Company Outlook

Idea Cellular is a part of the US $24 billion Aditya Birla Group and a leading GSM mobile services operator with licenses to operate in 13 telecom service areas in India. The company has operations in Delhi, Himachal Pradesh, Rajasthan, Haryana, Uttar Pradesh (W) & Uttaranchal, Uttar Pradesh (E), Madhya Pradesh & Chattisgarh, Gujarat, Maharashtra & Goa, Andhra Pradesh and Kerala. With the planned expansion into Mumbai, Bihar & Jharkhand, Ideas footprint will cover nearly 70 percent of Indias telephony potential. Idea Cellular had 16.13 Million subscribers as on June 30, 2010, and had a market share of 15.4 percent as on June 30, 2010 in its 11 service areas of operation.

Business Summary

Higher subscriber addition We expect that the company will see a robust growth in its subscriber base in the coming months in both new as well as existing circles. Moreover it is expected to be allotted spectrum in Mumbai in the coming months. Improvement in EBITDA margins The EBITDA margins are expected to improve both in the existing and the new circles. As more and more subscribers will be added and company will enter into new circles, revenue flow will also be higher. Hiving off tower business Following the footsteps of Bharti and RCom, Idea Cellular has also decided to hive off its tower business into an independent subsidiary. The Board of Directors (BoD) has approved the demerger plan. So value unlocking is on the cards.

Valuation Summary Tower business Demerger The company has planned to hive off its tower business for possible transfer of passive infrastructure. It would result in significant value unlocking. The company had 13,160 cell sites as of Q1FY11 compared to 10,114 cell sites at the end of Q4FY10. Around 4500 towers are on sharing basis. Out of 8.662 towers about 4,900 are roof top towers and 3,700 are ground based. They have a tenancy ratio 0f 1.3x. Company is expected to increase its cell sites to 20000 by FY11.

Valuation Summary
Financial Analysis Net sales increase by 64 percent Net sales increased by 64 percent Y-o-Y on account of robust subscriber additions. However the companys Average Revenue Per Unit (ARPU) has decreased significantly from Rs.362 to Rs.320. Aggressive method of recognizing revenue Idea recognizes entire processing charge from Lifetime prepaid schemes as revenue upfront, while RCom and Bharti amortize the same over 48 months and 24 months, respectively. Thus, Ideas ARPU, revenues and margins, to that extent are inflated. In Q1FY11 more than 30 percent of net additions were from new lifetime prepaid scheme. We believe that the policy of booking entire processing fee as revenues upfront would have contributed almost Rs.6 to ARPU.

Valuation Summary
EBITDA grew by 69 percent Y-o-Y. The EBITDA margins in its established circles including Delhi, Maharashtra, Gujarat, Andhra Pradesh, Madhya Pradesh, Haryana, Kerala and EBITDA margins increase by 100bps to 34.7 percent. Uttar Pradesh (W) expanded by 40bps Q-o-Q to 38 percent. Losses in 3 new circles have come down to Rs24.6crore (-40 percent of revenues) from Rs330m (-76 percent of revenues) in last quarter. Company saw reduction in network and marketing expenses as percentage of sales by 160 bps. However access charges increased slightly. PAT increased 259 percent Y-o-Y due to margin expansion, lower depreciation and interest expense Ideas net profit grew by 259.5 percent Y-o-Y. Its depreciation and amortization charge decreased by 320bps Y-o-Y as a percentage of net sales. Interest expenses also were significantly less as percentage of sales.

Product life cycle And Strategy

   

Introduction Growth Maturity Idea uses selective approach

Recent news


Idea cellular has challenged MCD on demolishing the cell towers