Reduce Idea Cellular; target of Rs 72: Emkay

Emkay Global Financial Services is bearish on Idea Cellular and has recommended reduce rating on the stock with a target of Rs 72 in its October 23, 2012 research report.

“Idea Cellular, Con. revenue declined 3.4% qoq due to 3.8% decline in wireless revenues, which stood at Rs52.6bn. Revenue in established and new circles declined 3.6% and 2.3% qoq resp. EBITDA at Rs14.2bn declined 1% qoq, 21% qoq decline in marketing and distribution expenses led to EBITDA beat. EBITDA growth of 10% qoq in Indus also partly aided consolidated EBITDA. EBITDA margin at 26.8% improved 69bps QoQ. EBITDA from established circles declined 3.4% qoq, EBITDA losses from new circles stood to Rs1.8bn v/s Rs1.7bn in the last quarter. APAT at Rs2.3bn (our est. of Rs1.7bn) declined 9% qoq. EBITDA beat led to higher than expected PAT. Forex gain stood at Rs180mn v/s loss of Rs245mn in Q1FY13.”

“Subscriber decline was 1.7mn qoq in Q2FY13. ARPU stood at Rs148 v/s Rs156 in Q1FY13, primarily due to 5.3% qoq decline in MoU. It reported 4% qoq (our est. of 2.5%) decline in minutes on network to 125.6bn. Voice ARPM at Rs0.35 declined 1% QoQ due to continued pricing pressure. Share of VAS improved to 15.6% v/s 14.5% in Q1FY13, leading to 3.5% QoQ revenue growth in non-voice segment. It reported 3.7mn active 3G subs v/s 3.1mn in Q1FY13. Data revenue grew 15.5% qoq to Rs2.8bn supported overall ARPM. ARMB declined to Rs0.317 v/s Rs0.328 in Q1FY13. Idea has delivered better than expected EBITDA in highly competitive environment, led by cost controls. However, regulatory payouts in near term would be significantly higher than FCF generation. We estimate FCF of Rs56bn over next 2 years but regulatory pay out towards one-time spectrum charge, spectrum renewals, bidding for 7 cancelled circles and spectrum re-farming would be significantly high. Further, re-farming would have significant negative impact on opex as well.”

“Cut revenue by 3.5% for FY13E and 3.4% for FY14E. Cut in EBITDA is lower due rationalization in cost structure. Revised EPS for FY13E/14E stands at Rs3.0/Rs4.6. At CMP of Rs81, Idea trades at 6.3x/5.3x EV/EBITDA of FY13E/14E. Maintain reduce with TP of Rs72,” says Emkay Global Financial Services research report.

Non-Institutions holding more than 90% in Indian cos

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