>IDEA CELLULAR: Better than expected show…

Idea Cellular reported better than expected results for Q1FY11E. Consolidated topline for the quarter stood at Rs 3653.7 crore against our expectation of Rs 3411.3 crore. The company reported an EBITDA of Rs 888.4 crore at 24.3%. PAT for the quarter was at Rs 201.4 crore, higher than our expectation of Rs 183.8 crore. This was primarily due to lower than expected interest expense due to capitalisation of interest of Rs 40.4 crore against payment of 3G auction fees. The financials are not strictly comparable to the previous quarter since this quarter includes the full impact of 100% Spice amalgamation.

■ Highlights of the quarter
The company added 5.1 million subscribers during the quarter. This quarter includes 100% financials of Spice Communications for the whole quarter. Hence, the numbers are not strictly comparable to the previous quarter. Nevertheless, normalising for the impact of Spice consolidation, the total volume on the network grew 13% QoQ to 82.2 billion signalling robust volume growth. ARPM declined to Rs 0.44 as compared to Rs 0.47 (as reported) in Q4FY10 while the topline increased by 11.8%. ARPU for the quarter at Rs 182 vs. Rs 185 in Q4FY10, declining 1.6%. Share of VAS was up from 12.4% in Q4FY10 to 12.6%.

Valuation
The company’s operating performance has been better than expected. Also, the rate of decline in KPIs has declined, indicating a stabilising performance. With the 3G and BWA auction behind us, the overall industry trend seems positive. Assuming revenue CAGR of 10.0% over FY11E-FY20E and terminal growth of 3% thereon, we have arrived at a target price of Rs 58/ share for the core business. We have valued Indus contribution at Rs 14/share to arrive at a target price of Rs 72 per share. Our target price discounts FY11E and FY12E EPS of Rs 2.0 and Rs 3.5 by 35.4x and 20.3x, respectively. The stock is currently trading at Rs 69. Our target price implies upside potential of 4.1%. We rate the stock as ADD.

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