Idea Cellular (Idea)s 2QFY2016 results have come in broadly in line with our
estimates. The average Minutes of Use (MOU) dipped 5.4% qoq to
386min/subscriber/month (due to seasonality issues and increasing rural
penetration), the average revenue per min (ARPM) grew 1.8% sequentially to
Rs0.45, and thereby the average revenue per user (ARPU) declined by 3.8% on a
qoq basis to Rs175/month. We maintain our Neutral view on the stock.
Quarterly highlights: Idea’s consolidated revenue for the quarter came in at
Rs8,723cr, 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 Rs8,509cr, on
account of a decline in the overall MOU. The EBIDTA margin slipped 150bp qoq
to 35.2% due to increase in personnel costs and on account of a 5% sequential
increase in advertisement and business promotion expenses. The Net Profit at
Rs809.3cr, declined by 13.1% on a sequential basis.
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
further, particularly in the data segment. Also, Idea’s debt/equity ratio 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.

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