IDEA Cellular's Q4FY18 results (Underperformer) - Merger execution is the key focus
Q4FY18 result highlights
- Inline consolidated revenue performance but beat on EBTIDA: Consolidated revenue was down 5.7% qoq and 24.5% yoy to Rs61.3bn (IDFCe: Rs61.2 bn) in line with estimates. Cons EBITDA at Rs 14.4 bn (IDFCe:Rs10.6bn) was ahead of expectations with margins of 23.6% (IDFCe 17.3%). This led to lower than expected net loss of (Rs9.6) bn against IDFCe of (Rs14.4) bn loss. Adjusted for provision write-back (Rs4.4bn), EBITDA was Rs10bn.
- No pick up in data sub adds: ARPU performance was tad better than estimates but wireless data sub addition was at 5m qoq, no change in trajectory from previous quarter. This is unlike both Bharti and Jio, who have seen acceleration in data sub additions. Idea stated that they are not participating in low ARPU data plans (Rs50-Rs99), which we see as a negative as they risk losing subscribers.
- Balance sheet and capex: Capex for Q4FY18 was at Rs. 21.1bn, taking the overall FY18 capex to Rs. 70bn. No capex guidance for FY19 but Q1 should be ~Rs20bn. Management expects proceeds from tower sale to come in 1H and should provide enough cashflow to fund capex.
- Merger update: The merger of Idea and Vodafone India is in the final leg of regulatory approvals and is expected to complete in H1CY18. Additionally, they remain committed to delivering US$2bn in synergy by year 3. Combined data pop coverage is 750mn and network consolidation will take ~18 mnths
- Impact on financials: FY19E-FY20E EBITDA cut by 0.1% & 0.6%.
Valuations & view
While execution is reasonable given constrained resources, choice to focus on select data market is a risky bet. This is likely driven by balance sheet constraints that limit their ability to accelerate capex and push market share in data segment (reflects in limited acceleration in data sub adds). We believe that there are multiple fronts that Idea will have to fight on – synergies, capex, market share defence and balance sheet repair. Underperformer with target price of Rs 73 (Rs 77 earlier). The change in TP is due to lower than expected proceeds from Indus sale.
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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