Hold Idea Cellular; target of Rs 104: KRChoksey

“Idea Cellular reported strong numbers for Q3FY12. Net Sales stood at Rs 5031crs, robust growth of 27% y-o-y on account of higher subscriber base. EBITDA for the quarter was Rs 1345crs, a growth of 42% over Q3FY11.EBITDA margins for the quarter improved by 270bps y-o-y due to lower network operating cost and other expenses. Net profit was Rs 201 which declined by 17% y-o-y due to higher amortization cost and increase interest expenses. Net profit margin for the quarter was 4% down by 210bps y-o-y. We believe healthy increase in subscriber addition and growth in ARPU will help the company to post strong revenue growth. Cost rationalization and lower interest outgo will help to improve margins going forward. We maintain positive outlook on the stock.”

“Idea’s subscriber base increased from 100.2mn in Q2FY12 to 106.4mn in Q3FY12. Also the company had incremental realized rate of Rs 0.433 from Rs 0.427 in last quarter. This lead to healthy top line growth. ARPU increased by 2% q-o-q to Rs 159. The seasonal factor helped to improve total MoUs by 7% q-o-q to 113.9bn. Overall the company reported growth in all the parameters. The company reported higher mobile value added services contribution from 13.2% in Q2FY12 to 13.7% in Q3FY12. Pick up on 3G services front is clearly visible. We believe going forward data revenue will go up with increase in penetration of 3G users. Idea posted improvement in operating and net profit margin on sequential quarter on the back of higher revenue base and lower network operating cost. The company has done cost rationalization on various fronts leading to healthy margin growth.”

“Idea’s strong performance positively surprised us. With increase in ARPU and MoU, the growth is back on track. Combined data and voice together, revenues will grow at a healthy rate of 22%-25% in FY12E and FY13E. Idea is adding new subscribers steadily. Increase in ARPUs driven by higher realized rate, improvement in traffic and 3G being operational, Idea is on track of growth. We estimate the company’s top line to grow by 30% and 22% respectively in FY12E and FY13E. Currently the stock is trading at 7.5x and 5.9x EV/EBITDA to FY12E and FY13E earnings. We recommend ‘Hold’ on the stock with a target price of Rs 104 by assigning 6.5x EV/EBITDA to FY13E earnings,” says KRChoksey research report.  

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