1. Healthcare

Results Review
INDIA
TELECOM
28 January 2015
HOLD
Idea Cellular
TP: INR 160.00
 3.6%
IDEA IN
Secular data growth continues – upgrade to HOLD
Idea reported better-than-expected Q3FY15 results, with revenues up 5.9%
QoQ on 19%/5% data/voice revenue growth and EBITDA margins expanding
140bps QoQ on lower network costs. While we have been cautious on the
REPORT AUTHORS
sector given high expectations from voice pricing, these have now
moderated. Also, Idea has underperformed the Nifty by 28% and data
Rumit Dugar
penetration remains a secular growth driver for the company. Upgrade from
SELL to HOLD with a Mar’16 TP of Rs 160 (Rs 135 earlier).
+91 22 6766 3444
[email protected]
 Data-led revenue growth: Idea’s Q3 revenues grew 5.9% QoQ, beating RCMLe of
5.2%, with 6.9mn subscriber additions and a 3.7% ARPU QoQ improvement to
Rs 182. MOUs increased 1% QoQ to 388 minutes while voice realisations were flat
QoQ at 36p/min. The solid 19% QoQ data revenue growth was driven by a 17%/
1.5% increase in volumes/realisations. EBITDA margins expanded 140bps QoQ to
34.3% on lower network costs. PAT at Rs 7.6bn (+61% YoY) came in slightly ahead
estimates (RCMLe: Rs 7.4bn).
Karan Taurani
 Debt to go up in upcoming auctions: With capital raised via a QIP, Idea’s net debt
has declined to Rs 120bn from Rs 128bn in Q2FY15, implying a 1.12x net-debt/
EBITDA (FY15) multiple. However, we think the company will have to continue
investments in expanding its network and acquiring spectrum assets. We note that
strong data growth needs Idea to defend its spectrum share in the upcoming
auctions, which could lead to high gearing. We estimate outflows of Rs 174bn for
the company in the upcoming auctions.
INR 166.05

Upgrade to HOLD: Data growth remains strong and with Idea’s strong execution,
valuations at 5.6x EV/EBITDA are not expensive. We raise our FY16/FY17 EBITDA
estimates by 13% to factor in better margins and data revenues. We have a Mar’16
TP of Rs 160 (rolled over from a Dec’15 TP of Rs 135 earlier) for the stock set at 6.5x
FY17E EV/EBITDA. Upcoming spectrum auctions remain a key stock overhang.
+91 22 6766 3445
[email protected]
PRICE CLOSE (28 Jan 15)
MARKET CAP
INR 597.4 bln
USD 9.7 bln
SHARES O/S
3,544.1 mln
FREE FLOAT
28.6%
3M AVG DAILY VOLUME/VALUE
4.6 mln / USD 11.6 mln
52 WK HIGH
52 WK LOW
INR 178.10
INR 125.10
Financial Highlights
Y/E 31 Mar
FY13A
FY14A
FY15E
FY16E
FY17E
Revenue (INR mln)
224,575
265,188
315,795
358,734
397,867
EBITDA (INR mln)
60,044
83,336
105,977
111,496
123,799
Adjusted net profit (INR mln)
10,108
19,677
30,465
26,688
33,702
3.1
5.9
8.5
7.4
9.4
40.5
94.4
43.3
(12.7)
26.3
DPS (INR)
0.0
0.0
0.0
0.0
0.0
ROIC (%)
5.9
7.4
9.1
8.3
10.8
(INR)
Adjusted EPS (INR)
Adjusted EPS growth (%)
Adjusted ROAE (%)
7.4
12.7
16.7
12.6
13.9
Adjusted P/E (x)
54.4
28.0
19.5
22.4
17.7
EV/EBITDA (x)
12.0
8.6
7.5
6.6
5.6
3.8
3.3
2.8
2.4
2.1
P/BV (x)
Stock Price
Index Price
190
29,400
140
24,400
90
19,400
40
14,400
Source: Company, Bloomberg, RCML Research
This report has been prepared by Religare Capital Markets Limited or one of its affiliates. For analyst certification and other important disclosures, please refer to the Disclosure and Disclaimer section at the end of
this report. Analysts employed by non-US affiliates are not registered with FINRA regulation and may not be subject to FINRA/NYSE restrictions on communications with covered companies, public appearances, and
trading securities held by a research analyst account.
HOLD
Idea Cellular
TP: INR 160.00
 3.6%
IDEA IN
Results Review
INDIA
TELECOM
Fig 1 - Idea: Quarterly review
Rs mn, YE March
Q3FY15
Expected
Diff (%)
Q2FY15
Revenue
80,174
79,617
0.7
EBITDA
27,528
26,149
5.3
EBIT
12,702
14,123
PBT
11,719
7,673
Net profit
%Q/Q
Q3FY14
% Y/Y
75,699
5.9
66,131
21.2
24,908
10.5
20,557
33.9
(10.1)
13,120
(3.2)
8,891
42.9
12,213
(4.0)
11,674
0.4
7,316
60.2
7,430
3.3
7,559
1.5
4,677
64.0
2.13
2.07
3.2
2.10
1.5
1.41
51.3
34.3%
32.8%
EPS
EBITDA margins
32.9%
31.1%
Source: Company, RCML Research
Fig 2 - Expected outflow on spectrum auctions
Jan 2015 reserve price
(Rs cr)
Spectrum (mhz)
Cost based on Reserve
Price (Rs cr)
Auction price
(Rs cr)
900mhz
1800mhz
(20% higher) (30% higher)
900mhz
1800mhz
Total
900mhz
1800mhz
900mhz
1800mhz
Maharashtra
7.8
2
9.8
420
290
3,276
581
3,931
755
Gujarat
6.2
0
6.2
339
238
2,102
0
2,522
0
A.P
6.2
1.8
8
271
163
1,680
293
2,016
381
Karnataka*
6.2
0
6.2
286
155
1,773
0
2,128
0
Kerala
6.2
1.8
8
150
75
930
135
1,116
176
Punjab*
7.8
0
7.8
141
71
1,100
0
1,320
0
Haryana
6.2
0
6.2
64
32
397
0
476
0
UP(West)
6.2
1.8
8
152
95
942
171
1,131
222
M.P
6.2
1.8
8
138
69
856
124
1,027
161
Total (Rs cr)
13,056
1,304
15,667
1,696
Total (Rs cr)
14,360
17,363
Source: RCML Research, TRAI
Fig 3 - Target Price (based on spectrum outflow impact)
Rs/share
TP Based on 6.5xFY17E EV/EBITDA
205
(-) Spectrum outflow impact (Rs 174bn)
48
157
Revised TP
Source: RCML Research
Fig 4 - Idea: Estimate revisions
Rs mn, YE March
New estimates
Old Estimates
Change
FY16
FY17
FY16
FY17
Revenues
358,734
397,867
328,855
EBITDA
111,496
123,799
98,716
EBITDA margins (%)
FY16
FY17
350,413
9.1
13.5
109,702
12.9
12.8
31.1
31.1
30.0
31.3
106 bps
-19 bps
EBIT
46,415
59,128
43,257
52,585
7.3
12.4
Pre Tax Profit
41,546
52,259
34,012
46,154
22.2
13.2
PAT
26,688
33,702
22,788
30,923
17.1
9.0
EPS
7.4
9.4
6.4
8.7
15.9
7.7
155,500
159,500
147,000
-
5.8
195
211
188
-
3.7
Metrics
Subscribers ('000)
ARPU (Rs)
Source: RCML Research
28 January 2015
Page 2 of 6
HOLD
Idea Cellular
TP: INR 160.00
 3.6%
IDEA IN
Results Review
INDIA
TELECOM
Fig 5 - Idea: Operating metrics
Key Operating Metrics
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
113.9
121.6
125.0
127.2
128.7
135.8
139.0
143.6
150.5
(1.6)
7.7
3.4
2.2
1.5
7.1
3.2
4.6
6.9
158
167
174
164
169
173
181
176
179
Q/Q Growth
6.8
5.7
4.2
(5.7)
3.0
2.4
4.6
(2.8)
1.7
Y/Y Growth
(0.6)
4.4
11.5
10.8
7.0
3.6
4.0
7.3
5.9
MOU (mins)
384
406
398
368
376
397
401
384
388
Q/Q Growth
7.0
5.7
(2.0)
(7.5)
2.2
5.6
1.0
(4.2)
1.0
Y/Y Growth
4.1
7.1
5.0
2.5
(2.1)
(2.2)
0.8
4.3
3.2
ARPM (Rs/min)
41.1
41.1
43.7
44.6
44.9
43.6
45.1
45.8
46.1
Q/Q Growth
(0.2)
(0.0)
6.3
1.9
0.9
(3.0)
3.6
1.5
0.7
Y/Y Growth
(5.0)
(2.6)
6.2
8.1
9.2
5.9
3.2
2.8
2.6
132.2
143.4
147.3
138.8
144.6
157.1
165.2
162.5
170.7
Subscribers ('000) - EOP
Net-adds ('000)
Reported ARPU (Rs/month)
Total Traffic (mn Mins)
Q/Q Growth
5.2
8.5
2.8
(5.8)
4.2
8.6
5.2
(1.7)
5.1
Y/Y Growth
16.0
15.3
12.5
10.5
9.4
9.5
12.2
17.0
18.1
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
55,786
60,614
65,388
63,233
66,131
70,438
75,610
75,699
80,174
5.0
8.7
7.9
(3.3)
4.6
6.5
7.3
0.1
5.9
10.9
12.9
18.8
19.0
18.5
16.2
15.6
19.7
21.2
(12,042)
Source: Company
Fig 6 - Idea: Quarterly financials
Rs mn, year-end March
Revenues (Rs Mn)
Q/Q Growth (%)
Y/Y Growth
Interconnection & access costs
(10,183)
(10,770)
(10,951)
(9,563)
(10,090)
(11,011)
(11,444)
(11,442)
Q/Q Growth
7.1
5.8
1.7
(12.7)
5.5
9.1
3.9
(0.0)
5.2
Y/Y Growth
20.4
17.8
13.1
0.6
(0.9)
2.2
4.5
19.6
19.4
(9,034)
License and spectrum fee
(5,897)
(7,191)
(7,465)
(6,959)
(7,232)
(7,582)
(8,352)
(8,467)
Q/Q Growth
4.4
21.9
3.8
(6.8)
3.9
4.8
10.2
1.4
6.7
Y/Y Growth
5.1
(2.5)
24.1
23.2
22.6
5.4
11.9
21.7
24.9
(14,209)
(14,298)
(15,436)
(15,862)
(16,423)
(17,270)
(18,168)
(17,894)
(17,980)
5.7
0.6
8.0
2.8
3.5
5.2
5.2
(1.5)
0.5
Network costs
Q/Q Growth
Y/Y Growth
Sales & Marketing
23.2
13.7
15.1
17.9
15.6
20.8
17.7
12.8
9.5
(5,993)
(6,486)
(5,878)
(5,636)
(6,343)
(6,817)
(6,760)
(6,570)
(7,377)
12.3
Q/Q Growth
6.9
8.2
(9.4)
(4.1)
12.5
7.5
(0.8)
(2.8)
Y/Y Growth
(6.8)
(4.7)
(17.2)
0.5
5.8
5.1
15.0
16.6
16.3
(2,039)
(2,163)
(1,822)
(2,016)
(2,041)
(2,335)
(2,212)
(2,339)
(2,424)
5.8
6.1
(15.8)
10.6
1.3
14.4
(5.3)
5.8
3.6
G&A
Q/Q Growth
Y/Y Growth
Employee costs
(15.2)
29.0
5.3
4.6
0.1
8.0
21.4
16.1
18.7
(2,731)
(2,976)
(3,073)
(3,482)
(3,445)
(3,121)
(3,569)
(4,080)
(3,789)
(7.1)
Q/Q Growth
(1.7)
9.0
3.3
13.3
(1.1)
(9.4)
14.4
14.3
Y/Y Growth
12.7
16.8
12.2
25.3
26.2
4.9
16.1
17.2
10.0
(41,052)
(43,883)
(44,624)
(43,518)
(45,574)
(48,137)
(50,504)
(50,792)
(52,646)
Q/Q Growth
5.5
6.9
1.7
(2.5)
4.7
5.6
4.9
0.6
3.7
Y/Y Growth
11.4
9.4
9.7
11.8
11.0
9.7
13.2
16.7
15.5
14,734
16,731
20,763
19,715
20,557
22,302
25,106
24,908
27,528
26.4
27.6
31.8
31.2
31.1
31.7
33.2
32.9
34.3
Q/Q Growth
3.6
13.6
24.1
(5.0)
4.3
8.5
12.6
(0.8)
10.5
Y/Y Growth
9.6
23.3
44.6
38.6
39.5
33.3
20.9
26.3
33.9
11,719
Total operating costs
EBITDA
EBITDA margin (%)
Profit before tax
3,482
5,395
7,199
6,971
7,316
8,956
10,945
11,674
Q/Q Growth
(1.5)
54.9
33.5
(3.2)
4.9
22.4
22.2
6.7
0.4
Y/Y Growth
16.4
56.3
114.2
97.1
110.1
66.0
52.0
67.5
60.2
7,673
Reported PAT
2,286
3,082
4,627
4,476
4,677
5,898
7,009
7,559
Q/Q Growth
(4.8)
34.8
50.1
(3.3)
4.5
26.1
18.8
7.9
1.5
Y/Y Growth
13.7
29.0
97.6
86.5
104.6
91.4
51.5
68.9
64.0
Source: Company
28 January 2015
Page 3 of 6
HOLD
Idea Cellular
TP: INR 160.00
 3.6%
IDEA IN
Results Review
INDIA
TELECOM
Per Share Data
Y/E 31 Mar (INR)
FY13A
FY14A
FY15E
FY16E
FY17E
Reported EPS
3.1
5.9
8.5
7.4
9.4
Adjusted EPS
3.1
5.9
8.5
7.4
9.4
DPS
0.0
0.0
0.0
0.0
0.0
43.7
50.1
60.1
68.2
78.4
FY13A
FY14A
FY15E
FY16E
FY17E
3.2
2.7
2.5
2.0
1.8
EV/EBITDA
12.0
8.6
7.5
6.6
5.6
Adjusted P/E
54.4
28.0
19.5
22.4
17.7
3.8
3.3
2.8
2.4
2.1
FY13A
FY14A
FY15E
FY16E
FY17E
EBITDA margin
26.7
31.4
33.6
31.1
31.1
EBIT margin
11.3
14.4
16.7
12.9
14.9
Adjusted profit margin
4.5
7.4
9.6
7.4
8.5
Adjusted ROAE
7.4
12.7
16.7
12.6
13.9
ROCE
5.9
7.5
9.2
7.8
9.5
Revenue
15.0
18.1
19.1
13.6
10.9
EBITDA
18.0
38.8
27.2
5.2
11.0
Adjusted EPS
40.5
94.4
43.3
(12.7)
26.3
6.2
35.8
(5.9)
(2.4)
0.2
17
BVPS
Valuation Ratios
Y/E 31 Mar (x)
EV/Sales
P/BV
Financial Ratios
Y/E 31 Mar
Profitability & Return Ratios (%)
YoY Growth (%)
Invested capital
Working Capital & Liquidity Ratios
Receivables (days)
14
12
14
17
Inventory (days)
2
2
5
9
9
Payables (days)
134
141
141
141
145
Current ratio (x)
0.6
0.5
0.8
0.9
0.9
Quick ratio (x)
0.1
0.0
0.3
0.4
0.5
Gross asset turnover
0.5
0.7
0.8
0.8
0.8
Total asset turnover
0.7
0.6
0.7
0.7
0.8
Net interest coverage ratio
2.7
5.0
5.5
5.3
5.5
Adjusted debt/equity
0.9
1.2
0.7
0.5
0.3
Turnover & Leverage Ratios (x)
DuPont Analysis
Y/E 31 Mar (%)
FY13A
FY14A
FY15E
FY16E
FY17E
Tax burden (Net income/PBT)
64.1
64.6
65.0
64.2
64.5
Interest burden (PBT/EBIT)
62.4
79.8
89.0
89.5
88.4
EBIT margin (EBIT/Revenue)
11.3
14.4
16.7
12.9
14.9
Asset turnover (Revenue/Avg TA)
65.1
64.0
66.6
71.7
75.1
251.2
268.0
260.9
236.0
218.9
7.4
12.7
16.7
12.6
13.9
Leverage (Avg TA/Avg equities)
Adjusted ROAE
28 January 2015
Page 4 of 6
HOLD
Idea Cellular
TP: INR 160.00
 3.6%
IDEA IN
Results Review
INDIA
TELECOM
Income Statement
Y/E 31 Mar (INR mln)
FY13A
FY14A
FY15E
FY16E
FY17E
224,575
265,188
315,795
358,734
397,867
EBITDA
60,044
83,336
105,977
111,496
123,799
EBIT
25,266
38,142
52,716
46,415
59,128
Net interest income/(expenses)
(9,495)
(7,700)
(9,632)
(8,687)
(10,687)
Other income/(expenses)
0
0
3,817
3,817
3,817
Exceptional items
0
0
0
0
0
EBT
15,772
30,442
46,901
41,546
52,259
Income taxes
Total revenue
(5,664)
(10,765)
(16,436)
(14,858)
(18,557)
Extraordinary items
0
0
0
0
0
Min. int./Inc. from associates
0
0
0
0
0
10,108
19,677
30,465
26,688
33,702
Reported net profit
Adjustments
0
0
0
0
0
10,108
19,677
30,465
26,688
33,702
Y/E 31 Mar (INR mln)
FY13A
FY14A
FY15E
FY16E
FY17E
Accounts payables
66,172
74,046
88,276
102,776
115,497
Adjusted net profit
Balance Sheet
Other current liabilities
0
0
0
0
0
Provisions
1,777
1,777
1,777
1,777
1,777
Debt funds
140,437
206,350
176,732
168,732
148,732
Other liabilities
11,180
18,133
18,133
18,133
18,133
Equity capital
33,143
33,196
35,966
35,966
35,966
Reserves & surplus
111,073
132,073
162,538
189,226
222,928
Shareholders' fund
144,216
165,269
198,504
225,192
258,894
Total liabilities and equities
363,782
465,575
483,422
516,609
543,033
11,709
4,036
30,485
57,888
70,922
9,601
8,006
15,573
17,691
19,621
726
683
4,326
4,914
5,450
41,335
42,636
42,636
42,636
42,636
Cash and cash eq.
Accounts receivables
Inventories
Other current assets
Investments
0
0
0
0
0
291,539
295,959
276,146
279,225
290,149
8,811
114,194
114,194
114,194
114,194
61
61
61
61
61
Deferred tax assets, net
0
0
0
0
0
Other assets
0
0
0
0
0
Total assets
363,782
465,575
483,422
516,609
543,033
Y/E 31 Mar (INR mln)
FY13A
FY14A
FY15E
FY16E
FY17E
Net income + Depreciation
44,886
64,872
83,727
91,769
98,373
9,495
7,700
9,632
8,687
10,687
0
0
0
0
0
7,200
8,211
3,019
11,794
10,255
Net fixed assets
CWIP
Intangible assets
Cash Flow Statement
Interest expenses
Non-cash adjustments
Changes in working capital
Other operating cash flows
Cash flow from operations
Capital expenditures
4,907
6,953
0
0
0
66,487
87,736
96,378
112,249
119,315
(58,453)
(154,997)
(33,448)
(68,160)
(75,595)
Change in investments
0
0
0
0
0
Other investing cash flows
0
0
0
0
0
Cash flow from investing
(58,453)
(154,997)
(33,448)
(68,160)
(75,595)
Equities issued
3,607
1,376
2,770
0
0
Debt raised/repaid
7,065
65,913
(29,618)
(8,000)
(20,000)
Interest expenses
(9,495)
(7,700)
(9,632)
(8,687)
(10,687)
Dividends paid
0
0
0
0
0
Other financing cash flows
0
0
0
0
0
Cash flow from financing
1,178
59,589
(36,480)
(16,687)
(30,687)
9,212
(7,673)
26,449
27,403
13,033
11,709
4,036
30,485
57,888
70,922
Changes in cash and cash eq
Closing cash and cash eq
28 January 2015
Page 5 of 6
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28 January 2015
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