Recommendations » India

Idea Cellular 3QFY2013 performance highlights and results update

Contributed by Angel Broking

For 3QFY2013, Idea Cellular (Idea) reported mixed results with revenue coming in in-line with expectations while operating margin surprised negatively. The company’s total network minutes grew by 5.2% qoq, leading to a growth in network traffic to 132bn min. The average revenue per minute (ARPM) declined by 0.5% qoq to Rs.0.41 due to decline in non-voice revenues’ share to 14.6% from 15.6% in 2QFY2013. The Management indicated that the company has not hiked headline tariff (as of now), but has only reduced promotional offers, that too in specific circles. We maintain our Neutral view on the stock.

Quarterly highlights: For 3QFY2013, Idea reported a consolidated revenue of Rs.5,579cr, up 5.0% qoq, on the back of a sharp qoq increase in minutes of usage (MOU) to 384min, up 7.0% qoq. The company’s EBITDA margin declined by 36bp qoq to 26.4% primarily because of qoq increase in access costs (up 40bp), network costs (up 20bp) and subscriber acquisition, advertisement and promotion expenses (up 40bp). The PAT came in at Rs.229cr, down 4.8% qoq, marred by a forex loss of Rs.13.3cr as against a forex gain of Rs.18.0cr in 2QFY2013.

Outlook and valuation: During 3QFY2013, Idea won back 1,800MHz spectrum in all its seven circles in the 2G auction conducted by the government in November 2012, for which licenses had been quashed by the Supreme Court. Post the 2G auction, only four operators have pan-India presence. Idea’s Management indicated that the company has not hiked headline tariff (as of now) and has only reduced promotional offers, that too in specific circles. However, it reiterated its stance that tariff hikes are becoming imminent. Going forward, we expect ARPMs to improve as Idea has hiked tariffs via reduction of promotional offers. This should offset the rising input and regulatory costs. With increase in tariff rates expected going ahead, we have factored in a revenue CAGR of 10.7% over FY2012-14E. Idea still remains surrounded by regulatory uncertainties in the sector such as one-time spectrum fee and spectrum refarming. With the 2G auctions coming up in March 2013, we expect partial resolution of these uncertainties, and the same would be a positive for the sector as a whole. Currently, we maintain our Neutral rating on the stock.