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.
