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Idea Cellular Ltd. | Q2FY14 Result Update




IndiaNivesh Securities Pvt Ltd


24 Oct 2013





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Idea Cellular Ltd. | Q2FY14 Result Update Inline performance; Stretched Valuation: Maintain SELL, Revise TP up Q2FY14 Key Result Highlights: Idea Cellular Ltd (Idea) Q2FY14 result was ahead of INSPL estimates on EBITDA and PAT fronts. However, revenue was slightly below our estimates. During the quarter, top-line de-grew by 3.3% Q/Q (+14.8% Y/Y) to Rs.63.2bn against INSPL est of Rs.63.9bn led by 5.8% Q/Q decline in volume (Total MoU), partially offset by 1.8% Q/Q increase in subscriber addition. As a result, minutes of usage per user per month (MoU) declined 7.5% to 368 mints (v/s 398 mints in Q1FY14 and 359 mints in Q2FY13). During the quarter, average revenue per user (APRU) also declined 5.7% Q/Q to Rs.164 (v/s Rs.174 in Q1FY14 and Rs.148 in Q2FY13). On back reduction in free minutes, ARPM increased to 44.7 paisa (v/a 43.7 paisa in Q1FY14 and 41.3 paisa in Q2FY13). EBITDA stood at Rs19.7bn (INSPL est: Rs.19.5bn), down 5.0% Q/Q (+38.6%% Y/Y) on account of lower revenue base. As a result, EBITDA margin contracted 57.5bps Q/Q (+441 bps Y/Y) to 31.2% (v/s 31.8% in Q1FY14 and 26.8% in Q2FY13). PAT for the quarter stood at Rs.4,476 mn, down 3.3% Q/Q, above INSPL estimate of Rs.4,160mn, owing to higher EBITDA base and low forex loss [Rs.134mn v/s Rs.230mn in Q1FY14 and gain of Rs.130 mn in Q2FY13]. Adj.PAT [Ex. Forex], down 1.3% Q/Q to Rs.4,342 mn [v/s Rs.4,398 mn in Q1FY14 and Rs.2,580 mn in Q2FY13]. Valuations: At CMP of Rs.175/share, the stock is trading at 8.0x FY14E and 6.8x FY15E EV/EBITDA revised estimates. The recent quarter performance was above expectations on operational front led by ARPM growth on back of curtailment of promotional minutes. The ongoing tussle with the regulators has mellowed down but hangover still remains. In our view, current price factors significant improvement on PAT margin front (from 7.1% in 1HFY14 to 11.3%/12.9% in FY14E/FY15E). However, the margin expansion is possible, only after complete repayment of the debt (attracts interest cost of ~4.2% of total revenue annually). The reduction in debt will lead to PAT margin (7.1+4.2% = 11.3%) expansion. However, repayment of debt does not look possible from free cash flow generation (~Rs.19.34 bn in FY13). Further, the equity dilution brings only Rs.37.5bn (v/s Rs.115 bn of gross debt), which does not look sufficient to repay the debt. Even reduction of debt by half will expand the PAT margin only to 8.6% in FY14. The upcoming licence renewal charges and higher capex requirement for 3G and data expansion does not allow company to reduce the debt completely. On back 1HFY14 operating performance, we revise our FY14E/FY15E estimates and increase our target price to Rs.153 (7.2x FY15E) but maintain our SELL rating on the stock.

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