Idea Cellular’s Q1FY09 results were in line with our estimates with a revenue growth of 10.2% quarter-on-quarter (q-o-q) to Rs21.7 billion.
As expected, ARPU (average revenue per user) in the mobile segment declined 3.1% to Rs278. Fall in STD rates and roaming charges along with higher network operating costs and lower ARPU dampened margins in the mobile segment.
Expiry of the licence fee concession period in seven circles during the quarter further exacerbated margin pressures. Net profit has decreased 4.9% q-o-q to Rs 2.6bn on account of higher interest & financing charges and a forex loss of Rs 152mn during the quarter.
We expect the EBITDA margin to witness increased pressure going forward due to continued downward pressure on ARPU as competition in the sector intensifies, and Idea’s planned roll out of services in the new circles of Mumbai, Bihar and Tamil Nadu, where margins would take time to enter into positive territory.
At the current price of Rs89, the stock is trading at 18.4x and 14.4x its expected FY09 and FY10 earnings of Rs4.8 and Rs6.2. We maintain HOLD recommendation with a target of Rs110.