Idea Cellular - Strong traffic growth drives 4Q results; Buy - Anand Rathi

Headline figures significantly above estimates. Idea Cellular's (Idea) revenues were up 13% yoy and came in 2.5%/4.2% above our/consensus estimates, with traffic growth fuelling the surprise. EBITDA (adjusted for a one-off regulatory charge) was up 29% and was 11%/13% above our/consensus estimate, aided by flat network costs. Adjusted PAT was Rs. 3.4bn, materially higher than our and consensus estimate of Rs. 2.7bn.

Results buoyed by strong voice traffic growth. Voice traffic rose 8.5% qoq, reversing the falling momentum trend of the preceding three quarters. We believe growth was driven by 1) traffic market-share gains driven by the scale-down of new telcos such as Uninor; 2) a pick-up in underlying subscriber growth, possibly on a shift in the management approach from controlling acquisition costs to business expansion; 3) brand strength.

Realizations a shade disappointing. ARPM, at 41.2p, was practically flat vs our expectation of a marginal 0.5% improvement. Voice ARPM was down 0.7%, which is disappointing considering one would have expected that a drop in competitive intensity and incumbents' focus on curtailing discounts/ promotions would result in improved realizations.

Faring well on other parameters. Post-paid subscribers grew 20% yoy vs 8% overall subscriber growth. Pre-paid churn wound down to 4.4% vs 7%/10.4% in 3Q/2Q. Data volume was up 14% qoq, while data realizations improved (9.3% qoq), the first time in the preceding three quarters.

Our take. We raise our target from Rs. 130 (7x FY15e EV/EBITDA; regulatory impact Rs. 25) to Rs. 140 (7.4x, Rs. 25) owing to increasing growth assurance (earnings up 44% in FY13). We retain a Buy due to the improving competitive scenario in the Indian wireless market and Idea's operational outperformance. Risks. 1) Higher-than-expected regulatory impact; 2) Keener competition (e.g., the entry of Reliance Industries).

Source : Equity Bulls

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