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MOSL: IDEA CELLULAR (Buy)-Too many moving levers in the near term-EBITDA at INR21.9b surprisingly up 1% QoQ

​IDEA CELLULAR: Too many moving levers in the near term; EBITDA at INR21.9b surprisingly up 1% QoQ, 19% above estimate

(IDEA IN, Mkt Cap USD4.9b, CMP INR85, TP INR110, 29% Upside, Buy)

• Network cost savings protect EBITDA: Idea’s (IDEA) revenues declined 6%/14% QoQ/YoY to INR81.3b (in-line). EBITDA surprisingly grew 1% QoQ (-39% YoY) to INR21.9b (higher than est. of INR18.5b). It majorly benefited from lower network cost (-5% QoQ) on the back of ~900 2G site reduction and other cost-optimization measures. EBITDA margin expanded 200bp QoQ to 27% (410bp above est.). Net loss stood at INR3.8b (flat QoQ), as against net profit of INR5.8b in the year-ago period. FY17 revenue/EBITDA of INR355.8b/INR102.8b declined 1%/21% YoY. PAT in FY17 turned negative at INR4b v/s INR30.8b in FY16.
  
• Deteriorating voice and data pricing: Voice revenue of INR59.7b declined 3% QoQ on the back of a 12% fall in voice pricing, partly offset by high incoming traffic, which led to 10% voice traffic growth. Data revenue continued the free fall (-16% QoQ to INR14.6b) owing to 28% ARMB decline, partly offset by 17% data traffic growth. Blended ARPU dropped 10% QoQ to INR142, while data ARPU remained flat at INR111.
  
• Expect EBITDA to bottom in FY18: We maintain our FY18 estimate of 5%/17% revenue/EBITDA fall, given RJio’s continued freebies in 1QFY18 and a gradual recovery from 3Q-4QFY18. We expect industry to bottom in next 3-4 quarters. We thus expect revenue/EBITDA growth of 7%/9% in FY19.