BSE Stocks Update - Idea Cellular

BSE Index Analysis, Securties , Standard Experts

Idea Cellular :

Raise volumes, cut RPM estimates

Reco : Sell   

Cmp : 81   

Target : 63

While headline tariffs of major operators havenⴠchanged (post hike in July 2011), the impact of promotional price offers is visible on RPM - IdeaⳠ2.5% QoQ RPM decline reflects rising competitive intensity in the industry. Interesting to note that Bharti introduced promotional offers in few circles in Q4 to sustain/ increase its market share. We believe voice RPM for Idea is likely to remain under pressure if price promotions continue. However, promotional offers, which are bundled with free minutes, led to 9% QoQ volume growth for Idea.


Change in estimates:

We reduce our FY13E/ FY14E RPM (incl. VAS) by 4% each to factor in pressure on RPM (vs. our earlier expectation of RPM growth). However, we raise our total MoU forecast by 5-8% each in FY13/ FY14, resulting in revenue being higher by 1-2% each. Our EBITDA estimates stand increased by 3% each in FY13/ FY14 due to operating leverage driven by volume growth.

Valuation:

Maintain SELL with our SoTP - based target price of Rs 63: (a) Business value of Rs 98/sh (5.8x FY14E EV/EBITDA) and (b) Negative impact of possible regulatory outgo at Rs 35/sh (assuming 50% probability of maximum possible amount).


Magma Fincorp :

Disbursement Growth Moderates

Reco : Buy   

Cmp : 71   

Target : 78

Magma FinCorp (Magma) was able to maintain its asset quality (zero net NPA) and interest spreads (4.3%) but disbursement growth at 28% YoY in Q4FY12 was lower than our estimate (~35% YoY). Slowdown in CV segment (up 2% YoY in Q4FY12 vs. 20% YoY in Q4FY11) led to lower disbursement growth. We expect disbursement growth at 30% YoY in FY13 (37% in FY12), given growing presence (credit hubs at 135 locations vs. 35 a year ago) and increasing contribution from high yielding products.

Securitization as a treasury tool:

Magma is reducing its dependence on securitization/ assignment transaction (42% of AUM in FY12 vs. 54% in FY11). Interest earning assets share has increased to 82% in FY12 from 48% in FY11, the benefit of which will be visible FY13 onwards.

However, securitization picked up in Q4 to take benefit of demand from banks, which is in line with its strategy to use securitization as a treasury tool rather than funding tool. Q4 PAT declined 55% YoY to Rs 191 mn on change in securitization income accounting.