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MOSL: IDEA CELLULAR (Buy) - PAT impacted by change in depreciation policy




Motilal Oswal Securities Ltd.


29 Jan 2014





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Idea Cellular (IDEA IN, Mkt Cap USD7.6b, CMP INR139, Buy) Shobhit Khare (Shobhit.Khare@MotilalOswal.com) Ideas consolidated EBITDA increased 39.5% YoY and 4.3% QoQ to INR20.56b (v/s est of INR20.75b), broadly in line with the voice traffic growth of 4.1% QoQ. PAT grew 105% YoY and 4.5% QoQ to INR4.68b, lower than estimate of INR5.06b due to ~INR600m impact from higher depreciation due to change in estimated useful life of certain fixed assets as well as EBITDA shortfall. EBITDA margin declined 9bp QoQ to 31.1%. Operating costs were above estimates primarily due to higher ad spends (subscriber acqn, servicing and marketing expenses up 70bp QoQ). Consolidated revenue grew 18.5% YoY and 4.6% QoQ to INR66.13b (est INR65.73b), primarily driven by voice traffic (+4.1% QoQ to 144.6b minutes v/s estimate of 144.8b minutes). RPM improved only marginally (+0.4% QoQ to 44.9p vs our est of 44.6p) v/s ~2% QoQ increase in 2QFY14 and ~6% QoQ increase in 1QFY14. Data revenue increased 14% QoQ led by 19% QoQ increase in data traffic. Data as % of revenue increased from 8.7% in 2QFY14 to 9.5% in 3QFY14. However non-voice contribution remained flat QoQ at 16.1% as non-data VAS revenue continued to decline. Consolidated net debt declined by INR4.6b QoQ to INR100.9b. 3QFY13 capex stood at INR 10.2b. Capex guidance for FY14 remains unchanged at INR35b vs 9MFY14 capex of 22.3b. Valuation and view While Ideas 3QFY14 results were broadly in-line, upcoming spectrum auction would be the key event to watch-out given 1) Expected participation of Reliance JIO, and 2) Likely bidding by Idea to address the gaps in data spectrum footprint. Our EBITDA estimates are largely unchanged but PAT estimates have been downgraded by 2-5% led by change in accounting policy for depreciation. We expect an EBITDA CAGR of 16% over FY14-16E. The stock trades at EV/EBITDA of 5.4x FY15E. Maintain Buy with a price target of INR200.

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