Idea beats Street estimates

Stock was in the green and closed at Rs 191.6 on the BSE on Tuesday and up 2.8% from the previous close

Idea Cellular, India's third largest mobile operator, on Tuesday reported a 66 per cent year-on-year jump in its standalone net profit at Rs 1,077.7 crore for the fourth quarter, which was better than Street estimates of Rs 850 crore.

Revenues, too, beat Street estimates growing by 22 per cent in the fourth quarter over the corresponding quarter last year to Rs 8,541.3 crore. Various brokerages were expecting 19-20 per cent growth in revenues during the quarter.

Results were announced after market closing on Tuesday. However, the stock was in the green and closed at Rs 191.6 on the BSE on Tuesday and up 2.8 per cent from the previous close.

The above number doesn't include Idea's share of revenues and profits in Indus Towers, a three-way tower sharing joint venture (JV) between Idea, Bharti Airtel and Vodafone, though it includes equity dividend Idea receives from Indus. Idea holds a 16 per cent stake in the JV.

The fourth quarter results continue the earnings momentum shown by the company in the previous three quarters of the FY15. In the April-December 2014 period, Idea's net profit was up 63.5 per cent while revenues were up 19 per cent.

The company attributed the good show during the quarter to scalability factors arising out of new subscribers' addition, more voice minutes on the network and faster growth in data volumes. This resulted in a year-on-year (y-o-y) and sequential expansion in operating margin despite a seven per cent and 3.5 per cent y-o-y decline in voice and data rates, respectively.

"Voice rate realisation remained under pressure but the elasticity of demand compensated rate decline with 16.3 per cent minute growth in FY15 over FY14. Additionally, faster mobile data growth compensated voice rate decline and consequently the average realisation per minute improved by 2.7 per cent in fourth quarter over the previous year," said Himanshu Kapania, managing director, Idea Cellular.

The result was a 400 basis point improvement in Idea operating margin on a standalone basis to 33.1 per cent of revenues in the fourth quarter of FY15 from 29 per cent a year ago.

The company expects to maintain the growth momentum driven by faster growth in its seven new service areas where it won spectrum last year and roll out of 3G services in Maharashtra, Kolkata and Delhi circles. "Our expansion in the seven new service areas is gaining traction and we now account for 15-16 per cent share of the incremental revenues in these circles. Next year, we also see incremental revenues from roll out of our 3G services in three circles where we acquired additional spectrum in recent auctions," said Akshaya Moondra, chief financial officer, Idea Cellular.

However, the company's balance sheet might take a hit in FY16 due to the additional debt taken over by the firm on account of the March 2015 spectrum auctions. The company has bought spectrum worth Rs 30,137.5 crore, out of which it has already made upfront payment of Rs 7,734.2 crore. The balance will show-up as additional debt on Idea books and may raise its interest and depreciation cost for FY16, which will negatively impact its net profit. However, it will have no impact on the company's revenues and the operating profit and there will only be a marginal impact on its cash profit and cash flows from operations.