Despite policy-related issues faced by the telecom industry and stagnant voice tariffs, Idea Cellular booked healthy profits for the quarter ended March 2013. The operator registered an impressive year-on-year growth of 28.95 per cent in its bottom line. Its net consolidated profits for the quarter ended March 2013 stood at Rs 3.08 billion as against Rs 2.39 billion for the corresponding quarter in 2012. The high profit growth can be attributed to a 12.88 per cent increase in net revenues from Rs 53.69 billion for the quarter ended March 2012 to Rs 60.61 billion for the corresponding quarter in 2013. Meanwhile, operational expenditure grew by 9.36 per cent from Rs 40.12 billion to Rs 43.88 billion during this period.
The revenue growth was primarily driven by voice traffic, which increased by 15.33 per cent from 124.3 billion minutes to 143.36 billion minutes during the period under consideration. Meanwhile, Idea?s consolidated operating margins rose to 27.6 per cent from 25.3 per cent.
Idea Cellular has also performed strongly on the mobile operations? front. Its subscriber base grew by 7.89 per cent year on year to 121.6 million as of March 2013. Of this, 5.1 million were 3G subscribers, as against 4.1 million as of December 2012. The operator?s ARPU grew from Rs 160 during January-March 2012 to Rs 167 in January-March 2013. Meanwhile, the average minutes of usage per user on the operator?s network grew by 7.12 per cent year on year to 406 during this period.
However, the company has been unable to realise any gains from the withdrawal of promotional offers including free minutes in January 2013. In fact, its average realisation per minute (ARPM) declined by about 2.43 per cent from Re 0.42 during January-March 2012 to Re 0.41 for the corresponding quarter in 2013. But subscriber churn has declined significantly despite the withdrawal of promotional offers. Churn in the prepaid segment, which accounts for 96.1 per cent of the total subscribers, stood at 4.1 per cent for the quarter ended March 2013, as compared to 10.1 per cent in the corresponding quarter in 2012.
The non-voice and data services segment also witnessed marginal growth during January-March 2013. The company added 1 million 3G subscribers during the quarter. The data (2G and 3G) subscriber base stood at 26.21 million as of March 2013. This resulted in a higher contribution of the non-voice segment to total revenues. The value-added service and data service segments contributed 8.6 per cent and 6.6 per cent respectively during the quarter under consideration. However, data usage per subscriber dropped from 167 MB for the quarter ended December 2012 to 163 MB for the quarter ended March 2013, after witnessing growth for successive quarters.
In order to improve its 3G services, Idea Cellular has increased its investments in 3G network roll-out. It set up 1,595 3G and 2,432 2G tower sites (excluding those of Indus Towers) across the country during the quarter ended March 2013, taking the total number of these sites to 17,140 and 90,094 respectively.
Going forward, uncertainty regarding 3G intra-circle roaming (ICR) agreements and one-time spectrum fees could affect Idea?s operations. The company is awaiting the Supreme Court?s final verdict on the dispute over 3G ICR agreements with Bharti Airtel and Vodafone India. Idea Cellular could lose a large number of 3G subscribers and revenues from data services if the apex court cancels these agreements. This could also result in subscribers shifting to other operators that offer 3G services in the subscribers? home circle, thus increasing churn.
Moreover, Idea Cellular is required to pay a one-time spectrum fee of Rs 20 billion for holding spectrum beyond 4.4 MHz in the 1800 MHz band in the coming quarters. With competition in certain circles likely to decline as a result of new entrants exiting these markets, Idea is expected to increase voice tariffs, which would increase its ARPM. Data services are also likely to witness significant uptake with the operator launching several low-end smartphones bundled with attractive plans. This would encourage existing 2G data users to shift to 3G services.
Overall, Idea?s quarterly results have been impressive as compared to other operators. While the company continues to have one of the strongest balance sheets in the sector, with a net debt/earnings before interest, taxes, depreciation and amortisation of 1.9x and net debt/equity of 0.8x at the consolidated level, it still faces headwinds due to regulatory uncertainties in the sector.
