2QFY2016 Result Update | Telecom
October 27, 2015
Idea Cellular
NEUTRAL
CMP
`141
Performance highlights
Target Price
-
(` cr) - Consl
2QFY16 2QFY15
% chg (qoq) 1QFY16
% chg (yoy)
Investment Period
-
Revenue
8,723
8,921
(2.2)
7,687
13.5
EBITDA
3,057
3,228
(5.3)
2,491
22.7
Stock Info
EBITDA margin (%)
35.2
36.7
(150)bp
32.9
230bp
Sector
Telecom
PAT
809
931
(13.1)
756
7.0
Market Cap (` cr)
50,791
Source: Company, Angel Research
Net debt (` cr)
15,257
Idea Cellular (Idea)’s 2QFY2016 results have come in broadly in line with
Beta
0.7
estimates. The average Minutes of Use (MOU) dipped
5.4% qoq to
52 Week High / Low
204/137
386min/subscriber/month (due to seasonality issues and increasing rural
Avg. Daily Volume
449,731
penetration), the average revenue per min (ARPM) grew 1.8% sequentially to
Face Value (`)
10
`0.45, and thereby the average revenue per user (ARPU) declined by 3.8% on a
BSE Sensex
27,362
qoq basis to `175/month. We maintain our Neutral view on the stock.
Nifty
8,261
Reuters Code
IDEA.BO
Quarterly highlights: Idea’s consolidated revenue for the quarter came in at
Bloomberg Code
[email protected]
`8,723cr, down marginally by 2.2% qoq, owing to a decline in the mobility
business. The mobility segment’s revenue dipped by 1.8% qoq to `8,509cr, on
account of a decline in the overall MOU. The EBIDTA margin slipped 150bp qoq
Shareholding Pattern (%)
to 35.2% due to increase in personnel costs and on account of a 5% sequential
Promoters
42.3
increase in advertisement and business promotion expenses. The Net Profit at
MF / Banks / Indian Fls
3.3
`809.3cr, declined by 13.1% on a sequential basis.
FII / NRIs / OCBs
50.6
Indian Public / Others
3.8
Outlook and valuation: Going ahead, the realization would remain under
pressure on account of heightened competition (both in the voice and the data
segment). Further, post the entry of RJio, the pricing pressure would worsen
Abs. (%)
3m 1yr
3yr
further, particularly in the data segment. Also, Idea’s debt/equity ratio has risen
Sensex
(1.1)
1.9
46.3
from 0.7x in FY2015 to about 1x as at the end of 2QFY2016, on account of
Idea
(17.9)
(10.3)
73.8
payments incurred towards spectrum acquisition and network expansion. The
same is expected to worsen further to 1.4x by the end of FY2016, and would
3-year price chart
thereby impact return ratios. We remain cautious on Idea due to its worsening
250
debt/equity ratio coupled with realization pressures. We maintain our Neutral
200
rating on the stock.
150
Key financials (Consolidated, Indian GAAP)
Y/E March (` cr)
FY2013 FY2014
FY2015
FY2016E
FY2017E
100
Net revenue
22,459
26,519
31,571
35,651
38,872
50
% chg
14.9
18.1
19.1
12.9
9.0
0
Net profit
1,012
1,968
3,227
3,196
2,568
% chg
40.1
94.4
64.0
(1.0)
(19.6)
EBITDA margin (%)
26.7
31.4
34.3
35.7
34.1
Source: Company, Angel Research
EPS (`)
3.1
5.9
9.0
8.9
7.1
P/E (x)
46.2
23.8
15.7
15.9
19.8
P/BV (x)
3.5
3.1
2.2
2.0
1.8
RoE (%)
7.1
11.9
14.0
12.3
9.1
RoCE (%)
8.8
9.9
12.7
9.1
8.1
Bharat Gianani
EV/Sales (x)
2.8
2.6
1.7
2.4
2.3
+91 22 3935 7800 Ext: 6817
EV/EBITDA (x)
10.5
8.3
5.0
6.8
6.6
[email protected]
Source: Company, Angel Research;
Please refer to important disclosures at the end of this report
1
Idea Cellular | 2QFY2016 Result Update
Exhibit 1: 2QFY2016 - Financial performance (Consolidated, Indian GAAP)
(` cr)
2QFY16
1QFY16
% chg (qoq)
2QFY15
% chg (yoy)
1HFY16 1HFY15
% chg( yoy)
Net revenue
8,689
8,798
(1.2)
7,570
14.8
17,487
15,132
15.6
Operating expenditure
5,632
5,570
1.1
5,079
10.9
11,202
10,130
10.6
EBITDA
3,057
3,228
(5.3)
2,491
22.7
6,442
5,153
25.0
Dep. and amortization
1,538
1,516
1.5
1,179
30.5
3,054
2,333
30.9
EBIT
1,519
1,712
(11.3)
1,312
15.7
3,388
2,820
20.1
Interest charges
306
402
(23.7)
261
17.3
708
495
42.9
Other income
34
122
(72.5)
117
(71.1)
156
151
3.6
PBT
1,246
1,433
(13.0)
1,168
6.7
2,836
2,475
14.6
Income tax
437
502
(13.0)
412
6.2
940
805
16.7
PAT
809
931
(13.1)
756
7.0
1,896
1,670
13.6
Minority interest
-
-
-
-
-
Adj. PAT
809
931
(13.1)
756
7.0
1,896
1,670
13.6
EPS (`)
2.2
2.6
(13.1)
2.1
6.9
4.8
4.3
13.6
EBITDA margin (%)
35.2
36.7
(150)bp
32.9
230bp
36.5
33.7
280bp
EBIT margin (%)
17.5
19.5
(200)bp
17.3
20bp
19.2
18.5
70bp
PAT margin (%)
9.7
12.0
(230)bp
11.5
(180)bp
11.6
11.9
(30)bp
Source: Company, Angel Research
Soft results
Idea’s consolidated revenue came in at `8,723cr, down 2.2% qoq, as 2Q is a
cyclically soft quarter for telecom companies. The mobility segment’s revenue
dipped by 1.8% qoq to `8,509cr, owing to a decline in the overall MOU. With
increasing proportion of rural subscribers, the seasonal slowdown in 2Q became
more pronounced, resulting in the overall network traffic declining by 3.2% qoq to
189.5bn min. The ARPM inched up sequentially by 1.8% and stood at 45.3
paise/min given the increase in data usage. The MOU for the quarter was
386min/subscriber/month, declining 5.4% qoq; Voice RPM continued to remain
under pressure declining 0.6% sequentially and 9.7% on a yoy basis to 32.7
paise/min. The ARPU dipped 4% qoq and 1% yoy to `175/subscriber/month. The
subscriber base grew by 4.5mn qoq in 2QFY2016 with the end of the period (EoP)
subscriber base standing at 166.6mn.
October 27, 2015
2
Idea Cellular | 2QFY2016 Result Update
Exhibit 2: Trend in MOU
425
6
3.1
400
3
2.0
375
1.0
1.0
0
350
(3)
325
(4.2)
(5.4)
300
(6)
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
MOU (min)
qoq growth (%)
Source: Company, Angel Research
The share of value added services (VAS) revenues continued to inch up (increased
180bps sequentially to 27.9%) given the higher data adoption. Data revenue as %
of service revenue improved from 14% to 19.6% in the last one year period. Data
revenues grew by 9% qoq and now account for 19.6% of Idea’s wireless revenues,
led by 14.8% qoq and 82.6% yoy growth in data volumes, pointing to strong data
adoption in the Indian wireless market. Data revenue per MB dipped by 4.8% qoq
to 23.4 paise, on account of mix change in favor of 3G data and increased
competitive pressures. Overall mobile data users base (2G+3G) increased 11.2%
sequentially, but the mobile data ARPU at `144 declined 9.8% sequentially. The
company added 5.1mn new 3G users during 1HFY2016 with 3G EoP user base
(Voice and Data) now at 19.6mn. The 3G user mobile data ARPU is steady at `202
per month.
Exhibit 3: Trend in ARPM
0.47
4
3.4
0.45
1.8
2
1.8
0.43
0.9
0.41
0
(0.7)
0.39
(2)
0.37
(3.2)
0.35
(4)
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
ARPM (`/min)
qoq growth (%)
Source: Company, Angel Research
October 27, 2015
3
Idea Cellular | 2QFY2016 Result Update
Exhibit 4: Trend in VAS share in mobility revenue
30
27
27.9
26.1
24
24.5
23.1
21
21.1
17.8
18
15
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
VAS share (%)
Source: Company, Angel Research
Thus, a decline in MOU more than offset the marginal increase in the subscriber
base and ARPM, leading to a 3.8% qoq drop in ARPU to `175.
Exhibit 5: Trend in ARPU
185
6
5
180
4.6
4
175
3
170
1.7
2
1.7
165
1
0.0
160
0
(1)
155
(2)
150
(2.8)
(3)
145
(3.8)
(4)
140
(5)
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
ARPU (`/month)
qoq growth (%)
Source: Company, Angel Research
EBITDA margin declines
For 2QFY2016, Idea’s EBITDA margin slipped 150bp qoq to 35.2%, due to
increase in personnel expenses and advertisement and business promotion
expenses. While employee expenses tend to be higher in 2Q, Advertisement
expenses grew 5% sequentially, putting pressure on the margins.
During the quarter, the revenue from established service areas (ESA) stood at
`8,105cr, down 1.8% qoq and revenue from new service areas (NSA) stood at
`575cr, up 5.6% qoq. The EBITDA margin of ESA dipped ~140bp qoq to 36.5%;
EBITDA loss from NSA stood at `178cr (`170cr in 1QFY2016). EBITDA contribution
from Indus Towers (Indus) stood at `280cr (+5% qoq). EBITDA losses from new
circles would continue as the company indicated that it does not expect new circles
to break even at the EBITDA level in the near term.
October 27, 2015
4
Idea Cellular | 2QFY2016 Result Update
Exhibit 6: Trend in EBITDA margin
50
44
46
44
42
43
37
36
38
37
36
40
34
35
34
35
33
30
20
10
0
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
(10)
(20)
(30)
(31)
(31)
(40)
(34)
(41)
(42)
(50)
Established service areas
New service areas
Indus
Consolidated
Source: Company, Angel Research
Exhibit 7: Opex breakup
100
32.9
34.3
80
36.4
36.7
35.2
60
11.8
12.2
11.8
11.6
12.3
5.4
4.7
4.6
4.4
4.9
11.2
11.3
40
11.3
11.6
11.4
23.6
22.4
21.3
22.6
23.0
20
15.1
15.0
14.7
13.1
13.1
0
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
Access charges
Network costs
License fee
Employee cost
SGA cost
EBITDA margin
Source: Company, Angel Research
Other result highlights
Wireless churn during the quarter increased to 5.1% from 4.7% in the
sequential previous quarter.
Idea added 3,701 2G cell-sites, taking the total count to 119,276. 3G cell
sites increased by 6,246 to 39,867 as at the end of 2QFY2016.
During the quarter, national long distance (NLD) minutes declined marginally
by 0.3% qoq to 16,287mn. NLD currently carries around 98.6% of Idea’s
captive NLD minutes. Idea ILD services now handle around 99% of captive
international long distance (ILD) outgoing minutes, besides bringing large
volume of incoming minutes from top international carriers across the globe.
Idea ISP (Internet Service Provider) currently handles all captive subscriber
traffic requirements.
Capex for the quarter stood at `1,726cr (excluding forex fluctuations) and the
company has maintained its capex guidance of `6,000-6,500cr for FY2016E.
October 27, 2015
5
Idea Cellular | 2QFY2016 Result Update
Outlook and valuation
Going ahead, realization would remain under pressure on account of heightened
competition, both in the voice and the data segment. Further, post the entry of RJio,
the pricing pressure would worsen further, particularly in the data segment. Also
Idea’s debt/equity has risen from 0.7x in FY2015 to about 1x as at the end of
2QFY2016, on account of payments incurred towards spectrum acquisition and
network expansion. The same is expected to worsen further to 1.4x by the end of
FY2016, and would thereby impact return ratios. We remain cautious on Idea due
to its worsening debt/equity ratio coupled with realization pressures. We maintain
our Neutral rating on the stock.
Company background
Idea Cellular (Idea), a part of the Aditya Birla Group, is the third largest
telecommunication service provider in India in terms of revenue. The company
provides mobile services in all the 22 circles of the country and has 167mn
subscribers. Idea had won 3G licenses in 13 out of the 22 circles in India and is
currently providing 3G services in 21 circles (in seven circles by 3G roaming
agreements). The company also holds a 16% stake in Indus Towers, which is a JV
of Bharti Airtel, Vodafone and Idea.
October 27, 2015
6
Idea Cellular | 2QFY2016 Result Update
Profit and loss account (Consolidated, Indian GAAP)
Y/E March (` cr)
FY2013 FY2014 FY2015 FY2016E FY2017E
Net sales
22,459
26,519
31,571
35,651
38,872
Network operating exp.
5,536
6,499
7,196
8,251
9,124
% of net sales
24.6
24.5
22.8
23.1
23.5
License and WPC charges
2,475
2,924
3,535
4,012
4,271
% of net sales
11.0
11.0
11.2
11.3
11.0
Roaming and access charges
4,015
4,162
4,731
4,743
5,358
% of net sales
17.9
15.7
15.0
13.3
13.8
Other expenses
4,427
4,601
5,290
5,934
6,872
Total expenditure
16,453
18,185
20,752
22,941
25,624
% of net sales
73.3
68.6
65.7
64.3
65.9
EBITDA
6,006
8,334
10,819
12,710
13,248
% of net sales
26.7
31.4
34.3
35.7
34.1
Dep. and amortization
3,478
4,519
5,304
6,501
7,377
EBIT
2,528
3,815
5,515
6,209
5,872
% of net sales
11.3
14.4
17.5
17.4
15.1
Interest expense
949
770
1,018
1,447
1,920
Other income, net
-
-
469.7
156.1
-
Profit before tax
1,579
3,045
4,967
4,919
3,951
Provision for tax
566
1,076
1,740
1,723
1,383
% of PBT
35.9
35.4
35.0
35.0
35.0
PAT
1,012
1,968
3,227
3,196
2,568
Share in earnings of asso.
-
-
-
-
-
Minority interest
-
-
-
-
-
Profit after minority interest
1,012
1,968
3,227
3,196
2,568
EPS (`)
3.1
5.9
9.0
8.9
7.1
October 27, 2015
7
Idea Cellular | 2QFY2016 Result Update
Balance sheet (Consolidated, Indian GAAP)
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016E
FY2017E
Liabilities
Share capital
3,314
3,320
3,598
3,598
3,598
Reserves and surplus
10,989
13,205
19,429
22,409
24,762
Additional paid up capital
-
-
-
-
-
Stock option outstanding
-
-
-
-
-
Total shareholders’ funds
14,303
16,525
23,027
26,007
28,359
Convertible preference shares
2
2
2
2
2
Total debt
12,263
18,776
16,810
36,232
37,832
Long term provisions
314
499
574
574
574
Deferred tax liabilities
1,118
1,813
1,902
1,902
1,902
Other liabilities
795
923
963
3,463
3,963
Total liabilities
28,795
38,537
43,278
68,179
72,631
Assets
Gross block - fixed assets
46,605
51,220
61,821
79,321
86,821
Accumulated depreciation
17,451
21,624
26,287
32,788
40,165
Net block
29,154
29,596
35,534
46,532
46,656
Capital WIP
881
11,419
5,141
17,141
17,291
Total fixed assets
30,035
41,015
40,674
63,673
63,946
Long term loans and adv.
3,048
2,897
4,275
9,000
9,000
Investments
-
-
-
-
-
Goodwill on consolidation
6
6
6
6
6
Non compete fees
-
-
-
-
-
Other non current assets
-
145
46
Current assets
Inventories
73
68
71
71
71
Current investments
1,028
216
11,527
327
327
Debtors
960
801
979
1,859
1,597
Cash
143
188
1,554
325
222
Loans and advances
1,085
1,218
1,229
2,387
2,591
Other current assets
1
3
106
106
106
Total current assets
3,289
2,494
15,466
5,074
4,915
Less:- trade payables
2,687
2,788
3,097
2,927
3,332
Less:-current liab.
4,771
5,044
13,789
6,345
1,602
Less:-provisions
125
188
302
302
302
Net current assets
(4,294)
(5,526)
(1,723)
(4,500)
(321)
Profit and loss account
-
-
-
-
-
Total assets
28,795
38,537
43,278
68,179
72,631
October 27, 2015
8
Idea Cellular | 2QFY2016 Result Update
Cash flow statement (Consolidated, Indian GAAP)
Y/E March (` cr)
FY2013 FY2014 FY2015 FY2016E FY2017E
Profit before tax
1,579
3,045
4,967
4,919
3,951
Depreciation
3,347
4,173
4,663
6,501
7,377
Change in working capital
(95)
1,278
(2,437)
1,548
(4,282)
Direct taxes paid
976
863
303
2,546
500
Less: Others
(566)
(1,076)
(1,740)
(1,723)
(1,383)
Cash Flow from Operations
5,241
8,282
5,756
13,791
6,163
(Inc.)/Dec. in fixed assets
(5,715)
(15,153)
(4,322)
(29,500)
(7,650)
(Inc.)/Dec. in investments
-
-
-
-
-
Others
(792)
151
(1,378)
(4,725)
0
Cash Flow from Investing
(6,506)
(15,002)
(5,700)
(34,225)
(7,650)
Issue of equity
6
5
278
0
0
Inc./(Dec.) in loans
1,014
6,512
(1,965)
19,421
1,600
Dividend paid (Incl. Tax)
(108)
(144)
(216)
(216)
(216)
Others
345
392
3,213
(0)
0
Cash Flow from Financing
1,256
6,766
1,310
19,205
1,384
Inc./(Dec.) in cash
(9)
45
1,366
(1,229)
(103)
Opening Cash balances
152
143
188
1,554
325
Closing Cash balances
143
188
1,554
325
222
October 27, 2015
9
Idea Cellular | 2QFY2016 Result Update
Key Ratios
Y/E March
FY2013
FY2014
FY2015
FY2016E
FY2017E
Valuation ratio (x)
P/E (on FDEPS)
46.2
23.8
15.7
15.9
19.8
P/CEPS
11.3
7.8
5.9
5.2
5.1
P/BVPS
3.5
3.1
2.2
2.0
1.8
Dividend yield (%)
0.2
0.3
0.4
0.4
0.4
EV/Sales
2.8
2.6
1.7
2.4
2.3
EV/EBITDA
10.5
8.3
5.0
6.8
6.6
EV/Total assets
2.2
1.8
1.3
1.3
1.2
Per share data (`)
EPS (Fully diluted)
3.1
5.9
9.0
8.9
7.1
Cash EPS
12.5
18.0
23.7
26.9
27.6
Dividend
0.3
0.4
0.6
0.6
0.6
Book value
39.7
45.9
64.0
72.2
78.8
DuPont analysis
Tax retention ratio (PAT/PBT)
0.6
0.6
0.6
0.6
0.7
Cost of debt (PBT/EBIT)
0.6
0.8
0.9
0.8
0.7
EBIT margin (EBIT/Sales)
0.1
0.1
0.2
0.2
0.2
Asset turnover ratio (Sales/Assets)
0.8
0.7
0.7
0.5
0.5
Leverage ratio (Assets/Equity)
2.0
2.3
1.9
2.6
2.6
Operating ROE
7.1
11.9
14.0
12.3
9.1
Return ratios (%)
RoCE (pre-tax)
8.8
9.9
12.7
9.1
8.1
Angel RoIC
9.5
14.3
22.0
12.3
10.7
RoE
7.1
11.9
14.0
12.3
9.1
Turnover ratios (x)
Asset turnover (fixed assets)
0.7
0.6
0.8
0.6
0.6
Receivables days
14
15
15
15
15
Payable days
65
55
60
55
55
October 27, 2015
10
Idea Cellular | 2QFY2016 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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/dealing in securities Market. Angel or its associates including its relatives/analyst do not hold any financial interest/beneficial
ownership of more than 1% in the company covered by Analyst. Angel or its associates/analyst has not received any compensation /
managed or co-managed public offering of securities of the company covered by Analyst during the past twelve months. Angel/analyst
has not served as an officer, director or employee of company covered by Analyst and has not been engaged in market making activity
of the company covered by Analyst.
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should
make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the
companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine
the merits and risks of such an investment.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
fundamentals.
The information in this document has been printed on the basis of publicly available information, internal data and other reliable
sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this
document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way
responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.
Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannot
testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document.
While Angel Broking Pvt. Limited endeavors to update on a reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing so.
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Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from
or in connection with the use of this information.
Note: Please refer to the important ‘Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the
latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may
have investment positions in the stocks recommended in this report.
Disclosure of Interest Statement
Idea Cellular
1. Analyst ownership of the stock
No
2. Angel and its Group companies ownership of the stock
No
3. Angel and its Group companies' Directors ownership of the stock
No
4. Broking relationship with company covered
No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)
October 27, 2015
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