Hold Idea Cellular; target of Rs 117: KRChoksey

KRChoksey has recommended hold rating on Idea Cellular with a target of Rs 117, in its January 31, 2013 research report.
 
“Idea’s Q3FY13 result was inline with our estimates on revenue and EBITDA front however net profit was lower on account of higher than estimated depreciation and amortization. The company reported net sales of Rs 5579cr, growth of 5% QoQ primarily lead by increase in ARPU. In spite of decline in subscriber base, the company reported healthy growth in voice revenue growth on the back of increase in MoUs. At EBITDA level, the company reported Rs 1473cr, increased by 3.5% QoQ. Increase in network expenses dented EBITDA margins by 40bps to 26.4%. Net profit for the quarter was Rs 229cr, declined by 4.8% over Q2FY13 as depreciation and amortization increased. Consequently net profit margin declined by 40bps QoQ to 4.1%. Data revenue continued to inch up in the quarter. The management has guided healthy subscriber addition in rural areas in future. We expect healthy revenue growth primarily led by growth in subscribers and improvement in ARPU both in voice and data segment. With recent run up in the stock price, valuations are expensive at current level.”
 
“After reporting first time revenue decline on a sequential quarter, Idea reported healthy revenue growth of 5% QoQ to Rs 5579crs primarily led by increase in ARPU on account of higher MoUs. Net subscribers declined by 1.4% QoQ to 113.9mn subscribers at the end of Q3FY13. Voice traffic increased by 5.3% over Q2FY13 to 132.1bn minutes. ARPU also increased by 6.7% QoQ to Rs 158. Uptick in data revenue continued as data usage increased. Data revenue increased by 4% on a sequential quarter to Rs 52. Increase in subscriber base in rural area and higher ARPU led by data services will drive healthy growth in revenue in FY14E. EBITDA increased by 3.5% QoQ on account of higher revenue base. Increase in network expenses and higher roaming charges eroded EBITDA margins by 40bps to 26.4%.Depreciation increased by 3.6% over Q2FY13 to Rs 884crs which resulted in net profit margin to decline by 4.8% QoQ to Rs 229crs. Net profitability declined by 40bps QoQ to 4.1%.”
 
“In spite of decline in subscribers, Idea reported healthy growth in ARPU which lead revenue growth in Q3FY13. However subscriber addition in rural area and ARPU growth led by improvement in ARPM and increased contribution of data services will be key triggers for revenue growth going forward. Cost rationalization at operating level will drive EBITDA margin improvement. The stock is trading at 6.4x EV/EBITDA to its FY14E earnings. We believe recent run up in the stock has made valuations expensive leaving less scope for higher returns. We recommend HOLD on the stock with a price target of Rs 117,” says KRChoksey research report.

Read More