IDEA Cellular's Q1FY19 results (Underperformer) - Data market share loss accelerates, synergy execution key
Q1FY19 result highlights
Inline consolidated revenue performance but miss on EBTIDA: Revenue came at Rs58.9 bn de-growth of 4% QoQ vs (IDFCe: Rs59.4bn), inline with estimates · EBITDA came at Rs6.6bn de-growth of 54% QoQ (IDFCe: Rs8.03bn). EBITDA margin came at 11.2% in Q1FY19 (IDFCe: 13.5%)· EBITDA miss is driven by sharp rise in network costs. One-time gain on tower sale (Rs33bn) led to PAT of Rs2.6bn against IDFCe of (Rs15.8)bn loss.
Data sub adds moderate to mere 1mn in the quarter: ARPU performance was tad better than estimates. ARPU for Q1FY19 came at Rs.100 vs IDFCe : Rs.99, a decline of 4.8% QoQ. Wireless data sub addition were only 1mn qoq, drop from 5mn qoq trajectory from previous quarter. This is unlike both Bharti and Jio, who have seen continued momentum in data sub additions. Further number of broadband devices on the Idea network declined qoq, although marginally, to 110.9. Management also indicated that their strategy to balance unlimited bundles with limited plans didn’t work well.
Balance sheet and capex: Capex for the quarter was at Rs9.8bn and management indicated that they are awaiting the merger completion to accelerate investments. Net Debt remained stable at Rs. 543bn in Q1FY19 (Rs557bn in 4Q). In Q1FY19, Idea rolled out 5,688 Broadband sites – slower than 4Q.
Impact on financials: FY19E-FY20E EBITDA cut by 44% & 37%.
Valuations & view
The overall performance at revenue level is largely inline but EBITDA performance is weak. Both Idea and Vodafone’s data subscriber market share loss has accelerated in Q1 and even the broadband devices on the network have fallen for Idea. Reduction in smartphone count on the network, although marginal, suggests that Idea is probably losing voice sim slot too. Merger approval should provide Idea-Vodafone some cushion to improve network and improve participation in the 4G-data market; but equity value protection is highly dependent on their ability to delivery cost synergies and drive EBITDA even as they lose RMS. We are cutting our EBITDA estimates by 44%/37%. Maintain Underperformer with revised TP of Rs48 (8x FY20E pro-forma EV/EBITDA).
Idea Cellular provides Global System for Mobile Communications (GSM) based mobile services and related telephony services to individuals and businesses in India. The company operates through three segments: Mobility Services, which provides GSM based mobile and related telephony services; International Long Distance (ILD), which provides international long distance services; and Passive Infrastructure, which provides passive infrastructure services. Co. offers 2G and 3G services that comprise roaming arrangements; ILD and other services; and a range of mobile broadband devices, including dongles and 3G smartphones that provide 3G applications and data services.
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