Idea Cellular - 2QFY2013 Result Update - Angel Broking

For 2QFY2013, Idea Cellular (Idea) reported mixed results with revenue coming in lower than expectations while operating margin surprised positively. The company's total network minutes declined by 4.0% qoq to 125.6bn minutes due to seasonal slowdown in 2Q and increase in rural subscriber proportion, but its average revenue per minute (ARPM) remained almost stable qoq at Rs.0.41/min, which the company managed by increasing share of non-voice services in revenue. The worrying thing is that Idea remains surrounded by regulatory issues of 2G auction, spectrum re-farming and one time spectrum fee. We maintain our Neutral view on the stock.

Quarterly highlights: For 2QFY2013, Idea reported consolidated revenue of Rs.5,314cr, down 3.4% qoq, on the back of a sharp qoq decline in minutes of usage (MOU) to 359min, down 5.3%. The EBITDA margin increased by 69bp qoq to 26.8%, primarily led by a 21% qoq decline in subscriber acquisition, advertisement and promotion expenses. The PAT came in at Rs.240cr, up 2.5% qoq, as the qoq operational profit decline was offset by forex impact (Rs.18cr gain in 2QFY2013 vs. Rs.24cr loss in 1QFY2013).

Outlook and valuation: We expect volume growth to pick-up going forward led by seasonal strength and net subscriber additions coming back to positive territory. The management indicated that revenue growth for the industry will come back in 2HFY2013 on account of the festive season. Aggressive marketplace battle in terms of voice tariff would remain a concern going ahead. With growing share of VAS as a percentage of total revenue and stable ARPM, we expect the revenue to witness a 11.2% CAGR over FY2012-14E. Idea remains surrounded by a lot of regulatory uncertainties after the cancellation of its licenses in seven circles. The auction in slated to start from November 12, 2012, in which Idea has already filed an application. 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 the balance sheet. Hence, we maintain our Neutral rating on the stock.

Source : Equity Bulls

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