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Idea Cellular Ltd. - Q2FY14 Result Update - "HOLD"




Kisan Ratilal Choksey Shares and Securities Private Limited


01 Nov 2013





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Idea Cellular Ltd. - Q2FY14 Result Update CMP: Rs 172 Target Price: Rs 180 Recommendation: HOLD “Good performance in a seasonally weak quarter…” Idea’s Q2FY14 result was in line with our estimates. The company reported net sales of Rs 6323cr, growth of 19% over Q2FY13 driven by growth in subscriber base and higher ARPU. At EBITDA level, the company reported Rs 1971cr, a robust growth of 38.6% YoY. EBITDA margin improved by 440bps over Q2FY13 on account of lower roaming and access charges. Net profit for the quarter was Rs 448cr, a growth of 86.5% YoY. Net profit margin inched up by 260 bps to 7.1% YoY. The company continued healthy growth in subscriber addition. Seasonally weak quarter led to lower minutes of usage in the quarter resulting in marginally lower ARPU on a sequential quarter. Data revenue continued to report strong growth driven by higher subscriber base as well as incremental usage. We believe competitive intensity is easing out and the industry is showing early signs of revival on voice revenue front. Healthy revenue growth driven by increase in subscriber base and Higher ARPU in voice and data segments to continue. Cost rationalization at operational front will lead to margin improvement. Improvement in KPIs led the sales growth Net sales increased by 19% YoY led by both increase in subscriber base and increase in ARPU.Net subscriber increased by 10.1% over Q2FY13 to 127.2mn, ARPU increased by 10.8% to Rs 164.Growth in ARPU was primarily driven by increase in average realized rate per minute (ARPM) which jumped up by 8.2% YoY to Rs 0.447. Minutes of usage (MoUs) increased by 2.5% YoY to 368minutes. Data ARPU also increased by 10% over Q2FY13 to Rs 55. Contribution of data services to total revenue increased by 330bps YoY to 8.7% from 5.4% in Q2FY13. Margins improvement continued EBITDA increased by 38.6% YoY on account of higher revenue base and lower roaming and access charge and subscriber acquisition cost. EBITDA margins improved by 440bps to 31.2%.Depreciation increased by 26.6% over Q2FY13 to Rs 1079crs while interest expense declined by 9.9% YoY to Rs 195crs.Net profit increased by 85.6% YoY to Rs 448crs and net profitability improved by 260bps over Q2FY13 to 7.1%. Our View Idea’s Q2FY14 result was another quarter of healthy revenue growth and improvement in margins led by subscriber base and strong ARPU growth particularly in data segment. We expect subscriber addition to continue considering tapering competition from new players. ARPU to increase with withdrawal of freebies and improvement in ARPM. We believe data revenue will improve with increase penetration in 3G services. We recommend HOLD on the stock with a price target of Rs 180 by assigning 7.5x EV/EBITDA to its FY15E earnings.

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