We maintain a ‘buy’ rating on Idea Cellular with a revised target price of R170 per share based on 7.5x FY16 EV/ebitda for core business and R50 lakh per tower for stake in Indus. We are upgrading FY15/16 ebitda estimates by 3-4%. With comfortable gearing level at net debt/ebitda of 1.5x and net debt/equity at 0.7x, coupled with high 3G/4G data spectrum coverage at ~85% of revenue footprint, we believe Idea is well-placed to withstand upcoming licence renewals and increased competition in data. Our estimates factor-in ~R16,500 crore further outlay for Idea in FY16e towards spectrum payments. The stock trades at EV/ebitda of 6.1x FY15e and 6.4x FY16e.
Idea's Q1FY15 consolidated ebitda grew 19.5% y-o-y and 12.6% q-o-q to R2,510 crore against our estimate of R2,370 crore. PAT increased 49% y-o-y and 23.5% q-o-q to R730 crore (estimate R680 crore). Consolidated revenue grew 15.6% y-o-y and 7.3% sequentially to R7,560 crore (versus estimates of R7,350 crore). Blended RPM increased 3.4% q-o-q (voice RPM up 1.9%) compared to our expectation of 1.8%. Voice traffic growth of 5.2% q-o-q was also ~2% above our estimates. Data business exhibited strong growth as well with traffic up 19% q-o-q and realisations up 4%.
Ebitda margin rose 150 bps q-o-q to 33.2% led by lower network costs (down 50 bps as rollout intensity was low in the quarter), access charges (down 50 bps), and sales/marketing costs (down 80 bps), offset by a rise in employee costs (normal in Q1FY15 after one-off decline due to lower liability provisions in Q4FY14).