 2012 5

Exhibit 8:Trend in ARPU


EBITDA margin enhances adjusting for one-offs

For 4QFY2012, Ideas EBITDA margin declined by 146bp qoq to 25.3%. EBITDA

margin of the company was impacted by one-off provision created by the company

for certain regulatory (revenue sharing) charges of ~`150cr, which resulted in

license fee and WPC charges increasing to 13.7% of revenue in 4QFY2012 from

11.2% of revenue in 3QFY2012. Management indicated that these charges as a

percentage of revenue are expected to revert back closer to 3QFY2012 levels

going forward. Adjusting for these charges, EBITDA margin actually grew by

134bp qoq to 28.1%.

During the quarter, revenue for established service areas (ESA) stood at

`4,778.4cr, up 5.8% qoq; however, EBITDA margin of ESA declined by 176bp qoq

to 28.6% due to one-off expenses. Revenue from new service areas (NSA) grew by

13.5% to `625cr. EBITDA losses of NSA declined to `160cr in 4QFY2012 from

`172cr in 3QFY2012. In addition, Indus Tower business showed 2.6% qoq revenue

growth to `332cr, with EBITDA margin remaining almost flat qoq at 45.2%.

Exhibit 9:Trend in EBITDA margin


(7.5)

(1.4)

(8.4)

0.6

(4.2)

(0.6)

(3.1)

2.6

0.6

(12)

(6)

0

6

150

160

170

180

190

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

(%)

(`/mon

th)

ARPU (`/month) qoq growth (%)

28 30 29 30 29

(27) (29)(36)

(31)(26)

43 4546 45 45

25 27 26 27 25

(40)

(30)

(20)

(10)

0

10

20

30

40

50

60

4QFY11 1QFY12 2QFY12 3QFY12 4QFY12

(%)

Es tabli shed servi ce areas New service areas Indus Consol idated


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April 27, 2012 6

Exhibit 10:Opex breakup


Outlook and valuation

Idea continued to deliver strong operational performance but the decline in ARPM

due to marketplace battle reflects that there will be limited upsides in tariff rates in

the near term. VAS share in mobility revenue is showing promising uptrend and will

aid the companys overall ARPU profile. The company is continuously reporting net

subscriber addition number higher than other incumbents, though in absolute

terms net subscriber additions have been cooling off. This will, in turn, scale up

total traffic on the network. With higher VAS share as a percentage of total

revenue, stable ARPM and rising number of subscribers for 3G services, we expectrevenue to witness a 13.28% CAGR over FY2012-14E. Idea remains surrounded

by lot of regulatory uncertainties after the cancellation of its licenses in nine circles.

To regain its licenses in the auction, the company will have to incur additional

costs, which will, in turn, hamper the companys overall profitability. Hence,we maintain our Neutral rating on the stock.Exhibit 11:Assumptions for KPIs

FY2011 FY2012 FY2013E FY2014E % CAGRARPM (`/min) 0.42 0.42 0.42 0.44 1.9

MOU (min) 395 374 373 365 (1.2)

ARPU (`/month) 166 158 157 160 0.6

Subscriber base (mn) EoP 89.5 112.7 125.9 137.3 10.4

Source: Company, Angel Research; Note: EoP refers to end of period.

16.1 16.2 17.1 16.8 17.0

23.5 24.7 24.7 22.9 23.4

11.3 11.3 11.1 11.2 13.75.0 4.7 5.2 4.8

4.7

18.8 16.5 16.2 17.6 15.8

25.4 26.6 25.7 26.7 25.3

0

20

40

60

80

100

4QFY11 1QFY12 2QFY12 3QFY12 4QFY12

(%)

Access charges Network costs License fee Employee cost SGA cost EBITDA margin


7/12


April 27, 2012 7

Exhibit 12:One-year forward EV/EBITDA


Exhibit 13:Recommendation summary

Company Reco. CMP Tgt. price Upside FY2014E FY2014E FY2011-14E FY2014E FY2014E(`) (`) (%) P/BV (x) P/E (x) EPS CAGR (%) RoCE (%) RoE (%)

Bharti Airtel Neutral 308 - - 1.7 14.0 11.5 12.5 12.5

Idea Cellular Neutral 81 - - 1.7 17.2 20.3 11.8 10.0Reliance Communication Neutral 74 - - 0.4 11.1 1.1 3.5 3.2


5,000

18,000

31,000

44,000

57,000

70,00083,000

96,000

109,000

Apr-

07

Aug-0

7

Dec-0

7

Apr-

08

Aug-0

8

Dec-0

8

Apr-

09

Aug-0

9

Dec-0

9

Apr-

10

Aug-1

0

Dec-1

0

Apr-

11

Aug-1

1

Dec-1

1

Apr-

12

EV(`cr)

EV 17 14 11 8 5


8/12


April 27, 2012 8

Profit and loss account (Consolidated, Indian GAAP)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014ENet sales 12,447 15,503 19,541 22,558 25,326Network operating expenditure 3,127 4,013 4,669 5,457 6,059

% of net sales 25.1 25.9 23.9 24.2 23.9

License and WPC charges 1,347 1,773 2,323 2,577 2,890

% of net sales 10.8 11.4 11.9 11.4 11.4

Roaming and access charges 1,800 2,475 3,280 3,781 4,064

% of net sales 14.5 16.0 16.8 16.8 16.0

Other expenses 2,766 3,451 4,176 4,794 5,339

Total expenditure 9,040 11,713 14,449 16,609 18,352

% of net sales 72.6 75.5 73.9 73.6 72.5

EBITDA 3,407 3,791 5,093 5,949 6,974% of net sales 27.4 24.5 26.1 26.4 27.5

Dep. and amortization 2,015 2,432 2,981 3,371 3,661

EBIT 1,392 1,359 2,111 2,578 3,313

% of net sales 11.2 8.8 10.8 11.4 13.1

Interest expense 401 396 1,056 1,037 1,012

Other income, net 84 - - - -

Profit before tax 1,075 963 1,055 1,541 2,301

Provision for tax 121 98 332 478 736

% of PBT 11.3 10.2 31.5 31.0 32.0

PAT 954 864 723 1,064 1,565Share in earnings of associate - - - - -

Minority interest - - - - -Profit after minority interest 954 864 723 1,064 1,565

EPS (`) 2.9 2.7 2.2 3.2 4.7


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April 27, 2012 9

Balance sheet (Consolidated, Indian GAAP)

Y/E March (` cr) FY2010 FY2011 FY2012E FY2013E FY2014ELiabilitiesShare capital 3,300 3,303 3,309 3,309 3,309Reserves and surplus 8,530 8,947 9,705 10,768 12,333

Additional paid up capital - - - - -

Stock option outstanding 44 48 35 35 35

Total shareholders funds 11,874 12,298 13,048 14,112 15,677Convertible preference shares 2 2 2 2 2

Total debt 7,859 12,071 13,337 12,337 11,637Deferred tax liabilities 214 310 627 650 650

Other liabilities - - - - -

Total liabilities 19,950 24,680 27,015 27,101 27,966AssetsGross block - fixed assets 27,059 33,698 41,092 45,292 48,892

Accumulated depreciation 8,891 11,213 14,104 17,475 21,136

Net block 18,168 22,485 26,988 27,817 27,756

Capital WIP 547 3,647 704 400 627

Total fixed assets 18,714 26,132 27,692 28,217 28,383Net intangible assets - - - - -

Other non-current assets 1,130 - - - -

Goodwill on consolidation 6 6 6 6 6

Non compete fees - - - - -

Current assetsInventories 54 60 65 65 65

Debtors 466 555 696 742 833

Cash 290 1,478 250 1,574 2,229

Loans and advances 2,556 3,560 4,342 4,512 5,169

Other current assets 298 434 1,164 400 587

Total current assets 3,663 6,086 6,517 7,292 8,882

Less:- current liab. 3,845 7,280 6,888 7,963 8,799

Less:-provisions 223 264 313 451 507

Net current assets (405) (1,457) (683) (1,122) (423)Profit and loss account 504 - - - -

Total assets 19,950 24,680 27,015 27,101 27,966


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April 27, 2012 10

Cash flow statement (Consolidated, Indian GAAP)

Y/E March (` cr) FY2010 FY2011 FY2012E FY2013E FY2014EPre tax profit from operations 992 963 1,055 1,541 2,301

Depreciation 2,015 2,432 2,981 3,371 3,661Expenses (deferred)/written off - - - - -

Pre tax cash from operations 3,007 3,394 4,037 4,912 5,962

Other income/prior period ad 84 - - - -

Net cash from operations 3,090 3,394 4,037 4,912 5,962

Tax 121 98 332 478 736

Cash profits 2,969 3,296 3,705 4,435 5,226(Inc)/dec in

Current assets (1,091) (1,236) (1,659) 550 (935)

Current liabilities 32 3,476 (343) 1,214 891

Net trade working capital (1,059) 2,240 (2,002) 1,763 (44)

Cashflow from operating actv. 1,910 5,536 1,702 6,198 5,182(Inc)/dec in fixed assets (4,062) (9,849) (4,541) (3,896) (3,827)

(Inc)/dec in intangibles - - - - -

(Inc)/dec in investments 915 1,130 - - -

(Inc)/dec in net deferred tax asset 101 96 317 23 -

(Inc)/dec in minority interest - - - - -

(Inc)/dec in profit and loss account 23 504 - - -

(Inc)/dec in other non-current assets 2,240 - - - -

Cashflow from investing actv. (784) (8,119) (4,224) (3,874) (3,827)Inc/(dec) in debt (1,053) 4,211 1,267 (1,000) (700)

Inc/(dec) in equity/premium (2,869) (441) 27 (0) 0

Dividends

Cashflow from financing actv. (3,923) 3,771 1,294 (1,000) (700)Cash generated/(utilised) (2,797) 1,188 (1,228) 1,324 655

Cash at start of the year 3,086 290 1,478 250 1,574

Cash at end of the year 290 1478 250 1574 2229


11/12


April 27, 2012 11

Key Ratios

Y/E March FY2010 FY2011 FY2012E FY2013E FY2014EValuation ratio (x)P/E (on FDEPS) 28.2 29.9 37.2 25.3 17.2P/CEPS 9.1 8.2 7.3 6.1 5.1

P/BVPS 2.3 2.2 2.1 1.9 1.7

Dividend yield (%) - - - - -

EV/Sales 2.8 2.4 2.0 1.7 1.4

EV/EBITDA 10.1 9.9 7.9 6.3 5.2

EV/Total assets 1.7 1.5 1.5 1.4 1.3

Per share data (`)EPS (Fully diluted) 2.9 2.7 2.2 3.2 4.7

Cash EPS 9.0 10.0 11.2 13.4 15.8

Dividend 0.0 0.0 0.0 0.0 0.0

Book value 36.0 37.2 39.5 42.7 47.5

DuPont analysisTax retention ratio (PAT/PBT) 0.9 0.9 0.7 0.7 0.7

Cost of debt (PBT/EBIT) 0.8 0.7 0.5 0.6 0.7

EBIT margin (EBIT/Sales) 0.1 0.1 0.1 0.1 0.1

Asset turnover ratio (Sales/Assets) 0.6 0.6 0.7 0.8 0.9

Leverage ratio (Assets/Equity) 1.7 2.0 2.1 1.9 1.8

Operating ROE 8.0 7.0 5.5 7.5 10.0

Return ratios (%)RoCE (pre-tax) 7.0 5.5 7.8 9.5 11.8

Angel RoIC 7.3 7.0 8.1 10.3 13.2

RoE 8.0 7.0 5.5 7.5 10.0

Turnover ratios (x)Asset turnover (fixed assets) 0.7 0.6 0.7 0.8 0.9

Receivables days 12 12 13 12 12

Payable days 156 173 174 175 175


12/12


April 27 2012 12

Research Team Tel: 022 - 3935 7800 E-mail: [email protected] Website: www.angelbroking.com

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Disclosure of Interest Statement Idea Cellular

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock Yes

4. Broking relationship with company covered No

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)

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Documents

Idea Cellular Result Updated