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