‘Under review’ rating on Idea Cellular: Data, voice traffic rise

Significant step-up in capex; net debt increases on spectrum fee.

Idea Cellular
Rating: Under Review

Ebitda above estimates; PAT in-line: Idea’s Q4FY15 consolidated Ebitda (earnings before interest taxes depreciation and amoritsation) grew 37.4% year-on-year and 11.3% quarter-on-quarter to R30.65 bn. Profit after tax increased 60% y-o-y/23% q-o-q to R9.42 bn, in-line with our estimate of R9.44 bn.

idea-cellularData and voice traffic drive growth: Consolidated revenue grew 19.6% y-o-y and 5.1% q-o-q to R84.2 bn. Blended RPM (revenue per minute) declined 1% q-o-q while voice RPM declined 4.4% q-o-q, for the third consecutive quarter. Excluding the one-month impact of a decrease in mobile termination charges from 20p to 14p, the voice RPM decline would have been 3% q-o-q while absolute Ebitda impact was minimal. Voice traffic growth of 8% q-o-q was significantly above our estimate of 3%. Data business continued to exhibit strong growth with traffic up 18% q-o-q but realisations were down 4.5% q-o-q.


Margin expansion led by network and interconnect costs: Ebitda margin increased 470bp y-o-y largely led by lower network costs (down 325bp y-o-y) and interconnect charges (down 90bp y-o-y). While lower energy costs would have aided benefit in network costs, increasing proportion of data revenue would likely be driving the interconnect cost savings as a proportion of revenue.

Data revenue contribution at 17%: Data contribution to revenue stood at 16.9%, up 680bp y-o-y. Churn increased 40bp q-o-q to 4.6%.

Net debt up q-o-q: Consolidated net debt increased by R18 bn q-o-q to R138 bn led by higher loans and advances towards spectrum payment. Net debt/Ebitda is expected to increase from 1.3x in FY15 to 2.9x in FY16. FY16 standalone capex guidance (excluding spectrum) is placed at R50-55 bn vs capex of R40 bn in FY15.

Above-industry growth critical for earnings to hold: Given an expected increase in amortisation and finance costs on account of the recent R300 bn outlay towards spectrum, continued above-industry growth would be critical for earnings to hold. Our rating is Under Review.

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