THE BUZZ 

Idea Cellular (idea), Axiata's 19.9%-owned associate in India, reported a fall in revenue q-o-q  to  INR53.1bn  while  group  EBITDA  came  in  flat  (+20%  y-o-y).  Excluding  forex effect, core earnings of  INR2.2bn fell 14% q-o-q (+62% y-o-y) from higher depreciation
and amortization expenses.

OUR TAKE  

Falling short  again.  Idea's core earnings made up 43% of consensus FY13  estimate, below  expectations  as  operating  cost  is  set  to  rise  in  2HFY13  from  regulatory headwinds. The key letdown was the 3.4% fall in revenue q-o-q (+15% y-o-y), marking the  first  sequential  contraction  since  2010  as  average  revenue  per  unit  (ARPU)  came under renewed pressure (-5% q-o-q). The revenue impact was further compounded by a seasonal decline in minutes of usage (MOU) (-4.0% q-o-q) with Idea adding more rural subscribers. The group's EBITDA margin improved slightly on lower opex.   
 
Data  inching  higher.  Data  revenue  contribution  widened  to  15.6%  from  14.5%  in  the preceding  quarter  from  higher  mobile  data  take-up  (16%  of  subscribers  actively  use data).  It  added  600,000  3G  subs  during  the  quarter  to  3.7m  (+3.2%  q-o-q)  but contribution  remains  insignificant.  Data  ARPU  for  2QFY13  improved  to  INR50  from INR47.

Regulatory  developments  increasingly  convoluted.  At  the  results  call,  Idea  said  the  imposition  of regulatory charges will only compel the telcos to pass on the costs to consumers via higher tariffs. This is a step back for the telecoms sector and potentially disruptive for the telcos. To recap, the Empowered Group of Ministers (EGoM) had earlier this month proposed a one-off fee for the use of 2G spectrums in excess of 4.4MHz. For operators with more than 6.2MHz, an additional charge will be levied. Idea is expected to fork out  USD430m  for  the  one-time  fee  and  over  USD300m  to  bid  for  the  seven  circles  it  lost  after  the government  cancelled  122  2G  licenses  earlier  this  year.  We  think  there  is  a  small  risk  of  a  cash  call  from Axiata although the latter should be able to finance its commitments via debt. Idea's  net  debt/EBITDA currently stands at 2.1x, with net gearing at 0.7x.

Maintain NEUTRAL on Axiata based on FV of RM6.04. Idea accounts for only 4% of our SOP for Axiata and  contributes  less  than  10%  to  group  earnings.  The  2%  q-o-q  depreciation  of  the  INR  against  the  RM should  further  magnify  the share of losses at Axiata group level. Note that some 40% of Axiata's earnings are derived from its overseas operations which make up 45% of our SOP. Key share price re-rating catalysts for Axiata are: (i) the stronger than expected results, and (ii) capital management. 

Source: OSK