Idea Cellular - Result below expectations - Maintain, "HOLD" - IndiaNivesh

Result below expectations – Impacted by seasonality and competitive intensity, Maintain, "HOLD"

Idea Cellular Ltd (Idea) Q2FY13 result was below the street expectations due to more than expected impact of seasonal slowdown. During the quarter, top-line went down 3.4% qoq (+15% yoy) to Rs53.1bn against street expectation of Rs54.5bn. Revenue was down due to 1.5% qoq (to 116mn) decline in subscriber base and 2.5% qoq (to Rs148) decline in ARPU. Minutes of use (MoU) per user declined at 359mn mints v/s 379mn mints in Q1FY13 due to 4.0% qoq decline (to 125bn mints v/s 131bn mints in Q1FY13) in voice traffic. Average realization per minutes (ARPM) went up 0.2% QoQ to 41.3 paisa v/s 41.2 paisa in Q1FY13. EBITDA stood at Rs14.2bn (Bloom est: Rs13.9bn), down 0.9% qoq due to lower revenue base. However, EBITDA margin expanded 69bp qoq to 26.8% v/s 26.1% through cost optimisation. PAT for the quarter stood at Rs2400mn, up 2.5% QoQ above consensus estimate of Rs2069mn, owing to forex gain of Rs180 mn (v/s Rs.245 mn of forex loss in Q1FY13) and decline in interest cost. During the quarter, ABTL (a fully owned subsidiary) received dividend of Rs1,543 mn from Indus -reflected in 'Standalone' PAT; however, eliminated in 'Consolidated' financials (netted the dividend impact). Excluding forex gain of Rs180mn, Adj.net profit stood at Rs2.2bn v/s Rs2.6 bn in Q1 FY13.

At CMP of Rs.81/share, the stock is trading at 5.9x FY13E and 5.0x FY14E EV/EBITDA Bloomberg estimates. The recent quarter performance was below street expectations on operational front – MoU and ARPU declined. We maintain our HOLD stance on Idea. Our hold rating reflects (1) regulatory uncertainty, (2) leading subscriber addition and (3) possibility of uptake in data business – due to high ASP spending on 3G. (earlier rating - BUY, TP – Rs102, Achieved).

Source : Equity Bulls

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