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Profit Surge: Idea Cellular continues on its upward trajectory

May 30, 2014
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Continuing on its high growth path, Idea Cellular reported a sharp increase in its consolidated profits for the quarter ended March 2014. Profits grew by 91.23 per cent from Rs 3.08 billion in the quarter ended March 2013 to Rs 5.89 billion in the corresponding quarter in 2014, which was largely driven by the increasing adoption of 3G data services and higher voice tariffs. Along with this, a 14.28 per cent decrease in interest and financing costs, from Rs 2.24 billion to Rs 1.96 billion, during the same period contributed to the increase in net profits.

Further, the gross revenue increased by 16.2 per cent from Rs 60.61 billion in the quarter ended March 2013 to Rs 70.43 billion in the corresponding quarter in 2014. Increasing revenues, in turn, led to higher earnings before interest, taxes, depreciation and amortisation (EBITDA), which grew by 33.29 per cent from Rs 16.73 billion to Rs 22.3 billion during the same period. EBITDA margins also improved from 27.6 per cent to 31.7 per cent.

Idea Cellular’s revenues from voice services increased by 14 per cent from Rs 51.39 billion in the quarter ended March 2013 to Rs 58.8 billion in the same quarter in 2014. ARPUs from voice services also increased from Rs 167 to Rs 173 despite a decline in the minutes of usage per user from 406 to 397. This can be attributed to the tariff hikes undertaken in 2013 as well as the reduction in promotional offers, which continued to drive the growth in voice revenues during the January-March quarter in 2014.

Meanwhile, the total subscriber base grew by 11.6 per cent from 121.6 million to 135.8 million. The number of 3G subscribers increased twofold from 5.1 million in March 2013 to 10.2 million in March 2014, which can be attributed to the reduction in 3G data tariffs undertaken by the company in end-2013. Starting November 2013, Idea Cellular decreased 3G data tariffs by 33 per cent for six months. The impact of this reduction was evident in the January-March 2014 quarter when the company’s data segment performed significantly better than the voice segment.

The contribution of data services to overall service revenues increased from 6.6 per cent in March 2013 to 10.1 per cent in March 2014. This was driven by an increase in data usage from 11.42 billion MB to 27.29 billion MB. The 3G data volume grew more than twofold from 5.23 billion MB to 13.08 billion MB. Meanwhile, average data usage per customer grew by 150 per cent from 163 MB to 410 MB during the same period. Higher data usage led to improved ARPUs, which grew by 89 per cent from Rs 55 in March 2013 to Rs 104 in March 2014.

Going forward, Idea Cellular’s revenues from data services are expected to improve further due to the Telecom Disputes Settlement and Appellate Tribunal’s recent judgment that permits 3G intra-

circle roaming. The move will allow the operator to offer 3G services to its customers in circles where it does not hold 3G spectrum. Moreover, the company has announced plans to invest Rs 35 billion in setting up 3G networks in the Delhi circle in 2014-15. It intends to use spectrum in the 900 MHz band, which it had acquired in the February 2014 auction, for offering these services. Further, Idea Cellular is expected to offer 4G services using 5 MHz spectrum in the 1800 MHz band, which it acquired in eight circles in the recently concluded auction.

Although the operator continues to register improved profitability due to the higher uptake of data services, its bottom line may be affected in the next few quarters on account of spectrum payouts. Idea Cellular has decided to make an upfront payment of Rs 31.43 billion and the remaining Rs 72.8 billion in instalments for the recently acquired spectrum. A part of this payment is likely to be made through debt funds, which will increase interest costs in the future. The operator is also planning to raise funds of Rs 30 billion through qualified institutional placements for spectrum payments and network expansion. In this regard, Idea Cellular has already started receiving a positive response from US-based private equity firms like Kohlberg Kravis Roberts and the Blackstone Group, which have shown interest in acquiring a total of 8 per cent stake in the company for about Rs 30 billion. These funds will also enable the operator to buy spectrum in circles where its licences are due for renewal in 2015.

In sum, Idea Cellular has exhibited a strong quarterly performance on both the operational and financial fronts. The operator is expected to witness a further growth in profits as data usage continues to rise with the proliferation of smartphones in Tier I and Tier II cities.

 
 
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