Buy Idea cellular; target Rs 119: BP Equities

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Buy Idea cellular; target Rs 119: BP Equities

BP Equities is bullish on Idea cellular and has recommended buy rating on the stock with a target price of Rs 119 in its January 31, 2012 research report.

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BP Equities is bullish on Idea cellular and has recommended buy rating on the stock with a target price of Rs 119, in its January 31, 2012 research report.

"Idea cellular posted strong numbers for the quarter coming ahead of our as well as street's expectations. The company registered strong ~10% sequential growth in both new as well as established circles driven by strong subscribers addition and increase in usage in new circles. We expect the benefits from subscribers addition to continue and tariff hikes and growth in new circles to fuel growth going forward."

"Idea cellular posted a top line of Rs 50.2 bn (v/s our estimate of Rs 49.7 bn) up 9.0% q-o-q and 27.0% y-o-y aided by 7.3% rise in MOU (Minutes of Usage) and 1.6% rise in ARR (Average realized rate). Net Profits was up 90.0% q-o-q but down 17.3% y-o-y to Rs 2.01 bn (v/s our estimate of Rs 1.55 bn) which included a forex loss of Rs 311 mn. EBITDA for the quarter stood at Rs 13.34 bn up 13.6% q-o-q and 41.1% y-o-y (v/s our estimate of Rs 13.51 bn). EBITDA Margins expanded 108 bps q-o-q and 266 bps y-o-y to 26.6% (we estimated margin of 27.7%). EBITDA margin for established services areas expanded 99 bps to 30.4% while losses from new service areas remained more or less flat with 10.7% q-o-q rise in top line to Rs 5.5 bn. ARR stood at 43.4 paisa /min up 1.4% q-o-q primarily due to rise in VAS revenues and effect of tariff hikes pouring in after the of 6 months promotional scheme. Rise in total traffic by 7.3% to 113.9 bn minutes was unexpected and was largely fueled by increased subscribers addition of 6.2 mn in the quarter along with increased usage from new service areas. ARPU (Average revenue per user) for the quarter stood at Rs 159 vs Rs 155 in the last quarter. Total debt for the quarter grew to Rs 130.8 bn vs Rs 127.2 bn last quarter due to capitalized MTM forex losses of Rs 3.6bn in the quarter. Total Capex for the quarter stood at Rs 9bn and management has maintained full year Capex of Rs 40bn for FY12E. VAS revenue contribution increased 50 bps to 13.7% in the quarter mainly aided by 3G revenues. 3G coverage expanded to 2,300 cities and registered 2.25 mn subscribers, pushing APRU. 3G cell sites addition stood at 10,902 vs 9744 in the last quarter."

"Idea subscriber addition has been the strongest with 6.2mn additions as compared to ~3 mn for Vodafone and Bharti Airtel. We believe that idea is well placed to benefit from increased usage in rural areas as maximum subscribers additions have been in Circle A and non metro areas. It can also cross sell its VAS services to its existing customers along with growth in voice usage in these new services areas. Additionally around 30% of Idea's customer have been added in the last 12 months and will contribute significantly going forward."

"In view of improved business environment, impact of tariff hikes pouring in, stronger customer addition, continued strong traffic growth and increased data usage post 3G rollouts we expect the company to post stronger revenue along with significant margin expansion in FY13E. We expect Idea's revenue and EBITDA to grow at a strong FY 11-13E CAGR of 22.6% and 33.9% to Rs 232.1 bn and Rs 66.8 bn in FY13E primarily driven by 18.3% increased minutes of usage CAGR, 4.2% by increased ARR CAGR and ~222 bps expansion in margins. For FY12E we expect top line to grow at 26.8% to Rs 195.8 bn while EBITDA to grow 39.6% to Rs 52.0 bn. We maintain our "BUY" rating on the company with a SOTP based price target of Rs 119, an upside of 25.3% from current levels. The stock currently trades at a P/E of 44.1x and 22.8x times FY12E and FY13E earnings," says BP Equities research report.

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