Idea Cellular - 1QFY2013 Result Update - Angel Broking

For 1QFY2013, Idea Cellular's (Idea) results came in lower than street expectations. The company's total network minutes grew modestly by 5.3% qoq, but its average revenue per minute (ARPM) declined by 2.4% qoq to Rs.0.42/min, which the company said was due to marketplace battle. The worrying thing is that the current round of tariff wars is being fought among incumbents, with an eye on revenue market share. Idea remains surrounded by regulatory uncertainties. We maintain our Neutral view on the stock.

Quarterly highlights: For 1QFY2013, Idea reported consolidated revenue of Rs.5,504cr, up 2.5% qoq, on the back of qoq flat minutes of usage (MOU) and subscriber growth of 4.0% qoq with end-of-period (EoP) subscriber base standing at 117.4mn. Reported EBITDA margin increased by 81bp qoq to 26.1%. Reported EBITDA from established circles grew by ~7% qoq, however EBITDA losses from new circles stood at Rs.1,687cr vs. Rs.1,601cr in the last quarter.

Outlook and valuation: Management indicated that revenue growth for the industry will remain muted in 1HFY2013. Considerable decline in ARPM and aggressive marketplace battle in terms of tariff would increase the pricing pressure in industry. Further, slowdown in subscriber addition would also impact revenue growth going forward. With growing VAS share as a percentage of total revenue, stable ARPM and rising number of subscribers for 3G services, we expect revenue to witness a 13.9% CAGR over FY2012-14E. Idea remains surrounded by lot of regulatory uncertainties after the cancellation of its licenses in nine circles. As per the recent media articles, government has recommended for Rs.14,111-Rs.15,111cr spectrum reserve price for 5MHz spectrum on pan India basis, which is lower from ~Rs.18,000cr previously recommended by Trai (but still remains high). To regain its licenses in the auction, the company will have to incur additional costs, which will, in turn, hinder the company's overall profitability. Debt funding towards spectrum payouts would further leverage balance sheet. Hence, we maintain our Neutral rating on the stock.

Source : Equity Bulls

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