Idea Cellular - Ringing Loud And Clear
By Prasanna Bidkar |
9/26/2011 1:32 PM Monday
Idea Cellular seems to be creating a buzz everywhere, be it through its advertising campaign (‘What An Idea, Sirji!’) or the performance of its scrip on the bourses. While the advertisement campaign has already grabbed attention across the country, the scrip is also a ‘hit’ on the bourses, evident from the fact that it has soared by as much as 40 per cent Year-to-Date, despite the Sensex being down by 18 per cent. There are, as such, more than enough compelling reasons to recommend it to our investors. The primary reason is that Idea has posted a strong financial performance for Q1 FY12, and we believe that this trend would continue over the remaining part of the financial year too.
Further, we expect that the pricing power, dented due to stiff competition, may again return in favour of the telecom players, which will help the company improve its RPM (realisation per minute). On the other hand, we expect the company to reduce its expenses in terms of the cost per minute, and this, combined with higher volumes, would drive the average revenue per user (ARPU). The other compelling factors include a strong capex plan and an expected roll-out of 3G services in more circles, thus monetising its expenses on the acquisition of airwaves.
Idea is India’s fourth-largest wireless operator, with a market share of around 14 per cent in revenues (11.20 per cent volume share). It operates in all the 22 telecom circles (13 established and nine new circles). With a good performance in established areas, Idea posted a strong performance in Q1 FY12. The 7.60 per cent growth on a Q-on-Q basis took the consolidated topline of the company to Rs 4520 crore. Growth was mainly driven by a 6.50 per cent volume growth (109 billion units) and a 1.10 per cent improvement in the RPM. Even the fall in the ARPU since the past four quarters was arrested, and declined marginally to Rs 160 per month from Rs 161 in Q4 FY11. Its EBITDA stood at Rs 1204 crore, as against Rs 1074 crore in Q4 FY11, displaying a healthy growth of 12 per cent.
However, the company’s bottomline took some beating, with a figure of Rs 180 crore, mainly due to higher depreciation charges and interest cost. Going ahead, the performance is expected to improve further, as the RPM for Q1 was higher mainly on account of a reduction in discount rates. Recently, Idea increased the base rate to 1.20 paisa per second from one paisa per second in the six circles (these six circles contribute up to 60 per cent of its revenues) where it has a leadership position. The impact of the same will be visible in the coming quarters. The company is also going ahead with a strong capex plan of Rs 4000 crore (excluding the 3G spectrum fees) in FY12.
The 3G roll-out is also on track, and Idea has launched 3G services in 825 towns in 15 circles. The company aims to roll out 3G services in 3000 towns in India by the end of FY12. However, the management, in a recent presentation, mentioned that the initial usage patterns are sub-optimal, but are expected to increase due to advertisements and more mobile applications that create a need for 3G. Considering the expected volume growth, rate hikes in the established circles and reduction in cost for FY12, the topline is expected to witness growth of around 28 per cent to Rs 19850 crore, and with 27 per cent margins, the EBITDA is expected to be at Rs 5360 crore. The bottomline may remain flat at Rs 890-925 crore, as against Rs 899 crore reported by the company in FY11. We are expecting the scrip to be in the region of Rs 115.
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