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Idea Cellular: A great end to FY14 - Views on News from Equitymaster

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Idea Cellular: A great end to FY14
May 2, 2014

Idea Cellular declared the results for the fourth quarter of the financial year 2013-2014 (4QFY14). The company has reported a 16.2% YoY increase in total revenues and a 91.4% YoY growth in net profits during the quarter. Here is our analysis of the results.

Performance summary
  • Consolidated sales grew by 16.2% YoY during 4QFY14. Growth was led by an 11.7% YoY increase in total subscriber base as well as a 9.5% YoY growth in total minutes billed during the quarter.
  • Mobile subscriber base grew impressively by 5.5% QoQ during the quarter. Total count of subscribers stood at around 135.8 m at the end of March 2014.
  • Operating margins improved to 31.7% from 27.6% seen during the same period last year.
  • Net profit increased by 91.4% YoY during the quarter. This was due to the higher operating margins as well as lower interest costs during the quarter. Net profit margins improved to 8.4% as compared to 5.1% during 4QFY13.

Consolidated financial performance snapshot
(Rs m) 4QFY13 4QFY14 Change FY13 FY14 Change
Sales 60,614 70,438 16.2% 224,577 265,189 18.1%
Expenditure 43,883 48,137 9.7% 164,531 181,852 10.5%
Operating profit (EBITDA) 16,731 22,302 33.3% 60,045 83,337 38.8%
Operating profit margin (%) 27.6% 31.7%   26.7% 31.4%  
Other income - -   - -  
Interest expense/(income) 2,244 1,966 -12.4% 9,495 7,700 -18.9%
Depreciation 9,092 11,380 25.2% 34,778 45,194 30.0%
Profit before tax 5,395 8,956 66.0% 15,773 30,443 93.0%
Tax 2,313 3,058 32.2% 5,664 10,765 90.1%
Net profit 3,082 5,898 91.4% 10,109 19,678 94.7%
Net profit margin (%) 5.1% 8.4%   4.5% 7.4%  
No. of shares         3319.6  
Diluted Earnings per share (Rs)*         5.9  
P/E ratio (x)*         22.7  
* On a trailing 12 months basis

What has driven performance in 4QFY14?
  • Idea reported a 16.2% YoY growth in its revenues during 4QFY14. The growth was led by the 11.7% YoY growth in total subscriber base as well as the 9.5% YoY increase in the minutes of usage (on an aggregate basis). The improvement in the realized rate per minute (RPM) that the company saw in the previous quarter (3QFY14) continued in this quarter as well. RPM increased by 5.8% YoY in 4QFY14.

  • Coming to the key parameters relating to the company's mobile service business, the average revenue per user (ARPU) increased to Rs 173 per month from Rs 167 seen during the same period last year. On a sequential basis too, the ARPU figure was higher than the Rs 169 seen in 3QFY14. During 4QFY14, the average rate per minute (ARPM) stood at 43.6 paisa, which was higher than the 41.2 paisa seen during the same period last year (4QFY13). It was however marginally lower as compared to the 44.9 paisa during the previous quarter (3QFY14). The minutes of usage (MoU) on a per subscriber basis stood at 397 minutes per subscriber per month. The same figure for the preceding quarter and corresponding quarter last year stood at 376 and 406 respectively. In this quarter the MoU has increased sequentially due to the fall in ARPM.

    Key indicators
      4QFY13 4QFY14 Change
    Revenue (Rs m) 60,614 70,438 16.2%
    Subscribers (m) 121.6 135.8 11.7%
    ARPU (Rs) 167 173 3.6%
    Minutes billed (m) 143,366 157,055 9.5%
    Revenue per minute (Rs) 0.41 0.44 5.8%
    EBITDA (Rs) 16,731 22,302 33.3%
    EBITDA margin 27.6% 31.7%  
    EBITDA per minute (Rs) 0.12 0.14 21.7%

  • Idea's operating margins stood at 31.7% during 4QFY14, as compared to 27.6% in 4QFY13. This improvement in margins was driven by a saving in all of the cost heads as a percentage of sales.

  • Net profits grew by 91.4% YoY during quarter due to a better performance at the operating level as well as lower interest costs during the quarter. Consequently, net margins stood at 8.4% in 4QFY14 as compared to 5.1% seen in 4QFY13.
What to expect?
At the current price of Rs 134.35, the stock is trading at a multiple of 22.7 times its trailing 12 month earnings.

The realized rate which had been improving steadily for the company over the last few quarters witnessed a marginal fall in the quarter. This was largely due the end of the process of cutting down various promotional plans and offers as well as free and discounted minutes. However the company has seen a sustained pickup in the minutes of usage. It is heartening to note that the company's margins have improved despite the fall in ARPM.

The management re-iterated their long term focus about the telecom business in India. The company continues to invest heavily in its network up-gradation activities for a sustained 3G roll out.

The management stated that they were quite satisfied with the recently completed telecom auctions but were cautious about the entry of Reliance Jio Infocomm into the market later this year. However they sounded confident that the company would be able to handle a price war in data services if it came down to it.

The fundamentals of the company have improved steadily over the last few quarters. However at these levels the stock price discounts most of the potential upside as per the fundamentals. Therefore, we maintain our 'Sell' view on the company.

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