The profit after tax of Idea Cellular Ltd for the third quarter of FY10 was Rs170 crore (down approximately 23% year-on-year, or y-o-y, and quarter-on-quarter, or q-o-q), but significantly above estimates. Consolidated revenue grew 15.3% y-o-y and 5.9% q-o-q to Rs3,150 crore led by robust traffic growth of 14.9% q-o-q (against 3.3% q-o-q growth in the second quarter of FY10).
Rate per minute (RPM) decline of 7.8% q-o-q also surprised positively (against our estimates of 10% q-o-q decline). Consolidated earnings before interest, tax, depreciation and amortization (Ebitda ) grew 16.7% y-o-y and remained flat q-o-q despite higher new circle losses and employee stock ownership plan provision. While competitive intensity remains high, we are positively surprised by the robust volume pick-up and sustained Ebitda margin in established circles.
Idea (ex-Spice) reported a third quarter FY10 average revenue per user of Rs200 (against estimated Rs192), down 24.8% y-o-y and 4.3% q-o-q. RPM declined 19.6% y-o-y and 7.8% q-o-q to Re0.51. Total volumes carried on the network increased 43.7% y-o-y and 14.9% q-o-q to 57.8 billion minutes. This is the highest traffic growth reported by Idea in the past six quarters.
Minutes of usage (MoU) per subscriber increased 3.7% q-o-q to 389 minutes, likely on seasonal strength, MoU elasticity and regain of volume market share after tariffs cuts. This is the first instance of MoU growth for Idea in the past six quarters. Churn rate increased to 9.1% per month, reflecting significant volatility in the pre-paid market.
Idea’s share of 16% of Indus Towers revenues for the quarter was Rs220 crore while revenue eliminations stood at Rs280 crore. Proportionate Ebitda from Indus increased 27.3% q-o-q to Rs77.1 crore. As of December, Idea had 55,804 cell sites (added 4,889 sites during the third quarter of FY10). Idea owns 8,306 towers while the balance sites are rented (of which 31,873 sites have been rented from Indus).
During the quarter, Idea launched operations in Jammu and Kashmir, West Bengal, Kolkata, Assam, and North-East circles. Including Spice, Idea now has a pan-India footprint with presence in all 22 circles.
Capital expenditure (including Spice) was Rs900 crore during the December quarter.
We believe that significant tariff pressure is leading to cautious investment outlook across operators. Consolidated net debt increased to Rs5,310 crore against Rs4,860 crore in the second quarter of FY10. With the five circle launches in the third quarter, Idea has completed its pan-India rollout; new circle Ebitda losses are likely to peak over the next two quarters. We believe that strong December numbers reflect Idea’s strong relative positioning in the Indian wireless market.
We are upgrading our revenue estimates by 2-3%, Ebitda by 6-7% and earnings per share estimates by 20-29%. We upgrade to buy with a target price of Rs77.