CMP 175.55

Target Price 198.00

ISIN: INE669E01016

DECEMBER 2nd

2013

IDEA CELLULAR LIMITED Result Update: Q2 FY14

BUYBUYBUYBUY

Index Details

Stock Data

Sector Telecom

BSE Code 532822

Face Value 10.00

52wk. High / Low (Rs.) 188.35/92.45

Volume (2wk. Avg.) 591000

Market Cap (Rs. in mn.) 582295.84

Annual Estimated Results (A*: Actual / E*: Estimated)

YEARS FY13A FY14E FY15E

Net Sales 224576.50 260508.74 291769.79

EBITDA 60045.40 80366.95 90448.63

Net Profit 10109.30 16270.39 18237.00

EPS 3.05 4.91 5.50

P/E 57.55 35.79 31.93

Shareholding Pattern (%)

1 Year Comparative Graph

IDEA CELLULAR LTD. S&P BSE SENSEX

SYNOPSIS

Idea Cellular Ltd the Third largest wireless operator

in India with a revenue market share of 16.2%.

The company’s consolidated net profit jumps to Rs.

4476.10 million against Rs. 2400.40 million in the

corresponding quarter ending of previous year, an

increase of 86.47%.

Consolidated revenue for the quarter rose by 19%

to Rs. 63232.60 million from Rs. 53140.00 million,

when compared with the prior year period.

Consolidated PBIDT is increased by 38.6% to Rs.

19715.10 million as against Rs. 14225.30 million in

previous year period.

The consolidated EBITDA margin of 31.2% is a YoY

improvement of 4.4%.

Idea standalone revenue has grown by 18.1% on

YoY basis to Rs. 63,170 million against Rs. 53,481

million in Q2 FY13.

The Company has expanded 4,312 new sites

(2G+3G) to reach network site EoP of 114,001 sites

(2G+3G) and expanded optical fibre network to

77,000 km.

The ‘Voice Minutes’ expansion by 10.5% on YoY

basis from 125.6 billion minutes in Q2 FY13 was

supported by net annual new customer addition of

13.1 million.

Net Sales and PAT of the company are expected to

grow at a CAGR of 14% and 36% over 2012 to

2015E respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Idea Cellular Ltd. 175.55 582295.84 3.05 57.55 4.07 3.00

Bharti Airtel Ltd. 332.30 1328336.10 11.45 29.02 2.45 20.00

Tata Communication Ltd. 296.25 84431.30 21.60 13.72 1.12 30.00

Reliance Communication Ltd. 142.30 293711.00 3.49 40.77 0.89 5.00

Recommendation & Analysis - ‘BUY’

With increasing proportion of rural subscribers, the seasonal slowdown in the second quarter has become more

pronounced resulting in sharp contraction in the ‘Voice Minutes of Use’ by 5.8% to 138.8 billion minutes

compared to 147.3 billion minutes in Q1 FY14. The long term business trends remain robust and company is on

course of its mission of consistent, competitive, responsible and profitable growth. This quarter Idea standalone

revenue has grown by 18.1% on YoY basis to Rs. 63,170 million against Rs. 53,481 million in Q2 FY13. The

company further strengthened its ‘Revenue Market Share’ to 16.2% and ‘VLR subscriber Market Share’ to 16.7%

in Q1 FY14, an improvement of over 1% in one year. Idea continues to invest in long term value creators –

launched 4,312 new sites (2G+3G) to reach network site EoP of 114,001 sites (2G+3G) and expanded optical fibre

network to 77,000 km. Inspite of higher network rollout, Idea is pleased to record sharp YoY standalone EBITDA

growth of 38.2%.

The revenue growth and scale benefit translated into healthy standalone EBITDA margin of 27.6%, YoY

improvement by 4.0%. This helped company generate Cash Profit of Rs. 14,556 million, a growth of 18.2% over

Q2 FY13, further strengthening Idea’s Balance Sheet. The ‘Net Interest & Finance Cost’ was lower by Rs. 257

million at Rs. 1,575 million. Company’s Net Debt further fell from Rs. 102,199 million in Q1 FY14 to Rs. 92,864

million in Q2 FY14, helping ‘Net Debt to Annualized EBITDA’ ratio reach enviable 1.33. The double bottom line

drivers Voice and Data Business helped Idea reach a standalone PAT to Rs. 3,985 million, 13.2% growth on Q2

FY13 PAT of Rs. 3,519 million.

At consolidated level Idea revenue including 16% Indus contribution has grown by 19% on YoY basis and

consolidated EBITDA by 38.6% to Rs. 19,715.10 million in Q2 FY14. The consolidated EBITDA margin of 31.2% is

a YoY improvement of 4.4%. The consolidated PAT of Rs. 4,476.10 million grew by 86.5% compared to Q2 FY13

PAT of Rs. 2,400.40 million.

As competitive intensity declines and overcapacity phase comes to an inevitable end, visibility of spectrum

quantum and pricing improves, Idea expects to further consolidate its position in the telecom voice and data

market. Over FY2012-15E, we expect the company to post a CAGR of 14% and 36% in its top-line and bottom-

line respectively. Hence, we recommend ‘BUY’ for ‘Idea Cellular Ltd’ with a target price of Rs. 198.00 on the

stock.

QUARTERLY HIGHLIGHTS (CONSOLIDATED)

Results updates- Q2 FY14,

Idea Cellular Ltd the Third largest wireless operator

in India, reported its financial results for the quarter

ended 30th Sep, 2013. The second quarter witnesses

a healthy increase in overall sales as well as

profitability on account, an enhanced Dealers

network and robust infrastructural Support system.

Months Sep-13 Sep-12 % Change

Net Sales 63232.60 53140.00 18.99

PAT 4476.10 2400.40 86.47

EPS 1.35 0.73 86.13

EBITDA 19715.10 14225.30 38.59

The company’s consolidated net profit jumps to Rs. 4476.10 million against Rs. 2400.40 million in the

corresponding quarter ending of previous year, an increase of 86.47%. Revenue for the quarter rose by 18.99%

to Rs. 63232.60 million from Rs. 53140.00 million, when compared with the prior year period. Reported earnings

per share of the company stood at Rs. 1.35 a share during the quarter, registering 86.13% increase over previous

year period. Profit before interest, depreciation and tax is Rs. 19715.10 millions as against Rs. 14225.30 millions

in the corresponding period of the previous year.

Break up of Expenditure

Break up of Expenditure Rs. In Millions

Q2 FY14 Q2 FY13

Cost of Trading Goods 479.70 619.30

Personnel Expenditure 3482.00 2778.50

Network Expenses & IT Outsourcing Cost

15861.70 13448.60

License & WPC Charges 6959.00 5647.30

Roaming & Access Charges 9563.40 9506.20

Subscriber Acquisition & Servicing & Advertise and Business Promotion Exp.

5635.90 5606.80

Depreciation & Amortization 10794.90 8525.50

Other Expenditure 1535.80 1308.00

Segment Revenue

COMPANY PROFILE

Idea Cellular is an Aditya Birla Group Company, India's first truly multinational corporation. Idea is a pan-India

integrated GSM operator offering 2G and 3G services, and has its own NLD and ILD operations, and ISP license.

With revenue in excess of $4 billion; revenue market share of nearly 16.2% (Q1 FY14); and subscriber base of

over 121 million in FY 2013, Idea is India’s 3rd largest mobile operator. The company carries around 1.51 billion

minutes on a daily basis and the seventh largest mobile telecommunications company (based on operations in a

single country) in the world based on number of subscribers (as determined from data from WCIS, as of March

2013).

The group operates in 36 countries, and is anchored by more than 136,000 employees belonging to 42

nationalities, and derives over 50% of its revenue from outside India. Idea’s robust pan-India coverage is built on

a network of over 100,000 2G and 3G cell sites, spread across over.

Using the latest in technology, Idea provides world-class service delivery through the most extensive network of

customer touch points, comprising of nearly 4,500 exclusive Idea outlets, and over 7,000 call centre seats. Idea’s

customer service delivery platform is ISO 9001:2008 certified, making it the only operator in the country to have

this standard certification for all 22 service areas and the corporate office.

Idea has consistently stayed ahead of the industry in VLR reporting. Idea’s thought leadership on Mobile Number

Portability (MNP) has enabled it to stay as the top gainer with highest net gain. Every 4th mobile user who

exercises choice through MNP prefers Idea.

Idea offers a range of high-speed mobile broadband devices including Android based 3G smartphones, dongles

etc. Idea’s wide portfolio of 3G smartphones offer the latest in 3G applications and high-end data services such as

Idea TV, games, social networking etc. at most affordable prices.

Idea has been a pioneer in introducing customized product offerings for segmented customers. It is the first

mobile operator to introduce innovative value added services in the Indian telephony market, and has remained

ahead of the industry in data product offerings.

Idea has been ranked #1 in the Telecom sector in “India’s Best Companies to Work for Study – 2013 and the “Best

Place to Work” at the Asia Communication Awards 2013.

Business Area

� Voice Based Services

• IDEA Concall

• Hosted IVR

• Toll Free Solution

� Location Based Services

� Connectivity Based Services

• Field Force Automation

• I-SAFE

� Market to Market Based Services

FINANCIAL HIGHLIGHT (CONSOLIDATED) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as at March31, 2012 -2015E

IDEA CELLULAR LTD. FY12A FY13A FY14E FY15E

SOURCES OF FUNDS (Rs.in.mn)

Shareholder's Funds

Share Capital 33088.45 33143.22 33169.80 33169.80

Reserves and Surplus 97394.48 109890.42 126160.79 144397.78

1. Sub Total - Net worth 130482.93 143033.64 159330.59 177567.58

2. Compulsorily Convertible Preference Shares 19.25 19.25 19.25 0.00

Non Current Liabilities

Long term borrowings 95221.56 118047.16 116866.69 111023.35

Deferred Tax Liabilities 6272.98 11180.31 16211.45 18805.28

Other Long Term Liabilities 6057.97 7946.08 9217.45 10415.72

Long Term Provisions 1920.41 3142.13 5090.25 6362.81

3. Sub Total - Non Current Liabilities 109472.92 140315.68 147385.84 146607.17

Current Liabilities

Short Term Borrowings 17275.34 4585.31 917.06 779.50

Trade Payables 21840.43 26871.01 28214.56 30471.73

Other Current Liabilities 47188.21 47707.33 57248.80 65836.12

Short Term Provisions 72.72 1248.48 861.45 990.67

4. Sub Total - Current Liabilities 86376.70 80412.13 87241.87 98078.01

Total Liabilities (1+2+3+4) 326351.80 363780.70 393977.55 422252.77

APPLICATION OF FUNDS

Non-Current Assets

Fixed Assets

Tangible assets 201304.80 208947.36 211036.83 221588.68

Intangible assets 68571.84 82591.76 88602.07 95344.31

Capital Work in Progress 6798.50 8810.81 9515.67 10181.77

a) Sub Total - Fixed Assets 276675.14 300349.93 309154.58 327114.76

b) Goodwill on Consolidation 61.20 61.20 61.20 61.20

c) Long Term loans and advances 22562.74 30479.18 33527.10 36879.81

1. Sub Total - Non Current Assets 299299.08 330890.31 342742.88 364055.77

Current Assets

Current Investment 976.00 10280.15 9252.14 10639.96

Inventories 925.66 726.42 900.76 1035.87

Trade receivables 8226.98 9600.77 9216.74 10599.25

Cash and Bank Balances 1520.73 1429.05 22315.90 25216.97

Short-terms loans & advances 15385.67 10845.34 9218.54 10324.76

Other current assets 17.68 8.66 330.60 380.19

2. Sub Total - Current Assets 27052.72 32890.39 51234.67 58197.00

Total Assets (1+2) 326351.80 363780.70 393977.55 422252.77

Annual Profit & Loss Statement for the period of 2012 to 2015E

Value(Rs.in.mn) FY12A FY13A FY14E FY15E

Description 12m 12m 12m 12m

Net Sales 195411.60 224576.50 260508.74 291769.79

Other Income 0.00 0.00 0.00 0.00

Total Income 195411.60 224576.50 260508.74 291769.79

Expenditure -144488.20 -164531.10 -180141.79 -201321.15

Operating Profit 50923.40 60045.40 80366.95 90448.63

Interest -10557.30 -9494.50 -9874.28 -10466.74

Gross profit 40366.10 50550.90 70492.67 79981.90

Depreciation -29813.40 -34777.70 -43819.90 -51707.48

Profit Before Tax 10552.70 15773.20 26672.76 28274.41

Tax -3322.80 -5663.90 -10402.38 -10037.42

Net Profit 7229.90 10109.30 16270.39 18237.00

Equity capital 33088.45 33143.22 33169.80 33169.80

Reserves 97394.50 109890.40 126160.79 144397.78

Face value 10.00 10.00 10.00 10.00

EPS 2.19 3.05 4.91 5.50

Quarterly Profit & Loss Statement for the period of 31st Mar, 2013 to 31st Dec, 2013E

Value(Rs.in.mn) 31-Mar-13 30-Jun-13 30-Sep-13 31-Dec-13E

Description 3m 3m 3m 3m

Net sales 60613.80 65387.70 63232.60 65761.90

Other income 0.00 0.00 0.00 0.00

Total Income 60613.80 65387.70 63232.60 65761.90

Expenditure -43883.20 -44624.30 -43517.50 -45901.81

Operating profit 16730.60 20763.40 19715.10 19860.10

Interest -2244.40 -2210.60 -1949.00 -2143.90

Gross profit 14486.20 18552.80 17766.10 17716.20

Depreciation -9091.60 -11353.20 -10794.90 -11118.75

Profit Before Tax 5394.60 7199.60 6971.20 6597.45

Tax -2312.80 -2572.50 -2495.10 -2447.65

Net Profit 3081.80 4627.10 4476.10 4149.79

Equity capital 33143.22 33155.70 33169.80 33169.80

Face value 10.00 10.00 10.00 10.00

EPS 0.93 1.40 1.35 1.25

Ratio Analysis

Particulars FY12A FY13A FY14E FY15E

EPS (Rs.) 2.19 3.05 4.91 5.50

EBITDA Margin (%) 26.06% 26.74% 30.85% 31.00%

PBT Margin (%) 5.40% 7.02% 10.24% 9.69%

PAT Margin (%) 3.70% 4.50% 6.25% 6.25%

P/E Ratio (x) 80.34 57.55 35.79 31.93

ROE (%) 5.54% 7.07% 10.21% 10.27%

ROCE (%) 33.23% 35.69% 44.81% 49.13%

Debt Equity Ratio 0.86 0.86 0.74 0.63

EV/EBITDA (x) 13.59 11.71 8.43 7.40

Book Value (Rs.) 39.43 43.16 48.03 53.53

P/BV 4.45 4.07 3.65 3.28

Charts

OUTLOOK AND CONCLUSION

� At the current market price of Rs.175.55, the stock P/E ratio is at 35.79 x FY14E and 31.93 x FY15E

respectively.

� Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.4.91 and Rs.5.50

respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 14% and 36% over 2012 to 2015E

respectively.

� On the basis of EV/EBITDA, the stock trades at 8.43 x for FY14E and 7.40 x for FY15E.

� Price to Book Value of the stock is expected to be at 3.65 x and 3.28 x respectively for FY14E and FY15E.

� We expect that the company surplus scenario is likely to continue for the next three years, will keep its

growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.198.00 for Medium to Long term investment.

INDUSTRY OVERVIEW

India is the world’s second-largest telecommunications market, with 898 million subscribers as on March 2013.

The sector's revenue grew by 13.4 per cent to reach US$ 64.1 billion in FY12.

Telecom infrastructure in India is expected to increase at a compound annual growth rate (CAGR) of 20 per cent

during 2008-15 to reach 571,000 towers in 2015.

Internet traffic in India is expected to reach to 2.5 exabytes per month in 2017 from 393 petabytes per month in

2012, as per a Cisco study. In addition, the wireless connectivity in India is expected to grow at about 40 per cent

traffic by 2017, up from 38 per cent in 2012.

Key Statistics

India has recorded 55.48 crore mobile users as per Juxt’s study titled, India Mobile Landscape (IML) 2013. “More

than 29.8 crore, about 54 per cent, of these device owners are in rural areas as compared to 25.6 crore in cities

and towns.

The telecommunications industry attracted foreign direct investments (FDI) worth US$ 12,866 million during

April 2000 to June 2013, an increase of 7 per cent to the total FDI inflows, according to Department of Industrial

Policy and Promotion (DIPP).

Moreover, the cumulative revenue of telecom service providers was recorded at Rs 54,284 crore (US$ 8.32

billion) in the January-March 2013 quarter, as per Telecom Regulatory Authority of India (TRAI).

Market Dynamics

The Indian mobile phone market is highly competitive with more than 150 device manufacturers trying to attract

the consumers with their schemes and offers. Most of these producers focus their efforts on the low-cost feature

phone market, which constitutes over 91 per cent of overall mobile phone sales, offering a huge scope for growth.

India added 1.49 million GSM subscribers in July 2013, taking the total GSM user base in India to 672.63 million.

Moreover, in June 2013 the GSM telecom operators added 2.33 million new subscribers, to take the user base to

271.6 million at the end of the month, according to the Cellular Operators Association of India (COAI)

The GSM incumbents—Bharti Airtel, Vodafone and Idea Cellular—have jointly crossed 70 per cent in revenue

market share and had a 99.6 per cent share of the incremental revenues during the June 2013 quarter, as per the

latest figures released by TRAI.

The mobile value-added services (MVAS) market is expected to reach US$ 9.5 billion in 2015, from US$ 4.9 billion

in 2012.

A total of 9.4 million smartphones were shipped into the country, registering a growth of 167.3 per cent on an

annual basis. India also witnessed 73.5 million mobile handset shipments for the January-April 2013 period.

Key Developments & Investments

• Viom Networks Ltd has won a contract to provide Wi-Fi and other Internet-related services at the

Chennai International Airport. The deal is expected to be in the range of Rs 20– Rs 30 crore (US$ 3.06-

US$ 4.59 million)

• Tata Consultancy Services (TCS) has been selected to deploy a new rating and billing system for Macau's

telecom service provider, CTM. The solution will allow CTM's customers to receive faster response to

enquiries and enable them to better manage their services and bills, according to the company's press

statement

• Aegis, the global outsourcing and technology services firm under Essar Group, has won a human resource

outsourcing contract from Saudi Telecom Co, further extending its existing relation with the company.

The deal is estimated to be in the range of US$ 50- US$ 60 million

• Videocon Mobile Services plans to invest Rs 800 crore (US$ 122.61 million) in Gujarat for opening over

500 towers and 150 exclusive outlets in 2013-14

• Reliance Communications (RCom) and Tata Teleservices Ltd (TTSL) have joined hands under a 2G intra-

circle roaming arrangement. Under the agreement, RCom will use 5,000 towers of TTSL across 14 GSM

circles while the latter will gain access to an equal number of towers in RCom's CDMA network to

improve its reach

• Bharti Airtel has raised its stake to 51 per cent in four entities of Qualcomm's wireless broadband

business in India. In addition, the firm plans to launch an international fibre-optic cable link to boost

internet speeds in Bangladesh

Government Initiatives

The telecom tower provider industry has been granted the 'infrastructure' status, a move that will make tower

providers eligible for viability gap funding, higher limit on external commercial borrowings (ECBs), lower import

duties and exemptions on excise duty on telecom infrastructure equipment.

The Government of India's decision to allow 100 per cent foreign direct investment (FDI) in telecommunication

sector will enable foreign telecommunication companies to buy out their Indian partners. At present, India

permits up to 74 per cent FDI in the sector - 49 per cent through the automatic route and the rest after Foreign

Investment Promotion Board (FIPB) approval.

• The Government intends to make India a teleport hub, enabling it to become an up-linking/down-linking

centre. The initiative is expected to facilitate foreign investments, better technology and sustainable

employment opportunities in the country. The Government has recently given its nod to 74 per cent of

FDI in DTH, IPTV, and mobile TV

• Reliance Jio Infocomm (RJIL) has received an approval from the Department of Telecommunications

(DoT) to test the messaging feature on the fourth-generation long-term evolution (4G LTE) platform

• The new guidelines issued by the DoT according to which foreign entities can participate in the upcoming

2G auctions directly and obtain a licence. The initiative is expected to make the upcoming auctions more

attractive to certain foreign players such as Telenor, which wanted to bid directly without an Indian

partner in the auctions. There will be a lock-in period of three years

Road Ahead

On back of ongoing investments into infrastructure, the country is projected to witness high penetration of

internet, broadband, and mobile subscribers in the near future. Various policy initiatives by the Indian

government have led to a complete transformation of the industry in the last decade. It has achieved a

phenomenal growth during the last few years and is poised to grow further.

The current scenario in Indian market has also given impetus to the information and communication technology

(ICT) exports and in turn it forms the most significant component of the internet's impact on the country’s GDP.

Nevertheless the private consumption and investment from private and public sector have greater potential to

grow in the future.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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