Expect no growth surprises
Factoring in recent weak industry trends, we have cut subscriber forecasts by 10-15% and cut topline estimates by 6-10% for FY13-14e. Consequently, Ebitda (earnings before interest, taxes, depreciation, and amortisation) also stands lowered by 6-10% for FY13-14e despite a tad better-than-expected margins posted in Q2. Our PO (price objective) stays unchanged at R90/share due to DCF (discounted cash flow) roll-over to FY14. We remain Neutral on the stock led by 11% Ebitda growth in FY14e and narrow valuation premium. Over the last three quarters (Q4FY12 to Q2FY13), Idea’s Ebitda has stayed largely flat. In Q2FY13, Ebitda fell 1.3% quarter-on-quarter.
The overall picture on competitive position seems mixed based on latest results. Good news from lower channel payouts (SG&A—selling and acquisition expenses—fell 21% q-o-q) by the company was more-than-offset by weak average subscriber growth (+1% q-o-q), slippage in voice tariffs (-1% q-o-q) and continued high monthly subscriber churn (10.1%). Overall, we think both Idea & the sector will continue to struggle on volumes vs margins; growth surprise looks difficult.
Modest Ebitda growth ahead; policy risks remain high
We expect modest recovery in Ebitda (+2-3% q-o-q) in next two quarters owing to seasonally better traffic volume, but potential drag from higher costs include recent hike in diesel prices. FY14e-Ebitda growth is forecast at 11%, led primarily by traffic growth. On the policy front, Idea’s cash outgo towards re-bidding for seven cancelled licences & licence renewals could be $0.8bn in next two-three
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