Idea Cell.: Decent start to the year - Views on News from Equitymaster

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Idea Cell.: Decent start to the year

Jul 24, 2012

Idea Cellular declared the results for the first quarter of the financial year 2012-2013 (1QFY13). The company has reported a 21.7% YoY increase in total revenues and a 32.1% YoY growth in net profits during the quarter. Here is our analysis of the results.

Performance summary
  • Consolidated sales grew by 21.7% YoY during 1QFY12. The growth was led by a growth in the subscriber base as well as by higher minutes on the network during the quarter.
  • Mobile subscriber base grew by 3.2% YoY during the quarter. Total count of subscribers stood at around 117.2 m at the end of June 2012.
  • Operating margins declined marginally to 26.1% from 26.6% seen during the same period last year. This was on account of higher cost of traded goods as well as higher roaming & access charges during the quarter (as percentage of sales).
  • Net profit increased by 32.1% YoY during the quarter. Net profit margins improved to 4.3% as compared to 3.9% during the same period last year.

Consolidated financial performance snapshot
(Rs m) 1QFY12 1QFY13 Change
Sales 45,207 55,037 21.7%
Expenditure 33,167 40,682 22.7%
Operating profit (EBITDA) 12,040 14,355 19.2%
Operating profit margin (%) 26.6% 26.1%  
Other income - -  
Interest expense/(income) 2,463 2,670 8.4%
Depreciation 7,026 8,325 18.5%
Exceptional items - -  
Profit before tax 2,550 3,361 31.8%
Tax 778 1,019 31.0%
Net profit 1,773 2,341 32.1%
Net profit margin (%) 3.9% 4.3%  
No. of shares 3,303.8 3,309.8  
Diluted Earnings per share (Rs)*   2.36  
P/E ratio (x)*   34.1  
*On a trailing 12 month basis

What has driven performance in 1QFY13?
  • Idea reported a 21.7% YoY growth in its revenues during 1QFY12. The growth was led by the 21.7% YoY growth in total subscriber base as well as the 20.5% YoY increase in the minutes of usage (on an aggregate basis). This offset the decline of 2.5% YoY in ARPU during the same period.

  • Coming to the key parameters relating to the company's mobile service business, the average revenue per user (ARPU) stood at about Rs 156 per month. The same figure stood at Rs 160 during 4QFY12 and at Rs 160 during 1QFY12. During 1QFY13, the average rate per minute (ARPM) stood at 41.2 paisa, which was higher than the 41 paisa seen during the same period last year (1QFY12). However, it was lower than the 42.2 paisa during the previous quarter (4QFY12). The minutes of usage (MoU) on a per subscriber basis stood at 379 minutes per subscriber per month. The same figure for the preceding quarter and corresponding quarter last year stood at 379 and 391 respectively.

    Key indicators
      1QFY12 1QFY13 Change
    Revenue (Rs m) 45,207 55,037 21.7%
    Subscribers (m) 95,109 117,200 23.2%
    ARPU (Rs) 160 156 -2.5%
    Minutes billed (m) 108,630 130,926 20.5%
    Revenue per minute (Rs) 0.41 0.41 0.5%
    EBITDA (Rs) 12,040 14,355 19.2%
    EBITDA margin 26.6% 26.1%  
    EBITDA per minute (Rs) 0.11 0.11 -1.1%

  • Idea's operating margins stood at 26.1% during 1QFY13, as compared to 26.6% in 1QFY12. This marginal decline in margins was mainly due to higher roaming & access charges as well as higher cost of traded goods. This offset the decline in network operating charges during the quarter (all as percentage of sales).

  • Net profits grew by 32.1% YoY during quarter. Net margins stood at 4.3% in 1QFY13 as compared to 3.9% seen in 1QFY12

What to expect?
At the current price of Rs 79, the stock is trading at a multiple of 34.1 times its trailing 12 month earnings and an EV/EBITDA of 6.2 times (FY15 EBITDA).

The management reiterated that competition continues to be stiff in the Indian telecom sector. This was visible in the marginal drop in the realized rate per minute during the quarter. Due to higher competition, the company was unable to pass on the hike in service tax to the customers. However, minutes of usage continued to be flat, as a result of which the revenue growth was visible albeit on a lower side. The growth was also slower due to the slower rate of acquiring the VLR or active customers during the quarter. This was largely due to the seasonal slowdown and is expected to improve in the coming quarters.

With regards to the ongoing litigations with regards to the orders of DOT (Department of Telecommunication) on Spice merger deal, cancellation of 2G licenses as well as on the discontinuation of 3G roaming agreements, the management stated that these matters are subjudice or the judgment is reserved.

The latest proposals by TRAI (Telecom Regulatory Authority of India) on the 2G license fee and auctions have come as a blow to the entire sector. Though these are just proposals and not the final thing, one thing is for sure that 2G licenses are set to become more expensive for the entire sector. However, the long term growth of the company remains intact. Idea has emerged as a survivor through the tough times and will benefit whenever there is consolidation in the sector. Therefore, we maintain our 'Hold' view on the company.

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