IDEA CELLULAR - QTRLY RESULTS - Q3 FY 2012 -Q/E DEC,2011 - CON-NET SALES UP 9%QoQ; C-NPT UP 90%QoQ; BUT EPS STILL LOW

Idea Cellular Limited

NSE Symbol        IDEA

IDEA CELLULAR  has declared reasonable results for the 3^rd quarter ending Dec,2011.

In respect of Telecom companies ,a comparison with corresponding qtr of last year is usually immaterial. However, comparison of the consolidated Results for Q3 FY 12 is made with Q2FY12, Q1 FY 12 and also with Q3 FY11 below:

Net Sales stands at Rs.5020.37 cr in Q3 FY 12 – up by  8.95% from Q2 FY 12; up by  11.17% from Q1 FY 12; and Up by   27.01% from Q3 FY 11.

Total Expenditure stands at Rs.4443.71 Cr in Q3 FY 12; up by 6.56% from Q2 FY 12; UP by  10.56% from Q1 FY 12; and up by  23.44% from Q3 FY 11.

Profit from Operations       stands at Rs.587.11 Cr in Q3 FY 12 ; up by  30.54% from Q2 FY 12; up by  17.10% from Q1 FY 12; and up by  65.05% from Q3 FY 11.

Interest Expense stands at Rs.288.03 cr in Q3 FY 12; down by  -1.99% from Q2 FY 12; Up by  16.92% from Q1 FY 12; and also up by a HUGE  206.06% from Q3 FY 11. As stated elsewhere in this Blog, Interest expense has shot up high from Q3 FY 11 levels to Q3 FY 12 levels. In this case,  it is (Rs.288-Rs.94 =) Rs.194 Cr more compared to last year.

Profit before tax stands at Rs.299.08 cr in Q3 FY 12  - up by 91.88% fromQ2 FY 12 levels;  up by  17.26% from Q1 FY 12; and up by   14.33% from Q3 FY 11.

Tax Expense stands at Rs.98.10 cr in Q3 FY 12 – up by  95.77% from Q2 FY 12; Up by  26.11% from Q1 FY 12; and up by  428.84% from Q3 FY 11.

Consolidated NPT finally stands at Rs.200.98 Cr in Q3 FY 12; compared to Rs.105.76 Cr in Q2 FY 12 (Up by 90.03%); Rs.177.26 Cr in Q1 FY 12 (Up by 13.38%); and Rs.243.05 Cr in Q3 FY 11 (Down by -17.31%).

On Rs.10 FV, the Basic EPS is Rs.0.61 in Q3 FY 12; 0.32 in Q2 FY 12; Rs.0.54 in Q1 FY 12; 0.74 in Q3 FY 11;and Rs.2.72 for FY 11 total

So, total EPS for current year may stand at Rs.2.08.

Current Market price is Rs.87.40, while the  52 week high price is Rs.103.70 and the 52 week low price is Rs.52.05.

The PE Ratio stands at 42

CONSOLIDATED RESULTS TABLE :

IDEA CELLULAR	Q3FY12	Q2FY12	%DIF1	Q1FY12	%DIF2	Q3FY11	%DIF3
Net Sales	502037	460,781.00	8.95	451,583.00	11.17	395,259.00	27.01
Other Operating Income	1045	1,211.00	-13.71	489	113.70	302	246.03
Purchase of traded goods	4547	2,417.00	88.13	1,869.00	143.29	957	375.13
Employees Cost	24240	24,169.00	0.29	21,104.00	14.86	20,721.00	16.98
Depreciation	75748	73,687.00	2.80	70,261.00	7.81	59,254.00	27.84
Other Expenditure	339836	316,743.00	7.29	308,699.00	10.09	279,058.00	21.78
Total Expenditure	444371	417,016.00	6.56	401,933.00	10.56	359,990.00	23.44
Profit from Operations	58711	44,976.00	30.54	50,139.00	17.10	35,571.00	65.05
Profit before Int & EI	58711	44,976.00	30.54	50,139.00	17.10	35,571.00	65.05
Interest	28803	29,389.00	-1.99	24,634.00	16.92	9,411.00	206.06
Profit after Int. B/B EI	29908	15,587.00	91.88	25,505.00	17.26	26,160.00	14.33
Profit before tax	29908	15,587.00	91.88	25,505.00	17.26	26,160.00	14.33
Tax Expense	9810	5,011.00	95.77	7,779.00	26.11	1,855.00	428.84
Consolidated NPT	20098	10,576.00	90.03	17,726.00	13.38	24,305.00	-17.31
Face Value (in Rs.)	10	10	0.00	10	0.00	10	0
Paid-up Equity	330743	330,601.00	0.04	330,376.00	0.11	330,156.00	0.18
Public Holding (%)	-	-		53.97		-

NOTE : Consolidated  Results :- Idea, its 100% subsidiaries, and its JVs, grouped together. In addition to Idea Standalone, this covers the proportionate consolidation of erstwhile Spice (41.09% till February 28, 2010) and Indus (16%). JV financials have been consolidated as jointly controlled entities as per “AS 27 - Financial reporting of Interests in Joint Ventures”. It may be noted that the consolidation of financials of two or more entities requires elimination of inter entity transactions. Illustratively, rentals paid by Idea to Indus, become expenses for Idea and revenues for Indus, on a standalone basis. However, upon consolidation, the proportionate revenue of Indus gets reduced to the extent contributed by Idea. The rental expenses of Idea also stand correspondingly reduced in the consolidated financials.

Note: The Hon’ble High Court of Delhi on 4th July 2011 has reaffirmed its order dated 5th February 2010 sanctioning the Scheme of Amalgamation of Spice Communications Limited (Spice) with the Company. However the judgment transferred and vested unto the DoT, the six telecom licenses granted to  erstwhile Spice along with the spectrum (including two operational licenses for Punjab and Karnataka service areas) till the time permission of DoT is granted for transfer thereof upon an application from the Company to that effect. Meanwhile, through interim orders, Appellate Bench had earlier directed DoT to accept the License Fee from the Company without prejudice, as the Company is continuing to operate the licenses for Punjab & Karnataka service areas granted to erstwhile Spice; maintain status quo in relation to the aforesaid two operating licenses and no coercive steps in relation to any demand pertaining to the four non operating licenses. The matter remains sub-judice at the High Court. The financial  results therefore continue to include the results of Punjab & Karnataka service areas.

OTHER DETAILS

EBIDA % STANDS AT 23.7% IN  Q3 FY 12;22.4% in Q2 FY 12; 23.4% in Q1 FY 12; 20.6% in Q3 FY 11.

EBIT % stands at Rs.9.9% in Q3 FY 12; 8% in Q2 FY 12; 9.4% in Q1 FY 12;7.1% in Q3 FY 11.

EBIT /min (paisa) stands at 4.4 in Q3 FY 12; 3.5 in Q2 FY 12; 3.9% in Q1 FY 12;3.0 in Q3 FY 11..

Subscriber Base(EOP) in mns stands at 106.4 in Q3 FY 12; 100.2 in Q2 FY 12; 95.1 in Q1 FY 12; 81.8 in Q3 FY 11.

Prepaid subscribers amount to 96.6% in Q3 FY 12 – approx. same % in all Qtrs.

Average Revenue per User (ARPU) is  Rs.159 in Q3 FY 12; 155 in Q2 FY 12; 160 in Q1 FY 12; 168 in Q3 FY 11. The decline is continuing for almost all operators.

Average Minutes of Use per User (MOU) is 369 in Q3 FY 12; 364 mns in Q2 FY 12; 391 in Q1 FY 12; 397 in Q4 FY 11; 401 in Q3 FY 11. Here also the declining trend si visible.

Average realization per Minute (ARPM) in paisa is Rs. 43.3 in Q3 FY 12; 42.7 in Q2 FY 12; 41 in Q1 FY 12; 41.8 in Q3 FY 11.

Idea Cellular is among the select global operators with 100 million quality subscribers. During the quarter, Idea carried 114.0 billion Minutes. Idea is among the top 10 Global operators in terms of voice minutes of usage.

Company’s 3G investment plans are on track and high speed broadband services are now available across 2,300 towns in 20 service areas (including roaming arrangements) in India. This quarter company introduced affordable Idea branded 3G Smart-phones starting from Rs. 5,850 onwards.

Company has improved its competitive standing to 14% revenue market share and extended its MNP leadership with net gain of 2.2 million customers (as on 14th January, 2012) from other existing operators.

The company is confident to overcome the current uncertain regulatory phase, emerge stronger, consolidate its position in telecom voice market and participate aggressively in evolving wireless broadband business.

B. Strong Operating Performance

While 8.8% sequential quarterly revenue growth brings back cheers to the company, the business outlook remains a paradox, a combination of tailwinds with strong customer traction and headwinds emerging from uncertain regulatory interventions and macro-economic environment.

This quarter, strong revenue growth is primarily led by seasonal return of minutes growth to 114 billion, a growth of 7.3%, compared to Q2FY12. The minutes volume expansion was supported by high 7.5 million net VLR subscriber additions during Q3FY12 against 3.2 million in Q2FY12. Idea continues its unblemished record of highest active subscriber ratio of 92.3% as per TRAI (Nov,2011). The 106.4 million quality subscribers provide it the platform for accelerated future growth in Voice, VAS and Wireless broadband and related telecom services.

The company maintains the upward trend of Average Realisation Per Minute (ARPM) from 42.7p in Q2FY12 to 43.3p in Q3FY12. ARPM improvement was led by higher VAS contribution (13.2% in Q2FY12 to 13.7% in Q3FY12) and roaming revenue, while voice rate realisation remained flat.

The revenue growth has translated into EBITDA margin improvement by 1.2% over previous quarter, @ 23.7%. On a YoY basis absolute EBITDA has grown to Rs. 11,986 million (Q3FY12) in comparison to Rs. 8,214 million (Q3FY11).

However, the standalone YTD Q3FY12 PAT of Rs. 4,020 million has declined inspite of revenue growth, compared to YTD Q3FY11 PAT of Rs. 5,802 million, primarily on account of higher depreciation & amortization  and interest & financing cost w.r.t. 3G investments, and higher provision for deferred tax. The Q3FY12 standalone PAT is Rs. 1,687 million and the Cash Profit of Rs. 9,452 million registered a growth of 19.9% on QoQ basis

C. Impact of Forex fluctuation and Balance Sheet

The capex and net debt amounts are higher by around Rs. 3.6 billion each due to forex loss on account of rupee depreciation. The capex of Rs. 9.0 billion (net of capitalised forex loss) for the quarter has been funded entirely out of cash profit of Rs. 9.5 billion. The Net Debt stands at Rs. 115.7 billion as of December, 2011 with the Net Debt to Equity ratio at 0.91 and Net Debt to EBITDA (Annualised) ratio for the quarter at 2.41. The Net-Worth of Rs. 127.0 billion, together with an average (last four quarters) Cash Profit of over Rs. 8.5 billion per quarter, provides a solid foundation to support the company’s strategic intent.

Idea rolled out 2,270 2G cell sites during the quarter, taking EoP 2G cell sites count to 80,637, while count of 3G cell sites (Node B) increased to 10,902 compared to 9,744 in Q2FY12.

The total addition to the Gross Block including CWIP was Rs. 12.6 billion for Q3FY12, including Rs. 3.6 bn on account of capitalized foreign exchange loss. 

The total capex guidance for Idea Standalone stands at Rs. 40 billion.

COMMENTS : While operational performance continues to be strong, financial Performance for telecom companies is a matter of concern. The Regulator  and the Government need to look at the competition in TARIFFS afresh – as the current rate of return on capital may not be sufficient to induce / incentivize FRESH CAPITAL INVESTMENTS in the sector. We can see a similar pattern in respect of AirTel as well.

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