Idea Cellular – Lags GSM Peers – Airtel & Vodafone

We attended the conference call of Idea Cellular and here is the highlights of the same.

• Idea, including service areas of Spice (Punjab and Karnataka), added 4.03 million subscribers during the quarter with total subscriber base of 38.01 million at the end of 31^st December 2008, reflecting a national market share of 11%.

• On Q-o-Q basis the ARPU has improved by 2% to Rs 266 from Rs 261 and the average realized rate (ARR) per minute increased from Rs 0.62 in Q2 FY09 to Rs 0.64 in Q3 FY09. Far lower than Rs 324 earned by Bharti Airtel.

• The average minutes of use per user has declined from 417 minutes in Q2 FY09 to 410 minutes in Q3 FY09. For Q3 FY09 the revenue from Value Added Services (VAS) stood at 9.5% of the ARPU against 9.8% in Q2 FY09.

• The ARPU of 2 circles of Spice has improved from Rs 259 to Rs 279 sequentially while the average minutes of usage have increased from 434 minutes to 494 minutes sequentially. However, the average realized rate dipped from Rs 0.60 to 0.56 sequentially.

• The company has been allocated Spectrum in telecom service areas of Kolkata, Assam, North-East and Jammu & Kashmir during December 2008 and for West Bengal during January 2009.

• The company will be launching its services in remaining 8 circles by the end of calendar year 2009 and then it would be Pan India player.

• At present Idea is market leader in 23% wireless market and at second or very close to second position in about 50% market.

• Due to transfer of its 11,100 towers to Indus Towers, the EBIDTA margin of the company will be lower by 400-500 bps in FY10 due to higher opex and at PAT level the company’s margin will be lower by 200-250 bps due to lower depreciation and interest costs. However, on consolidated basis the impact on PAT would be neutral.

• As on 31^st December 2008, the company has about 39,289 BTS sites (21,197 by Dec’07), thus the investment in network has increased by 85% on Y-o-Y basis which will benefit the company in future. Out of 39,289 cites the company has 17830 sites on owned towers and rest 21,459 rented sites (146% higher on Y-o-Y).

• Out of owned sites the company will transfer about 11,100 towers (each tower having one cell site) to Indus Towers w.e.f. 1^st January 2009. The book value of these 11,100 towers is about Rs 1450 crore. All towers in Madhya Pradesh, Himachal Pradesh and about 1000 towers in Maharashtra will remain with the company.

• At present the company is carrying about 25% of its traffic on its own network and expects it to improve to 50% by March 2009, which will positively impact the EBIDTA margin.

• The company targets to have 45000-46000 cell sites by March 2009.

• The loss of company at EBIT level for Bihar circle may increase as more sites to roll out. However, in Mumbai the sites roll out will slow down and so the loss at EBIT level will reduce.

• The company estimates that all of its circles including Punjab and Karnataka will be eligible to get reduction in USO fund contribution, when implemented next fiscal.

• As of 31^st December 2008 the company has cash and cash equivalents of Rs 8161 crore on consolidated basis and debt of Rs 10778 crore.

• The company estimated capex of Rs 6000 crore for FY10 against Rs 6500 crore in FY09. This capex for FY10 does not include capex for 3G licenses and roll out, but include capex in Punjab and Karnataka circles (acquired through Spice Communication).

Idea Cellular needs some major investments immediately for expansion as new operators and Reliance Mobile have entered the wireless battle.