Idea Cellular’s (Idea’s) consolidated revenues for Q4FY09 stood at Rs29.2 billion as against Rs27.3 billion in Q3FY09, a growth of 7.1%.
The consolidated revenue includes Rs1.3 billion generated from Spice Communications (41.09% stake) and Rs1.9 billion from Indus (16% stake).
EBITDA margin stood at 27.3% during the quarter under review as compared to 25.5% in Q3FY09. The company reported net margins of 9.4% in Q4FY09 as against 8% in the previous quarter.
Idea is expected to launch operations in six new circles in FY10 with an estimated capex of Rs60 billion. We expect new circle launches to pressurize margins in the medium term.
We expect the company to raise further debt as the existing cash in hand and operating cash flows would not be sufficient to meet the 3G-related auction payment and capex.
Churn rate has gone up in both, the prepaid and post paid segments. Intensifying competition coupled with MNP implementation in Aug 2009 would make it difficult for Idea to increase its market share.
Post de-merger of assets, Indus’ operations would have a negative impact on Idea’s financials (over the short-term); this impact would be to the extent of 3.4% at the EBITDA level and of 2.2% at the EBIT level. In Q4FY09, Indus’ operations had a negative impact of 2.2% on Idea’s EBITDA margins.
At Rs61, the stock trades at 18.2X our FY10 EPS. In the absence of any further positive trigger, we maintain SELL on Idea with a target price of Rs52, indicating downside of 14%.
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