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Idea Cellular Ltd. | Q3FY14 Result Update | Mixed-set of performance; Attractive Valuation: Upgraded to BUY




IndiaNivesh Securities Pvt Ltd


27 Jan 2014





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Idea Cellular Ltd. | Q3FY14 Result Update Mixed-set of performance; Attractive Valuation: Upgraded to BUY Key Result Highlights: Idea Cellular Ltd (Idea) Q3FY14 result was mixed-bag, revenue and EBITDA in-line, net profit below INSPL estimate. Top-line grew by 4.6% Q/Q to Rs.66.1bn against INSPL est of Rs.66.3bn. The revenue growth was led by 4.1% Q/Q increase in total volume minutes and 1.2% Q/Q increase in subscriber addition. During the quarter, minutes of usage per user per month (MoU) increased 2.2% to 376 mints (v/s 368 mints in Q2FY14). Average revenue per user (APRU) also went-up 3.0% Q/Q to Rs.169 (v/s Rs.164 in Q2FY14). On back of reducing free minutes and rising headline tariffs, ARPM increased to 44.9 paisa (v/a 44.7 paisa in Q2FY14). EBITDA stood at Rs20.6bn (INSPL est: Rs20.8bn), Up 4.3% Q/Q on account of higher revenue base. However, EBITDA margin contracted 9.3bps Q/Q to 31.1% (v/s 31.2% in Q2FY14). PAT for quarter stood at Rs.4,476 mn (INSPL est. Rs.4,868mn), up 4.5% Q/Q, owing to higher EBITDA base and lower forex loss [Rs.34mn v/s Rs.134mn in Q2FY14 and Rs.133 mn in Q3FY13]. Adj.PAT [Ex. Forex], increased 6.9% Q/Q to Rs4,643 mn [v/s Rs.4,342 mn in Q2FY14 and Rs.2,152 mn in Q3FY13]. Valuations: At CMP of Rs.145/share, the stock is trading at 6.9x FY14E and 5.9x FY15E EV/EBITDA revised estimates. The recent quarter performance was in-line with our expectations on operational front led by ARPM growth on back of curtailment of promotional minutes. We like the company’s ability to consistently increase in ARPM from last five quarters along with decent volume growth and subscriber addition. Additionally, reduction in blended churn rate from 10.1% in Q2FY13 to 5.6% in Q3FY14 looks remarkable. However, uncertainty of extensive competition in recent auction (due to entry of Reliance-Jio into the fray) could lead to sideways movement till 3rd Feb., 2013. We upgrade to BUY from SELL rating with upward revision in target price to Rs.165 (valuing 6.4x FY15E EV/EBITDA) on Idea.

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