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MOSL: IDEA CELLULAR (Buy) - Traffic decline led by seasonality - RPM improvement continues




Motilal Oswal Securities Ltd.


28 Oct 2013





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Idea Cellular (IDEA IN, Mkt Cap USD9.3b, CMP INR172, Buy) Shobhit Khare (Shobhit.Khare@MotilalOswal.com) / Anil Shenoy (Anil.Shenoy@MotilalOswal.com) Idea Cellular’s (IDEA) consolidated EBITDA declined 6.2% QoQ and margins declined by ~100bp, led by ~6% decline in voice traffic, due to seasonal weakness. However, continued RPM improvement (+2% QoQ) and significant QoQ decline in roaming and access charges provided support to EBITDA. Proforma EBITDA declined 6% QoQ but grew 39% YoY to INR19.7b (v/s est. of INR19.2b). Proforma PAT grew 87% YoY but declined 8% QoQ to INR4.48b (v/s est. of INR4.31b). Consolidated revenue grew 19% YoY but declined 3.3% QoQ to INR63.2b (est. INR63.4b). RPM improvement continued (+2% QoQ to 44.7p v/s +4% QoQ in 1QFY14) led by higher voice RPM. Traffic on network declined 6% QoQ to 139b minutes led by seasonal weakness. Proforma EBITDA margin stood at 31.2%, down ~100bp due to traffic decline. However, decline in roaming and access charges provided support to margins. Roaming and access charges declined 13% QoQ (INR1.4b) v/s traffic decline of 6% QoQ. Management explained that apart from the seasonal traffic decline, lower SMS termination and 3G roaming costs led to the 13% QoQ decline in roaming and access charges. Consolidated net debt declined by ~INR10b QoQ to INR106b. 2QFY14 capex stood at INR8.8b (v/s INR3.3b in 1QFY14). Capex guidance for FY14 remains unchanged at INR35b.- We are upgrading our EBITDA and PAT estimates for Idea by 1-3% to factor-in lower roaming and access costs which drove a 3% EBITDA beat in 2QFY14. We expect 23% EBITDA CAGR over FY13-16E driven by 10% traffic CAGR, 4% RPM CAGR and 680bp EBITDA margin expansion. Maintain Buy with a revised price target of INR205 (vs INR 200 earlier) based on 9.5x FY15 EV/EBITDA, INR3.3m/tower valuation for Indus tower stake, and INR129b potential spectrum liability

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