PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Transcription

1 BUY CMP Target Price IDEA CELLULAR LIMITED (CONSOLIDATED) Result Update: Q3 FY15 MARCH 24 th 2015 ISIN: INE669E01016 Index Details Stock Data Sector Telecom Services BSE Code Face Value wk. High / Low (Rs.) / Volume (2wk. Avg.) Market Cap (Rs. in mn.) Annual Estimated Results (A*: Actual / E*: Estimated) YEARS FY14A FY15E FY16E Net Sales EBITDA Net Profit EPS P/E Shareholding Pattern (%) 1 Year Comparative Graph IDEA CELLULAR LTD S&P BSE SENSEX SYNOPSIS Idea Cellular Ltd the Third largest wireless operator in India with a revenue market share of 17.2% in Q2 FY15. For Q3 FY15, on consolidated basis including Indus 16% contribution, Idea revenue grew by 21.2 to Rs mn from Rs mn in Q3 FY14. During same period EBITDA rose by 34.1%, stood at Rs mn at 34.3% margin (3.3% YoY margin increase). The consolidated PAT at Rs mn in Q3 FY15 has grown sharply by 64% from Rs mn in Q3 FY14. During Q3 FY15, Idea carried bn minutes on its network, registering 5.1% sequential quarterly growth and 46.1 bn Megabytes of Mobile data on its 2G+3G quarterly expansion. The standalone quarterly revenue was Rs. 80,148 YoY increase (over Q3 FY14). The standalone EBITDA of Rs. 24,860 mn, grew annually by 37.3%. During Q3 FY15, standalone PAT at Rs. 6,783 mn, 70.4% higher compared to Rs. 3,981 mn in Q3 FY14. In the CY 2014, Idea added 22.2 mn subscribers (VLR net adds); the highest addition in the Industry. During Q3 FY15, Cash Profit of Rs. 20,286 mn (YoY Growth of 29.5%) and Net Debt reduced to Rs. 110,891 mn in Q3 FY15. The Mobile data subscriber base on 2G+3G platform has risen by 8.6 mn in CY 2014 to 34.2 mn. Net Sales and PAT of the company are expected to grow at a CAGR of 16% and 51% over 2013 to 2016E respectively. PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%) Idea Cellular Ltd Bharti Airtel Ltd Tata Communication Ltd Reliance Communication Ltd

2 Analysis & Recommendation - BUY For Q3 FY15, on consolidated basis including Indus 16% contribution, Idea revenue grew by 21.2%, an incremental YoY revenue growth of Rs mn. During same period EBITDA rose by 34.1%, driving the absolute EBITDA for this quarter to Rs mn at 34.3% margin (3.3% YoY margin increase). The consolidated PAT at Rs mn in Q3 FY15 has grown sharply by 64% from Rs mn in Q3 FY14. During the quarter, Idea carried bn minutes on its network, registering 5.1% sequential quarterly growth and 46.1 bn Megabytes of Mobile data on its 2G+3G quarterly expansion, with both lines of business delivering strong performance. The Value Added Service (VAS) contribution has improved sharply to 23.1% of service revenue, an unprecedented gain of 7% in last one year. The standalone quarterly revenue was Rs. 80,148 YoY increase (over Q3FY14). The standalone quarterly EBITDA of Rs. 24,860 mn, grew annually by 37.3%. Idea during last one year has improved its EBITDA margin by 3.6% to 31% from 27.4% in Q3 FY14, on the back of 4.2% EBITDA margin improvement between Q3 FY13 (23.1%) to Q3 FY14. Idea has delivered Profit After Tax (PAT) at Rs. 6,783 mn, 70.4% higher compared to Rs. 3,981 mn in Q3 FY14. As mobility market services expand, Indian Telecom business offers exciting growth opportunities in Mobile broadband & rural voice telephony. Brand Idea with growing consumer affinity, strong cash flows, expanding 2G & 3G network footprint and competitive spectrum profile, reaffirms its ability to overcome current short term uncertainties, emerge stronger and consolidate its market position to tap emerging telecom and mobile banking opportunities. Hence, we recommend BUY for Idea Cellular Ltd with a target price of Rs for medium to long term investment. QUARTERLY HIGHLIGHTS (CONSOLIDATED) Results updates- Q3 FY15, Idea Cellular Ltd the Third largest wireless operator in India, reported its financial results for the quarter ended 31 st Dec, Months Dec-14 Dec-13 % Change Net Sales Net Profit EPS EBITDA The company s consolidated net profit jumps to Rs million against Rs million in the corresponding quarter ending of previous year, an increase of 64.00%. Revenue for the quarter rose by 21.24% to Rs million from Rs million, when compared with the prior year period. Reported earnings per share of the company stood at Rs a share during the quarter, registering 51.26% increase over previous year period. EBITDA (including other income) rose by 40.36% to Rs millions as against Rs millions in the corresponding period of the previous year.

3 Break up of Expenditure Break up of Expenditure Rs. In Millions Q3 FY15 Q3 FY14 Cost of Trading Goods Personnel Expenditure Network Expenses & IT Outsourcing Cost License & WPC Charges Roaming & Access Charges Subscriber Acquisition & Servicing & Advertise and Business Promotion Exp Depreciation & Amortization Other Expenditure Segment Revenue COMPANY PROFILE Idea Cellular Limited ( Idea ) is the third largest wireless operator in India with a Revenue Market Share (RMS) of 17.2% (Q2FY15). In the 15 Established Service Areas, its RMS stands at a strong level of 20.4% (Q2FY15). The company carries around 1.86 billion minutes on a daily basis during the quarter Q3FY15. Idea is the sixth largest mobile telecommunications company (counted on operations in a single country) in the world based on number of subscribers (as determined from data issued by GSMA Intelligence, as of June 2014).

4 Idea is part of the Aditya Birla Group, which is one of the largest business groups in India. The Aditya Birla Group is a conglomerate with operations in more than 30 countries. The Aditya Birla group has a history of over 50 years and has businesses in, among others, mobile telecommunications, metals and mining, cement, carbon black, textiles, garments, chemicals, fertilizers, life insurance and financial services industries. Using the latest in technology, Idea provides world-class service delivery through the most extensive network of customer touch points, comprising of nearly 4,500 exclusive Idea outlets, and over 7,000 call centre seats. Idea s customer service delivery platform is ISO 9001:2008 certified, making it the only operator in the country to have this standard certification for all 22 service areas and the corporate office. Idea has consistently stayed ahead of the industry in VLR reporting. Idea s thought leadership on Mobile Number Portability (MNP) has enabled it to stay as the top gainer with highest net gain. Every 4th mobile user who exercises choice through MNP prefers Idea. Idea offers a range of high-speed mobile broadband devices including Android based 3G smartphones, dongles etc. Idea s wide portfolio of 3G smartphones offer the latest in 3G applications and high-end data services such as Idea TV, games, social networking etc. at most affordable prices. Idea has been a pioneer in introducing customized product offerings for segmented customers. It is the first mobile operator to introduce innovative value added services in the Indian telephony market, and has remained ahead of the industry in data product offerings. Business Area Voice Based Services IDEA Concall Hosted IVR Toll Free Solution Location Based Services Connectivity Based Services Field Force Automation I-SAFE Market to Market Based Services

5 FINANCIAL HIGHLIGHT (CONSOLIDATED) (A*- Actual, E* -Estimations & Rs. In Millions) Balance Sheet as at March 31, E IDEA CELLULAR LTD. FY13A FY14A FY15E FY16E SOURCES OF FUNDS Shareholder's Funds Share Capital Reserves and Surplus Sub Total - Net worth Compulsorily Convertible Preference Shares Non Current Liabilities Long term borrowings Deferred Tax Liabilities Other Long Term Liabilities Long Term Provisions Sub Total - Non Current Liabilities Current Liabilities Short Term Borrowings Trade Payables Other Current Liabilities Short Term Provisions Sub Total - Current Liabilities Total Liabilities ( ) APPLICATION OF FUNDS Non-Current Assets Fixed Assets Tangible Assets Intangible Assets Capital Work-in-Progress a) Sub Total - Fixed Assets b) Goodwill on Consolidation c) Long Term loans and advances d) Other non-current assets Sub Total - Non Current Assets Current Assets Current Investment Inventories Trade receivables Cash and Bank Balances Short-terms loans & advances Other current assets Sub Total - Current Assets Total Assets (1+2)

6 Annual Profit & Loss Statement for the period of 2013 to 2016E Value(Rs. mn) FY13A FY14A FY15E FY16E Description 12m 12m 12m 12m Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross profit Depreciation Profit Before Tax Tax Net Profit Equity capital Reserves Face value EPS Quarterly Profit & Loss Statement for the period of 30 th June, 2014 to 31 st Mar, 2015E Value(Rs. mn) 30-Jun Sep Dec Mar-15E Description 3m 3m 3m 3m Net sales Other income Total Income Expenditure Operating profit Interest Gross profit Depreciation Profit Before Tax Tax Net Profit Equity capital Face value EPS

7 Ratio Analysis Particulars FY13A FY14A FY15E FY16E EPS (Rs.) EBITDA Margin (%) 26.74% 31.43% 34.72% 34.49% PBT Margin (%) 7.02% 11.48% 14.87% 15.27% PAT Margin (%) 4.50% 7.42% 9.67% 9.86% P/E Ratio (x) ROE (%) 7.07% 11.91% 13.53% 13.05% ROCE (%) 35.69% 36.41% 41.79% 43.59% Debt Equity Ratio EV/EBITDA (x) Book Value (Rs.) P/BV Charts

8 OUTLOOK AND CONCLUSION At the current market price of Rs , the stock P/E ratio is at x FY15E and x FY16E respectively. Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs.8.51 and Rs.9.72 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 16% and 51% over 2013 to 2016E respectively. On the basis of EV/EBITDA, the stock trades at 6.56 x for FY15E and 5.65 x for FY16E. Price to Book Value of the stock is expected to be at 2.74 x and 2.31 x respectively for FY15E and FY16E. We expect that the company surplus scenario is likely to continue for the next three years, will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs for Medium to Long term investment. INDUSTRY OVERVIEW Telecommunication services are globally recognised as one of the driving forces for overall economic development in a nation. They are also one of the prime support services needed for rapid growth and modernisation of various sectors of the economy. The Government of India recognises this fact and hence, has taken several major initiatives to provide a business friendly environment for companies in this sector.

9 Driven by 3G and 4G services, it is expected that there will be huge machine-to-machine (M2M) growth in India in , according to UST Global. There is also a lot of scope for growth of M2M services in the government's ambitious Rs 7,000 crore (US$ 1.1 billion) 'Smart City' program Market Size India saw the fastest growth in new mobile-phone connections with 18 million net additions in the third quarter of The number of smartphones, which account for just 37 per cent of all mobile-phone subscriptions, will reach 2,700 million by 2014, and growing at 15 per cent compounded annual growth rate, will cross 6,100 by The falling cost of handsets, coupled with improved usability and increasing network coverage, are factors that are making mobile technology a popular phenomenon in the country. The broadband services user-base in India is expected to grow to 250 million connections by 2017, according to GSMA. It also expects to see increased mobile broadband penetration in India, with over 250 million on either 3G /4G by According to the GSMA s broadband services report card, the month-on-month (m-o-m) broadband growth rate in India was at 4.95 per cent, with million subscribers as of March State-owned Bharat Sanchar Nigam Ltd (BSNL) leads the combined wired and wireless broadband market with per cent share. Investments With daily increasing subscriber base, there have been a lot of investments and developments in the sector. Some of the major developments in the recent past are: Japanese telecom company SoftBank has planned to invest around US$ 10 billion in India s IT sector over the next few years. Ericsson has won Rs 60 crore (US$ 9.42 million) three-year operations support systems (OSS) deal from Reliance Jio Infocomm. Under the deal Ericsson will provide the telecom unit of Reliance Industries its service fulfilment software solutions comprising nine suites. Reliance Jio Infocomm Ltd has signed an agreement to share telecom towers of GTL Infrastructure Ltd. Government Initiatives The department of telecommunications (DoT) has agreed to the defence ministry s demands for a defence band and a so-called defence interest zone (DIZ). This move will free up 3G telecom spectrum for at least three new carriers.

10 The Government of India has asked telecom firms to implement full mobile number portability by May 2015, a move that will enable subscribers to retain their numbers when they shift to other states or licensed service areas. DoT has planned to frame a separate exit policy for the country s telecom sector that will allow companies to leave the business without losing out on the value of the assets. The move is being seen as part of Government of India s endeavour to make the country s telecom sector investor-friendly and enhance the ease of doing business in India. The telecom department is examining a proposal from the National Manufacturing Competitiveness Council to float a US$ 1 billion government-sponsored fund to seed 'Made in India' technologies to boost local gear manufacturing. Road Ahead India will emerge as a leading player in the virtual world by having 700 million internet users of the 4.7 billion global users by 2025, as per a Microsoft report. With the government s favourable regulation policies and 4G services hitting the market, rapid growth is expected in the Indian telecommunication sector in the next few years. Also, with developments in this sector, services such as security and surveillance, remote monitoring of ATM machines, home automation, traffic management, retail, logistics and grid energy could eventually facilitate optimisation of resources. Disclaimer: This document is prepared by our research analysts and it does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but we do not represent that it is accurate or complete and it should not be relied on as such. Firstcall Research or any of its affiliates 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. Firstcall Research and/ or its affiliates and/or employees will not be liable for the recipients investment decision based on this document.

11 Firstcall India Equity Research: C.V.S.L.Kameswari Pharma & Diversified U. Janaki Rao Capital Goods B. Anil Kumar Auto, IT & FMCG M. Vinayak Rao Diversified G. Amarender Diversified Firstcall Research Provides Industry Research on all the Sectors and Equity Research on Major Companies forming part of Listed and Unlisted Segments For Further Details Contact: Tel.: / / Telefax: / info@firstobjectindia.com