While results were better than expectations, the outcome of the 3G auction is among key things to watch out for.
In the light of stiff competition in the telecom sector, Idea Cellular’s consolidated results for March 2010 quarter look commendable. Although strictly not comparable, as the results include Spice Communications, which was merged with Idea in March (for January and February months, results account for 41 per cent of Spice’ financials), these were slightly ahead of Street expectations.
Despite high competition leading to tariff cuts, wherein Idea’s revenue per minute slipped from 51 paisa to 47 paisa, the company has been able to expand traffic on its mobile network.
While Idea’s total minutes of use (MoU) were up 13.5 per cent, its per subscriber MoU, which were on a declining trend from a high of 430 in June 2008 quarter to 375 in September 2009 quarter, inched up to 398 in March 2010 quarter. Along with the increase in subscriber base by over six million, Idea saw its standalone revenues rise 7.8 per cent to Rs 3,301 crore in March quarter.
Notably, over the last quarters, Idea has been able to consistently increase the share of value-added services in revenues. In March quarter, the same increased to 12.4 per cent compared to 11.2 per cent in December 2009 quarter. All these put together helped Idea report standalone operating profit margins (adjusted) of 24 per cent, which is marginally (70 basis points) lower than December 2009 quarter, estimate analysts.
The decline in margins, however, is lower than the decline reported by peers like Bharti. The adjustment is consequent to reversal of Rs 60 crore in March quarter and absence of ESOP repricing effects (undertaken in previous quarter) — reported margins were however, higher by 170 basis point rise (sequentially) at 25.2 per cent.
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Idea’s profits also got a boost from one-time other income of Rs 52 crore. Overall, Idea’s reported consolidated net profit surged 56.7 per cent sequentially to Rs 266 crore.
Analysts expect the decline in revenue per minute to stabilise as most of the migration to new (lower) tariffs will get complete. Higher network utilisation and lower capex in existing operations will also be positive. However, the final outcome of 3G auction remains pending (and citing the high current bids), analysts are cautious. At Rs 63.45, most of them have a neutral to sell on the stock with price targets ranging Rs 50-65.