Following on its strong performance in the past few quarters, Idea Cellular has achieved an increase of 97.43 per cent in its bottom line for the quarter ended June 2013. The operator?s net profits grew from Rs 2.34 billion for the quarter ended June 2012 to Rs 4.62 billion for the corresponding quarter in 2013. The high profit growth came on the back of improved revenues in the voice and data segments as well as better operational efficiency.
Idea?s consolidated revenues increased by 18.80 per cent from Rs 55.03 billion to Rs 65.38 billion during this period. Opex growth was restricted to 9.68 per cent (from Rs 40.68 billion to Rs 44.62 billion). Moreover, unlike its peers, Idea was not affected by fluctuations in the exchange rate. In fact, the operator reduced its finance costs by 17.19 per cent to Rs 2.21 billion for the quarter ended June 2013, which aided in the growth of profits.
The strong revenue growth resulted in a better earnings before interest, taxes, depreciation and amortisation margin, which increased by 5.7 percentage points to 31.7 per cent for the quarter under review. The operator also reduced its debt from Rs 114.85 billion as of June 2012 to Rs 102.19 billion as of June 2013.
Idea fared well on the operational front as well. Its subscriber base increased from 117.2 million to 125 million during the same period. The share of data users in total subscribers rose from 15.6 per cent to 24.72 per cent. The average realisation per minute (ARPM) increased from Re 0.41 to Re 0.43 during this period as a result of tariff hikes and withdrawal of promotional offers, including free minutes, in early 2013. However, this time, the rise in tariffs yielded positive results. Voice usage per subscriber increased from 379 minutes for the quarter ended June 2012 to 398 minutes for the corresponding quarter in 2013. Improved voice usage translated into higher voice ARPUs, which stood at Rs 174 during April-June 2013 as compared to Rs 156 for the same period in 2012.
Data services continued to gain traction, with growth primarily driven by volumes. Data usage per subscriber increased from 139 MB during April-June 2012 to 160 MB for the corresponding quarter in 2013. Increased data usage led to higher data ARPUs, which grew from Rs 47 to Rs 54 during the same period. The ARPM, however, remained stagnant at Re 0.33, owing to a 90 per cent tariff cut for 2G data services in select circles in end-June 2013. The full effect of the tariff reduction will be felt in the coming quarters, which could result in a lower ARPM unless 2G service adoption picks up significantly.
The operator?s 3G subscriber growth remained subdued during the quarter under review. This was primarily on account of the Supreme Court?s order barring the operator from adding 3G subscribers in six circles, where it had been providing services through intra-circle roaming (ICR) agreements. As a result, the share of 3G users in the overall subscriber base increased marginally from 16.94 per cent as of June 2012 to 17.79 per cent as of June 2013.
The next few quarters would be very crucial for Idea as it faces several regulatory issues. The operator is required to pay penalties for alleged licence violations including of 3G ICR pacts. It will also have to pay for renewing its licence, which expires in 2015-16, as well as a one-time spectrum fee for holding excess spectrum. This would entail substantial capital spending, which may strain the balance sheet of the operator. To mitigate potential risks, Idea has proposed to issue shares worth Rs 30 billion through a qualified institutional placement. In addition, the company would raise Rs 7.5 billion through the sale of equity stake to its existing shareholder, Malaysia-based operator Axiata.
Meanwhile, Idea faces the risk of high subscriber churn if the Telecom Disputes Settlement and Appellate Tribunal directs the operator to stop offering 3G services in circles where it does not hold spectrum. Such a decision would lead to reduced voice and data usage as subscribers will shift to service providers that offer both 2G and 3G services in their home circle. This is bound to have a significant impact on the operator?s revenues.
Overall, Idea has outperformed all other operators for the past several quarters. Tariff rationalisation and the surge in data usage have augured well for the operator. The trend is likely to continue in the future and will drive the company?s growth in the long term. Idea?s operational and financial performance for the next few quarters will largely depend on its ability to deal with regulatory issues.
