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Idea Cellular 3QFY2014 performance highlights and results update

January 30, 2014, Thursday, 06:16 GMT | 01:16 EST | 10:46 IST | 13:16 SGT
Contributed by Angel Broking

For 3QFY2014, Idea Cellular (Idea) reported broadly in-line set of results. The company’s minutes of use (MOU) grew by 2.2% qoq to 376min; the average revenue per minute (ARPM) grew by 0.4% sequentially to Rs.0.45/min and thus the average revenue per user (ARPU) grew by 3% on a qoq basis to Rs.169/month. The company clamped down on promotional minutes, resulting in an improvement in the ARPM. We maintain our Neutral view on the stock.
Quarterly highlights: For 3QFY2014, Idea reported a consolidated revenue of Rs.6,613cr, up 4.6% qoq, led by a healthy performance of its mobility business. The mobility segment’s revenue grew by 4.9% qoq to Rs.6,536cr, driven by strong growth in overall minutes of usage and data volume. Idea’s EBITDA margin slipped marginally by 9bp qoq to 31.1%, due to 12% qoq increase in marketing and subscriber acquisition costs. The PAT came in at Rs.468cr, up 4.5% qoq.
Outlook and valuation: Idea’s 3QFY2014 results clearly indicate that pricing rationality continues but price rise is over for the time being and that the company will now push for volume growth through reach. The Management expects data growth to continue and indicated that network investment would increase with data volumes. From the Management commentary on spectrum auction, it was clear that the company expects 2G+3G spectrum to be enough to meet data demand till 2020 and that it will look at investing only in LTE for the future. With revenue per minute (RPM) keeping stable going ahead, we have factored in a 12.3% CAGR in revenues over FY2013-15E. Idea continues to have one of the strongest balance sheets in the sector with net debt/annualized EBITDA of ~1.23x and net debt/equity of ~0.6x at the consolidated level. Aggressive bidding at the time of spectrum renewal might pose a risk to cash flow and valuations. At the CMP, the stock is currently trading at its fair value of 6.0x FY2015E EV/EBITDA and 20.2x FY2015E EPS. We maintain our Neutral rating on the stock.