Idea Cellular (updated - 07 Aug 2009)
If Idea Cellular’s operating profit margins for the June 2009 quarter improved 80 basis points sequentially to 26.7 per cent, it was partly because of lower termination charges and some cost savings.
Otherwise, there was no big surprise on the revenues front — they were up just under 1 per cent sequentially to Rs 2,890 crore, though adjusting for cuts in mobile interconnect charges, they would have risen about 5.3 per cent, similar to that reported by market leader Bharti Airtel. If the net profit was ahead of expectations, it was due to some foreign exchange gains and lower depreciation charges. The fairly sharp fall of 9 per cent in the ARPU (average revenue per user) to Rs 232 during the quarter had more to do with lower access charges, adjusting for which the drop would have been about 3.6 per cent.
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That was not surprising given the competition and the fact that ARPUs are lower incrementaly. Also, while the fall in minutes of usage was just 0.7 per cent to 399 minutes, it was a bit of a disappointment as there were more days during the quarter. This suggests that going ahead, with more customers using dual-SIM cards and new players offering free minutes, the minutes of usage could be lower. Also, India’s fifth largest wireless operator may be taking time to ramp up operations in some areas.
However, the bigger concern is the increase in the pre-paid churn of almost 7 per cent -in the March 2009 quarter, the number was a much better 5.3 per cent. The churn is almost twice that for Bharti (which reported 3.5 per cent churn in the June 2009 quarter). With users remaining price-conscious and the competition increasing, the high churn rate is worrying. Idea rolled out services in Tamil Nadu and Orissa during the quarter and the impact of this is likely to be felt in the September 2009 quarter, implying that operating profits could be under some pressure.
While the inclusion of the stock in the MSCI is a technical plus, the relatively small scale makes the telco more vulnerable to increasing competition. Citigroup has atarget price of Rs 80 for the stock with the core business being attributed an EV/EBITDA (enterprise value/ebitda) multiple of 7.8 times for 2009-10, a 15 per cent discount to Bharti.
source - BS
Idea Cellular (updated - 15 July 2009)
With 1.6 million net additions to its subscriber base in June compared with 1.3 million in May, Idea Cellular seems to be getting its act together. The telco has done well to hook users in the metros; in Delhi it added subscribers after losing them for two months while in Mumbai, the number of net additions nearly trebled.
That’s creditable because wireless penetration in urban markets is more than 85 per cent. Idea also appears to be doing well in other states where it recently rolled out services such as Tamil Nadu, Orissa and Bihar. Whether the strong subscriber base translates into better operating metrics, remains to be seen.
The Aditya Birla group company had turned in a strong set of numbers in the March 2009 quarter, despite Reliance Communications having launched its GSM service across 14 circles offering free minutes. The drop in the minutes of usage (mou), which fell just over 3 per cent to 402 minutes, was relatively strong while the fall in the average revenue per user (arpu), at 4.5 per cent sequentially to Rs to Rs 254, wasn’t bad either. Losses in the Mumbai and Bihar circles were lower too and going ahead, Idea’s operating leverage in the older circles should improve and ad spends should taper off.
However, although the company has strong cash balances of nearly Rs 6,000 crore, it plans to use most of this for capital expenditure and may just need to borrow to bid for 3G licences. In the current year, Idea is expected to turn in revenues of close to Rs 13,500 crore and although cost pressures will continue as it steps up operations, it should post an operating margin of over 26 per cent.
That could result in a net profit in the region Rs 825 crore.The stock rose 7 per cent on Tuesday to close at Rs 70; at these levels, the stock trades at an EV/EBITDA ( enterprise value/earnings before interest, tax and depreciation) multiple for 2009-10 of over 8 times which is a very slight discount to market leader Bharti Airtel.
source - BS
Idea Cellular (updated - 30 Sept 2009)
Idea Cellular, which rolled out its mobile services in Mumbai a year ago, is attempting to fight the competition in the city by offering special rates of 50 paise for both local and STD calls on any network. The Rs 10,120 crore firm has been doing well in Mumbai and added 100,000 subscribers in August as against 72,000 in June.
However, the telco hasn’t fared too well in some other circles and therefore net additions declined in July to 1.37 million. The additions in its eight legacy circles were low, implying that the operator was finding it tough to hold on share in its incumbent circles. However, the performance in August was better with net additions of 1.44 million and pushed up the telco’s subscriber base to 45.6 million.
Idea, which launched in Chennai in July, turned in fairly good operating margins in March and June quarters. Analysts point out that not only was it able to improve margins in the 11 existing circles by 750 basis points over the past nine months, it also managed to arrest operating losses in new circles. That’s despite the launch in two new circles.
Idea will roll out its network in five new circles in the next six months but with telecom operators relying increasingly on shared towers to expand in rural markets, analysts believe capital expenditure could now be lower than what was expected earlier. However, losses in these circles will depress the profits.
The Idea stock has gained 65 per cent since March, outperforming market leader Bharti Airtel. At the current price of Rs 76, the stock trades at around 20 times estimated 2009-10 earnings and 17 times 2010-11 earnings, and any meaningful upside could result only from an M&A deal.
source - BS
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Idea Cellular Ltd
Idea Cellular (updated - 27 Oct 2009)
The increasing number of dual SIM cards in the market, coupled with falling tariffs, was always expected to hurt revenues for telecom operators. But that Idea Cellular’s revenues have remained sequentially flat at Rs 2,891 crore for the September 2009 quarter is rather disappointing.
The management attributes the weak top line to seasonal factors, given that 40 per cent of the company’s revenues now come from rural markets and the monsoon was delayed. But that is hardly convincing and it is evident that Idea is losing some share to the competition. What’s of greater concern is that revenues for the eleven legacy circles have fallen by over a per cent sequentially. Not surprisingly, operating margins are down by 140 basis points quarter-onquarter at 25.3 per cent, with margins in the legacy circles lower by 40 basis points.
With industry participants looking to gain market share, it’s quite possible that tariffs may drop further as companies announce new schemes. Whether Idea follows suit or not by dropping tariffs, its revenues will continue to be under pressure given that the volume of traffic isn’t increasing either. Idea’s minutes of usage (mou) per month for the September quarter were down a sharp 5.5 per cent at 429 minutes.
What works for Idea is its strong balance sheet with a net debt of just Rs 3,600 crore and 900 MHz of spectrum in several circles. However, while it’s probably true that many of the other telcos, whose balance sheets are not as strong as that of Idea’s, may find it harder to survive the next couple of years before the consolidation happens, Idea too will find the going tough.
After all, it doesn’t have the kind of scale that market leader Bharti Airtel has and is yet to become a pan-India player. The Idea stock lost 3 per cent on Monday to close around Rs 57 and could be under further pressure.
source - BS