Idea Cellular - 4QFY2012 Result Update - Angel Broking

For 4QFY2012, Idea Cellular (Idea) reported a healthy set of numbers. The company's total network minutes grew strongly by 9.1% qoq, but its average revenue per minute (ARPM) declined by 2.5% qoq to Rs.0.42/min, which the company said was due to marketplace battle and overcapacity. The worrying thing is that the current round of tariff wars is being fought among incumbents, with an eye on revenue market share. Although Idea's operating performance remains robust, it is surrounded by regulatory uncertainties, which could negatively impact its profitability. We maintain our Neutral view on the stock.

Quarterly highlights: For 4QFY2012, Idea reported consolidated revenue of Rs.5,370cr, up 6.7% qoq, on the back of 2.7% qoq growth in minutes of usage (MOU) and subscriber growth of 5.9% qoq with end-of-period (EoP) subscriber base standing at 112.7mn. EBITDA margin declined by 146bp qoq to 25.3% due to one-off provision created by the company for certain regulatory charges (revenue sharing) of ~Rs.150cr, which resulted in increased license fee and WPC charges. Adjusting for these charges, EBITDA margin actually grew by 134bp qoq to 28.1% during the quarter.

Outlook and valuation: Idea continued to deliver strong operational performance but the decline in ARPM due to marketplace battle reflects that there will be limited upsides in tariff rates in the near term. The company is continuously reporting net subscriber addition number higher than other incumbents, though in absolute terms net subscriber additions have been cooling off. This will, in turn, scale up total traffic on the network. With higher VAS share as a percentage of total revenue, stable ARPM and rising number of subscribers for 3G services, we expect revenue to witness a 13.28% CAGR over FY2012-14E. Idea remains surrounded by lot of regulatory uncertainties after the cancellation of its licenses in nine circles. To regain its licenses in the auction, the company will have to incur additional costs, which will, in turn, hamper the overall profitability of the company. Hence, we maintain our Neutral rating on the stock.

Source : Equity Bulls

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