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You are here : IndiaNotes >> Research & Analysis >> Companies >> Idea Cellular Ltd. >> Research

Idea Cellular: RPM decline exerts pressure on revenue, retain sell

Nirmal Bang | 25 Jul, 2012  | Follow Author | Add to my Favourites 


Highlights:

- RPM decline exerts pressure on revenue; adjusted margin down 198bps q-o-q:
Idea’s 1QFY13 top-line witnessed a subdued 2.5% q-o-q growth (Rs55bn, exactly in line with estimates but slightly below consensus). While MoU growth was healthy at 5.3% q-o-q, RPM declined 2.4% q-o-q to 41.2 paise owing to heightened competition, Subdued revenue growth had a greater impact on margins than what was had expected, as adjusted for the one-off item of Rs1.5bn related to licence fees in 4QFY12, EBITDA margin fell 198bps q-o-q, well below estimates. This was a key disappointment in 1QFY13.

- Lower margins, higher depreciation and forex loss trim net profit: Owing to lower margins, higher depreciation owing to revision in useful life of fixed assets (Rs480mn impact) and forex loss of Rs245mn (Rs135mn gain in 4QFY12), Idea’s net  profit declined 2% q-o-q, over 20% below estimates. Adjusted for the depreciation impact and tax, net profit would have been higher by 11.7% q-o-q, but it is below the estimate by 11.3% and below consensus estimate by 10.6%.

- Hyper-competition, regulatory risk persist, debt levels stay high; we retain Sell:
Hyper-competition persists, RPM remains under pressure, debt stays high and regulatory risks remain a reality, with the prospects of cash outflows in the form of spectrum charges, leading to possibility of raising more debt. At the CMP, the stock trades at 5.6x EV/EBITDA on FY13E EBITDA. Nirmal Bang retains their Sell rating with a revised target price of Rs76 (Rs81) as they have cut FY13E/FY14E EBITDA by 6% each.

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About Nirmal Bang

Founded in 1986 by Nirmal Bang, the Nirmal Bangis recognized as one of the largest retail broking houses in India, providing an array of financial products and services. Their retail and institutional clients have access to products such as equities, derivatives, commodities, currency derivatives, mutual funds, IPOs, insurance, depository services and PMS. The Group is headed by Mr. Dilip Bang and Mr. Kishore Bang.


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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor IndiaNotes.com accept any liability whatsoever arising from the use of any of the above contents.



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