We maintain our ?reduce? rating on Idea Cellular with a target price of R60 as regulatory uncertainty remains significant and we believe valuations of FY14f P/E 24x continue to remain expensive despite strong fourth quarter results from the company.
Idea?s revenue is 4% above estimates, Ebitda is 6-9% above our and consensus expectations and reported NPAT is 4% above our estimates, but 15% above consensus. A strong quarter from Idea with revenue growth of 9% q-o-q and Ebitda growth of 14% q-o-q, with margins expanding to 28% (120 bps q-o-q). Adjusting for one-off license and WPC regulatory charges of R76 crore, Ebitda growth would have been stronger at 19% q-o-q and margins at 29%. In terms of costs, network operating costs (consolidated) have remained broadly flat q-o-q, despite continued rollout of new cell sites (4k incremental sites) and a drop to 24% of service revenues versus 26% in the third quarter. This has helped improve margins, though it is likely this could once again rise in the future as Idea continues with its 3G rollout. As a percentage of revenues, roaming charges declined 40 bps, while license costs rose 130 bps q-o-q.
Adjusted for one-off items in the license costs, it would have remained flat at 10.7%. Other than which, all other opex items were flat as a percentage of sales ? and we aren?t seeing evidence of relief on commissions. Strong revenue growth in the quarter was driven by an 8% q-o-q growth in minutes volume and also strong improvement in data/VAS revenues q-o-q. Idea added 11 billion minutes in this quarter, which is one of the strongest it has seen in past several quarters. While overall, RPM?s held steady at 41 paisa, underlying voice RPMs were down 1% q-o-q Data/VAS revenues had a strong pick-up, rising 13% q-o-q to cR910 crore. Idea notes that realisation on data improved in this quarter by 9% q-o-q to 34 pasia per MB (from 31 paisa in Q3) and data volume grew 14% q-o-q. Data contribution inched up to 15.2% of ARPU versus 14.6% in the previous quarter.
