THE BUZZ
Idea Cellular (idea), Axiata’s 19.9%-owned associate in India, reported a fall in revenue q-o-q to INR53.1bn while group EBITDA came in flat (+20% y-o-y). Excluding forex effect, core earnings of INR2.2bn fell 14% q-o-q (+62% y-o-y) from higher depreciation
and amortization expenses.
OUR TAKE
Falling short again. Idea’s core earnings made up 43% of consensus FY13 estimate, below expectations as operating cost is set to rise in 2HFY13 from regulatory headwinds. The key letdown was the 3.4% fall in revenue q-o-q (+15% y-o-y), marking the first sequential contraction since 2010 as average revenue per unit (ARPU) came under renewed pressure (-5% q-o-q). The revenue impact was further compounded by a seasonal decline in minutes of usage (MOU) (-4.0% q-o-q) with Idea adding more rural subscribers. The group’s EBITDA margin improved slightly on lower opex.
Data inching higher. Data revenue contribution widened to 15.6% from 14.5% in the preceding quarter from higher mobile data take-up (16% of subscribers actively use data). It added 600,000 3G subs during the quarter to 3.7m (+3.2% q-o-q) but contribution remains insignificant. Data ARPU for 2QFY13 improved to INR50 from INR47.
Idea Cellular (idea), Axiata’s 19.9%-owned associate in India, reported a fall in revenue q-o-q to INR53.1bn while group EBITDA came in flat (+20% y-o-y). Excluding forex effect, core earnings of INR2.2bn fell 14% q-o-q (+62% y-o-y) from higher depreciation
and amortization expenses.
OUR TAKE
Falling short again. Idea’s core earnings made up 43% of consensus FY13 estimate, below expectations as operating cost is set to rise in 2HFY13 from regulatory headwinds. The key letdown was the 3.4% fall in revenue q-o-q (+15% y-o-y), marking the first sequential contraction since 2010 as average revenue per unit (ARPU) came under renewed pressure (-5% q-o-q). The revenue impact was further compounded by a seasonal decline in minutes of usage (MOU) (-4.0% q-o-q) with Idea adding more rural subscribers. The group’s EBITDA margin improved slightly on lower opex.
Data inching higher. Data revenue contribution widened to 15.6% from 14.5% in the preceding quarter from higher mobile data take-up (16% of subscribers actively use data). It added 600,000 3G subs during the quarter to 3.7m (+3.2% q-o-q) but contribution remains insignificant. Data ARPU for 2QFY13 improved to INR50 from INR47.
Regulatory developments increasingly convoluted. At the results call, Idea said the imposition of regulatory charges will only compel the telcos to pass on the costs to consumers via higher tariffs. This is a step back for the telecoms sector and potentially disruptive for the telcos. To recap, the Empowered Group of Ministers (EGoM) had earlier this month proposed a one-off fee for the use of 2G spectrums in excess of 4.4MHz. For operators with more than 6.2MHz, an additional charge will be levied. Idea is expected to fork out USD430m for the one-time fee and over USD300m to bid for the seven circles it lost after the government cancelled 122 2G licenses earlier this year. We think there is a small risk of a cash call from Axiata although the latter should be able to finance its commitments via debt. Idea’s net debt/EBITDA currently stands at 2.1x, with net gearing at 0.7x.
Maintain NEUTRAL on Axiata based on FV of RM6.04. Idea accounts for only 4% of our SOP for Axiata and contributes less than 10% to group earnings. The 2% q-o-q depreciation of the INR against the RM should further magnify the share of losses at Axiata group level. Note that some 40% of Axiata’s earnings are derived from its overseas operations which make up 45% of our SOP. Key share price re-rating catalysts for Axiata are: (i) the stronger than expected results, and (ii) capital management.
Source: OSK
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