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Idea Cellular: Good performance continues - Views on News from Equitymaster
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Idea Cellular: Good performance continues
Jul 30, 2014

Idea Cellular has declared the results for the first quarter of the financial year 2014-2015 (1QFY15). The company has reported a 15.6% YoY increase in total revenues and a 57.5% YoY growth in net profits during the quarter. Here is our analysis of the results.

Performance summary
  • Consolidated sales grew by 15.6% YoY during 1QFY15. Growth was led by an 11.2% YoY increase in total subscriber base as well as a 12.2% YoY growth in total minutes billed during the quarter.
  • Mobile subscriber base grew by 2.4% QoQ during the quarter. Total count of subscribers stood at around 139 m at the end of June 2014.
  • Operating margins improved to 33.2% from 31.8% seen during the same period last year.
  • Net profit increased by 57.5% YoY during the quarter. This was due to the higher operating margins as well as slower growth in interest costs and depreciation (compared to the sales growth) during the quarter. Net profit margins improved to 9.6% as compared to 7.1% during 1QFY14.

Consolidated financial performance snapshot
(Rs m) 1QFY14 1QFY15 Change
Sales 65,388 75,610 15.6%
Expenditure 44,624 50,504 13.2%
Operating profit (EBITDA) 20,763 25,106 20.9%
Operating profit margin (%) 31.8% 33.2%  
Other income - -  
Interest expense/(income) 2,211 2,342 6.0%
Depreciation 11,353 11,545 1.7%
Profit before tax 7,200 11,219 55.8%
Tax 2,575 3,937 52.9%
Net profit 4,624 7,282 57.5%
Net profit margin (%) 7.1% 9.6%  
No. of shares   3,544.1  
Diluted Earnings per share (Rs)*   6.3  
P/E ratio (x)*   24.3  
* On a trailing 12 months basis

What has driven performance in 1QFY15?
  • Idea reported a 15.6% YoY growth in its revenues during 1QFY15. The growth was led by the 11.2% YoY growth in total subscriber base as well as the 12.2% 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 (4QFY14) continued in this quarter as well. RPM increased by 3.2% YoY in 1QFY15.

  • Coming to the key parameters relating to the company's mobile service business, the average revenue per user (ARPU) increased to Rs 181 per month from Rs 174 seen during the same period last year. On a sequential basis too, the ARPU figure was higher than the Rs 173 seen in 4QFY14. During 1QFY15, the average rate per minute (ARPM) stood at 45.1 paisa, which was higher than the 43.7 paisa seen during the same period last year (1QFY15). The ARPM figure was higher than the Rs 43.6 seen in 4QFY14. The minutes of usage (MoU) on a per subscriber basis stood at 401 minutes per subscriber per month. The same figure for the preceding quarter and corresponding quarter last year stood at 397 and 398 respectively. It is very heartening that the MoU has increased sequentially despite the rise in ARPM.

    Key indicators
      1QFY14 1QFY15 Change
    Revenue (Rs m) 65,388 75,610 15.6%
    Subscribers (m) 125.0 139.0 11.2%
    ARPU (Rs) 174 181 4.0%
    Minutes billed (m) 147,315 165,239 12.2%
    Revenue per minute (Rs) 0.44 0.46 3.1%
    EBITDA (Rs) 20,763 25,106 20.9%
    EBITDA margin 31.8% 33.2%  
    EBITDA per minute (Rs) 0.14 0.15 7.8%

  • Idea's operating margins stood at 33.2% during 1QFY15, as compared to 31.8% in 1QFY14. This improvement in margins was largely driven by savings in access charges as a percentage of sales.

  • Net profits grew by 57.5% YoY during quarter due to a better performance at the operating level as well as slower growth in interest costs and depreciation (compared to sales growth) during the quarter. Consequently, net margins stood at 9.6% in 1QFY15 as compared to 7.1% seen in 1QFY14.
What to expect?
At the current price of Rs 153.4, the stock is trading at a multiple of 24.3 times its trailing 12 month earnings.

The realized rate continued to improve steadily for the company. The company has completed 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 continue to improve along with stable ARPM.

The company continues to invest in its network up-gradation activities for a sustained 3G roll out. The management stated that the company has witnessed a huge pickup in data usage even in tier 3 and tier 4 towns over the last few quarters. The company's 3G ARPU stands at 142 and is rapidly approaching the company's overall ARPU of 181. Thus data, especially 3G is clearly the leading growth driver for the company.

The management has stated that the recent TRAI regulations regarding spectrum sharing wouldn't impact the company either positively or negatively. The management is waiting for the regulator to come out with spectrum trading rules as they believe this will benefit the company much more. The management sounded hopeful that the new government will consult the industry while formulating spectrum policies.

The fundamentals of the Idea have improved steadily over the last several quarters. We are currently updating our FY17 financial estimates of the company. At these levels we recommend investors do not buy the stock.

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