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Idea Cellular: Good all round performance - Views on News from Equitymaster
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Idea Cellular: Good all round performance
Feb 11, 2015

Idea Cellular has declared the results for the third quarter of the financial year 2014-2015 (3QFY15). The company has reported a 21.2% YoY increase in total revenues and a 64% YoY growth in net profits during the quarter. Here is our analysis of the results.

Performance summary
  • Consolidated sales grew by 21.2% YoY during 3QFY15. Growth was led by a 17.2% YoY increase in total subscriber base as well as an 18.1% YoY growth in total minutes billed during the quarter.
  • Mobile subscriber base grew by 5.3% QoQ during the quarter. Total count of subscribers crossed the 150 m mark and stood at around 152.2 m at the end of December 2014.
  • Operating margins improved to 34.3% in 3QFY15 from 31% seen during 3QFY14.
  • Net profit increased by 64% YoY during the quarter. This was due to the higher operating margins as well as slower growth in interest costs (compared to the sales growth) during the quarter. Net margins improved to 9.6% as compared to 7.1% during 3QFY14.

Consolidated Financial snapshot
(Rs m) 3QFY14 3QFY15 Change 9MFY14 9MFY15 Change
Sales 66,131 80,175 21.2%   194,751   231,484 18.9%
Expenditure 45,608 52,648 15.4%   134,113   154,012 14.8%
Operating profit (EBITDA) 20,523 27,526 34.1% 60,638 77,472 27.8%
Operating profit margin (%) 31.0% 34.3%   31.1% 33.5%  
Other income  743 1,326 78.6% 1,816 2,833 56.0%
Interest expense/(income) 2,284 2,309 1.1% 7,153 7,535 5.3%
Depreciation 11,666 14,826 27.1% 33,814 38,159 12.9%
Profit before tax 7,316 11,717 60.2% 21,487 34,610 61.1%
Tax 2,639 4,046 53.3% 7,706 12,099 57.0%
Net profit 4,677 7,671 64.0% 13,781 22,511 63.4%
Net profit margin (%) 7.1% 9.6%   7.1% 9.7%  
No. of shares         3,597  
Diluted Earnings per share (Rs)*         7.9  
P/E ratio (x)*         19.1  
* On a 12-month trailing basis

What has driven performance in 3QFY15?
  • Idea reported a 21.2% YoY growth in its revenues during 3QFY15. The growth was led by the 17.2% YoY growth in total subscriber base as well as the 18.1% YoY increase in the minutes of usage (on an aggregate basis). The improvement in the realized rate per minute (RPM) that the company has been witnessing for the past several quarters continued in 3QFY15 as well. The RPM increased by 3.1% YoY.

  • Coming to the key parameters relating to the company's mobile service business, the average revenue per user (ARPU) increased to Rs 179 per month from Rs 169 seen during the same period last year. On a sequential basis too it was higher than the ARPU of Rs 176 seen in 2QFY15. During 3QFY15, the average rate per minute (ARPM) stood at 46.3 paisa, which was higher than the 44.9 paisa seen during the same period last year (2QFY15). The ARPM figure was also higher than the Rs 45.9 seen in 2QFY15. The minutes of usage (MoU) on a per subscriber basis stood at 388 minutes per subscriber per month. The same figure for the preceding quarter and corresponding quarter last year stood at 384 and 376 respectively.

    Key indicators
      3QFY14 3QFY15 Change
    Revenue (Rs m) 66,131 80,175 21.2%
    Subscribers (m) 129.9 152.2 17.2%
    ARPU (Rs) 169 179 5.9%
    Minutes billed (m) 144,571 170,706 18.1%
    Revenue per minute (Rs) 0.46 0.47 2.7%
    EBITDA (Rs) 20,523 27,526 34.1%
    EBITDA margin 31.0% 34.3%  
    EBITDA per minute (Rs) 0.14 0.16 13.6%

  • Idea's operating margins stood at 34.3% during 3QFY15, as compared to 31% in 3QFY14. This improvement in margins was largely driven by savings in network expenses as a percentage of sales.

  • Net profits grew by 64% YoY during quarter due to a good performance at the operating level as well as slower growth in interest costs (compared to sales growth) during the quarter. Consequently, net margins stood at 9.6% in 3QFY15 as compared to 7.1% seen in 3QFY14.
What to expect?

At the current price of Rs 151, the stock is trading at a multiple of 19.1 times its trailing 12 month earnings.

The management sounded confident that the company's growth momentum will sustain for the foreseeable future. The company's strategy of growing subscriber base via strong brand building efforts have certainly paid off. Idea has been able to maintain pricing power and grow its margins. At the same time, the boom in mobile data consumption has helped the topline.

The company is well placed to ride the wave of mobile data consumption and has already made the necessary investments in this regard. The management stated that 3G services will be rolled out in the Delhi circle later this year.

The management remained tight lipped about its strategy for the spectrum auctions scheduled early next month. However, they made it clear that the company would bid for and win the entire spectrum that will be up for expiry later this year. It is important to note that the company has the financial wherewithal to do so. The only point of concern is the competition that will face from its peers.

The fundamentals of Idea Cellular remain strong. However, keeping in mind the valuations as well as the near term uncertainty regarding the spectrum auctions, we believe that investors should not buy the stock at these levels.

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