Idea Cellular Ltd. was expected to post strong results for Q4-FY'15, based on the fact that the subscriber additions were very strong for the industry as well as the company in specific. Apart from the subscriber additions, the momentum in Data Usage growth has been very strong since the last 6-8 quarters and it is expected to continue for the next couple of years. For Q4, Idea Cellular posted a 22% growth in Total Income & a superb 60% growth in Net Profit on the back of expanding profit margins. Idea's growing scale of operations has been helping the company improve it's EBITDA and Net Profit margins. Have a look at the chart alongside. In March'2012, Idea's EBITDA margin stood at just over 25% and Net Profit margin was just under 4.50%. Idea's Quarterly revenue stood at about Rs.5300 crores then. Over the last 3 years or 12 quarters, Idea's Quarterly revenues have grown to over Rs.8600 crores and it's EBITDA margin has improved to a best ever figure of just under 38% and Net Profit margin too has improved vastly to close to 11% now. As we can see, the EBITDA margins have seen a smart jump in the last 2 quarters, which can be attributed primarily to Idea's Wireless Data business reaching a decent scale of operations now and has now started positively impacting the company's overall profitability.
It is no secret that the Wireless Data business is the main growth driver for any Telecom operator in India currently. All operators are scaling up their coverage and Data-handling capacities to keep up with the demand. Currently the demand is outstripping the supply and hence we see the Data rates remaining steady. As and when the supply starts going ahead of demand, we could see the rates coming down. As per the information shared by Idea Cellular in their quarterly reports, the amount of Data it's networks carried on a Quarterly basis has shot up from just about 7.2 million GBs in June'2012 Quarter to 54.5 million GBs in March'15 Quarter, i.e. it has multiplied nearly 8 times during these 10-11 quarters!! During the same period, the Quarterly Data Revenues have multiplied nearly 6 times from Rs.240 crores then to over Rs.1400 crores now. In the March'15 Quarter, Data Revenues contributed over 16.2% of Idea's Total Revenues, compared to less than 10% in March'14 quarter. So we can clearly derive that Data Revenues are now contributing a substantial portion of Idea Cellular's incremental Revenues growth. This is something that is true with almost all Telecom operators in India.
On a Trailing-Twelve-Months basis, Data Revenues for Idea Cellular were Rs.4540 crores as on March'15, which is 97% higher than the number at the end of March'14 and it is nearly 275% higher than the number at the end of March'13. Have a look at the chart alongside:
As we can see in the chart, Idea's Data (T-T-M) revenues contributed just about 21% of the company's Incremental T-T-M Total Income. With every passing quarter the share has been increasing and has now hit the 45% mark at the end of March'15. Between Dec'14 and Mar'15, Idea's T-T-M Total Income was higher by Rs.1565 crores, while the company's T-T-M Data Revenues were higher by Rs.710 crores. During the last 8 quarters, Idea's T-T-M Total Income has grown at an average rate of about 4.5% Q-o-Q, while the company's Data Revenues have grown at an average rate of almost 18% Q-o-Q. This stupendous growth is expected to continue for another couple of years, though the Q-o-Q growth rate might slow down gradually to about 10-12% over the next 6-8 quarters mainly because the base for comparison will keep rising rapidly.
RelJio Factor: The single biggest factor that can disturb the growth momentum in Data Revenues of any of the existing Indian Telecom operator is the potential launch of RelJio's 4G services. The launch has been delayed by quite a few months, but it is expected that we are getting closer to launch with every passing week. Still no body knows the exact timeline of the launch. This delay is playing very very well for all existing operators, including Idea Cellular. The current level of competition and the demand of Wireless Data is allowing the companies to continue growing without thinking about price cuts. In fact, many of the larger operators have been threatening to hike prices for Data packs. These operators can think about hikes or even go ahead with it only & only until RelJio's launch does not happen. I am very very sure than within days of RelJio's rollout starts, we will see all the existing operators starting to 'think' about price cuts. RelJio might take a few months to reach some scale of operations which will start impacting the businesses of existing operators noticeably. But it will happen.
Valuations: Idea Cellular's T-T-M EPS stands at close to Rs.9/- and it's stock is currently trading at about 20-21 times it's EPS. This is not expensive valuations considering the growth momentum the company is currently experiencing. If we ignore RelJio's potential launch, I would bravely say that there is substantial potential of re-rating of Idea Cellular's stock upwards. This is despite the fact that the company's Interest Cost is expected to jump substantially in the current year, mainly because of the extra borrowing for Spectrum payments and newer rollouts. But the company currently has healthy cash flows from it's operations and can easily take care of that. But the big question mark is how and when will RelJio's network & service rollout happen. How aggressively does that company go after gathering subscriber base and increase it's network usage. Purely & purely because of this one factor, I cannot confidently say that Idea Cellular will see anything more than 15-20% movement on it's stock price over the next 12-15 months.
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