Virtually every domestic carrier expects to maintain pricing stability, which the brokerage thinks should continue in the next 1-2 quarters. However, uncertainty prevails beyond that, says Nomura Equity Research in its Quick Note on Idea Cellular

Private sector mobile services provider Idea Cellular reported solid 4Q (fourth quarter) results with 9% sequential revenue growth and 14% EBITDA growth (19% on adjustment for regulatory charges) and 120 basis points (bps) margin improvement (240 bps on adjustment). This was driven by a strong 8% minute growth, flat RPMs and strong rise in data contribution. These observations were made by Nomura Equities Research in its Quick Note on the company’s fourth quarter performance.

This result is a welcome relief given wider expectations around improving trends from rationalizing competitive dynamics—although underlying voice RPM’s declined 1% q-o-q, but realization on data appears to have improved by 9%. Data is now 15% of revenues and Idea closed with 5.1 million 3G subscribers.
 

EBITDA margins improved, both in Idea's existing and new circles, although it appears to have been led by flat network costs, which Nomura expects could rise once again going ahead. IDEA announced a maiden dividend of Rs0.3; which implies yield of less than 1%.

No doubt, strong execution was seen from Idea once again. Virtually every domestic carrier expects to maintain pricing stability, which the brokerage thinks should continue in the next 1-2 quarters; however, uncertainty prevails beyond that.

Moreover, regulatory uncertainty remains significant, and Nomura believes valuations of FY14F P/E 24x continue to remain expensive. The brokerage has maintained ‘Reduce’ on the stock.

According to Nomura, revenue is 4% above, EBITDA is 6%-9% above our and consensus expectations and reported NPAT is 4% above estimates, but 15% above consensus. The brokerage forecasts a strong quarter from Idea with revenue growth of 9% q-o-q and EBITDA growth of 14% q-o-q, with margins expanding to 28% (120 bps q-o-q). Adjusting for one-off license and WPC regulatory charges of Rs760 million, EBITDA growth would have been stronger at 19% q-o-q and margins at 29%.

In terms of costs, network operating costs (consol.) have remained broadly flat q-o-q, despite continued rollout of new cell sites (4,000 incremental sites) and dropped to 24% of service revenues versus 26% in 3Q.This has helped margin improvement, though it is likely this could once again rise in the future as Idea continues with its 3G rollout. As percentage of revenues, roaming charges declined by 40bps, while license costs rose 130bps q-o-q. Adjusted for one-off items in the license costs, it would have remained flat at 10.7%. Other than which, all other operating expenditure items were flat as a percentage of sales.

Idea witnessed strong revenue growth in the quarter was driven by an 8% q-o-q growth in minutes volume and also strong improvement in data/VAS revenues q-o-q. The services provider added 11 billion minutes in the reporting quarter, which is one of the strongest it has seen in past several quarters. While overall, RPM’s held steady at 41 paisa, underlying voice RPMs were down 1% q-o-q.

According to Nomura, data/VAS revenues had a strong pick-up, rising 13% q-o-q to c Rs9.1 billion. Idea notes that realization on data improved in this quarter by 9% q-q to 34pasia per MB (from 31 paisa in 3Q) and data volume grew 14% q-o-q. Data contribution inched up to 15.2% of ARPU versus 14.6% in the previous quarter. Idea had 5.1 million 3G subscribers and data ARPU was Rs55.

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Idea declared its maiden dividend of Rs0.3 or 3% of equity share capital and could be a reflection of its improving comfort around its balance sheet and cash position. Capex for FY13 was Rs34 billion (compared to Rs30 billion guidance) and capex for FY14 is expected to be at Rs35 billion.

The company’s capex guidance for FY14 remains at Rs35 billion, excluding any spectrum related payout.
 

Key numbers from Idea Cellular’s 4Q numbers

• • Revenues of Rs 61 billion were up 9% q-o-q and 13% y-o-y. This was driven by an 8% q-o-q growth in minutes to 143 billion in the fourth quarter. RPM was flat at 41 paisa and adjusted for data contribution, core voice RPM fell 1% q-o-q.

• • Reported EBITDA was up 14% q-o-q to rs16.7 billion, with margins of 27.6%, up 120 bps q-o-q.

• • Net PAT of Rs3 billion was up 30% q-o-q.

• • Subscriber additions of 8 million were re the highest in the past eight quarters; while ARPU of Rs167 was up 6% q-o-q.

• • For the data segment, customers rose 5 million to 26million and ARPU grew 6% to Rs55.

• Idea reported a good improvement on churn rate too—blended churn was down to 4.3% against average of 10% over the past two years.