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Idea Cell.: Starts the year with a bang

Aug 1, 2013

Idea Cellular declared the results for the first quarter of the financial year 2013-2014 (1QFY14). The company has reported an 18.8% YoY increase in total revenues and a whopping 97.6% YoY growth in net profits during the quarter. Here is our analysis of the results.

Performance summary
  • Consolidated sales grew by 18.8% YoY during 1QFY14. Growth was led by an increase in total subscriber base as well as a 12.5% YoY growth in total minutes billed during the quarter.
  • Mobile subscriber base grew by 6.7% YoY during the quarter. Total count of subscribers stood at around 124.9 m at the end of June 2013.
  • Operating margins improved to 31.8% from 26.1% seen during the same period last year.
  • Net profit increased by a whopping 97.6% 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 7.1% as compared to 4.3% during 1QFY13.

Consolidated financial performance snapshot
(Rs m) 1QFY13 1QFY14 Change
Sales 55,037 65,388 18.8%
Expenditure 40,682 44,624 9.7%
Operating profit (EBITDA) 14,355 20,763 44.6%
Operating profit margin (%) 26.1% 31.8%  
Other income - -  
Interest expense/(income) 2,670 2,211 -17.2%
Depreciation 8,325 11,353 36.4%
Exceptional items - -  
Profit before tax 3,361 7,200 114.2%
Tax 1,019 2,573 152.4%
Net profit 2,341 4,627 97.6%
Net profit margin (%) 4.3% 7.1%  
No. of shares 3,309.8 3,315.6  
Diluted Earnings per share (Rs)*   3.74  
P/E ratio (x)*   44.8  
* On a trailing 12 months basis

What has driven performance in 1QFY14?
  • Idea reported an 18.8% YoY growth in its revenues during 1QFY14. The growth was led by the 6.7% YoY growth in total subscriber base as well as the 12.5% YoY increase in the minutes of usage (on an aggregate basis). After a long time the company saw an improvement in the realized rate per minute (RPM) which increased by 6.1% YoY during the same period.

  • Coming to the key parameters relating to the company's mobile service business, the average revenue per user (ARPU) increased to Rs 174 per month. The same figure stood at Rs 167 during 4QFY13 and at Rs 156 during 1QFY13. During 1QFY13, the average rate per minute (ARPM) stood at 43.7 paisa, which was higher than the 41.2 paisa seen during the same period last year (1QFY13). However, it was marginally higher as compared to the 41.2 paisa during the previous quarter (4QFY13). The minutes of usage (MoU) on a per subscriber basis stood at 398 minutes per subscriber per month. The same figure for the preceding quarter and corresponding quarter last year stood at 406 and 379 respectively.

    Key indicators
      1QFY13 1QFY14 Change
    Revenue (Rs m) 55,037 65,388 18.8%
    Subscribers (m) 117,164 124,968 6.7%
    ARPU (Rs) 156 174 11.5%
    Minutes billed (m) 130,926 147,315 12.5%
    Revenue per minute (Rs) 0.41 0.44 6.1%
    EBITDA (Rs) 14,355 20,763 44.6%
    EBITDA margin 26.1% 31.8%  
    EBITDA per minute (Rs) 0.11 0.14 28.5%

  • Idea's operating margins stood at 31.8% during 1QFY14, as compared to 261% in 1QFY13. This improvement in margins was driven by a saving in all of the cost heads barring license & WPC charges and general & administrative expenses which saw marginal increases during the quarter (all as percentage of sales).

  • Net profits grew by 97.6% 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 7.1% in 1QFY14 as compared to 4.3% seen in 1QFY13. The company's debt to equity ratio declined to 0.9 times from the 1.0 times seen at the end of FY13.

What to expect?
At the current price of Rs 167, the stock is trading at a multiple of 44.8 times its trailing 12 month earnings.

The company saw an improvement in realized rates during the quarter. This was a result of activities that it had undertaken from December 2013 onwards where the company had started clamping down on promotional schemes like free and discounted minutes. They have also cut down the UnR (Usage and Retention) activities on existing subscribers. These measures have helped improve the realized rates. Though the MoUs did see a decline during the quarter, however, the management is doubtful that this is a result of elasticity in demand. The exact impact of elasticity would be visible only by the third quarter of the year given that the upcoming second quarter is in any case a seasonally weak quarter. The management further stated that they are seeing prices rationalize in the market which seems to suggest that the hyper competition that had gripped the telecom sector is finally easing off.

Going forward, Idea is confident that the major growth would come on the data side. The company has passed an enabling resolution for a QIP (Qualified Institutional Placement) of Rs 30 bn. This is just an enabling resolution which would allow the company to raise funds whenever needed. This was carried out especially for the upcoming license renewals. Though Idea's licenses would come up for renewal in 2015 and 2016, there is a suggestion from the DoT (Department of Telecommunications) that the amount maybe called for much earlier. However there is no definite plan as to by when this QIP would actually take place. The company has also approved a preferential issue of Rs 7.5 bn to Axiata Group, which already holds a 19.9% stake in the company through various investment routes.

Idea's stock has seen a remarkable run up in its stock price in recent times. We had reevaluated the stock after it had crossed our target price of Rs 117 per share. At the current price, it continues to offer very little upside due to expensive valuations. Therefore, we maintain our 'Sell' view on the company.

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Jun 14, 2021 (Close)


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