Idea to add at least 1 m subscribers in coming mths

Excerpts from CNBC-TV18’s exclusive interview with Sanjeev Aga: 

Q: There were two issues on why net profit for this current quarter was a little lower than expected - one was mark-to-market (MTM)- the forex - and the other was interest cost. Once Telekom Malaysia brings in the cash or when the cash gets into your books by how significant a margin do you see interest cost dropping? 

A: We have had a few one-off events One is forex and a little bit of interest on account of our new licenses and the Spice payment, which has impacted this particular quarter and it is not likely to recur. The total amount of money that we will be getting into a group of companies through Telekom Malaysia and Providence is almost Rs 8,900 crore and our current net debt is about 7,800 crore. So we will actually have Rs 1000 crore surplus and even after amalgamating Spice and taking on their debt, we will be practically a zero debt company. Our debt will not get wiped off because there will be treasury income and there will be payments on debt. But in a net-net position we will be very strong in terms of balance sheet, couldn’t be stronger. 

Q: So interest cost will decline significantly? 

A: Dramatically.  

Q: By when do you see the EBITDA losses diminishing and at break-even which are coming in from the three new circles? 

A: In the normal course they might have been eliminated by now or very shortly. We had spectrum for 60% of Rajasthan but the balance three districts we have got only in the month of January. Similarly for Eastern UP, the rollout has begun but revenue has not begun. So there has been almost a new rollout within a rollout. That is what has impacted. Not that we are seeing good traction in UP; we are actually investing more than we had originally planned. So things are going as per plan but nominally it looks as if something is getting differed. The UP-East in terms of EBITDA will break even next three months or so. Rajasthan and Himachal Pradesh will take a little longer but we should be through in maybe four-six months. 

Q: About capital infusion - despite the money that is coming in, you have got some fairly aggressive capex plans of USD 3.5 billion and seven circles to launch. Would you look to raise more cash from other means?

A: Even after absorbing Spice, after the amalgamation it will take several months because there is a court process. As of now, we are practically having no debt; we also have healthy cash accruals from our operating circles. Our capex this year for our existing operations will be about USD 1.25 billion in that ballpark. Some of the capex for Mumbai and Bihar is already incurred, so the capex going forward is not going to be the whole investment for these circles. Our investments are starting for Tamil Nadu and Orissa, where we have got spectrum and if we get spectrum then Bengal and Assam and J&K. But in our capacity - we have got these lines of debt and we are completely comfortable, I do not see any need to raise any further debt beyond what we already have, we are completely in control. 

Q: The MoU, or the Minutes of Usage have gone up a bit this quarter but it seems its come with a tariff cut. Do you think over the next few quarters you will have to scale back on tariffs in order to even maintain these kinds of MOUs?

A: We have had revenue growth this quarter of 9.7% on the back of 15% growth, the previous quarter. In the last three quarters our revenue growth has been very healthy. We are not finding any impact of slowdown because generally the first and second quarters are little slow - how is this happening? We had tariff declines over the last two-three-four quarters; they have not been dramatic but they been steady. 

Minutes of Use have more or less compensated. In this particular quarter we had the tariff decline because of the various cuts in Subscriber Trunk Dialling (STD) and roaming was steeper than average and the MOU compensation was not 1:1. We lost Rs 9 in Average Revenue Per User (ARPU) this quarter but in the previous quarter we had gained Rs 8, which is against the trend. So over the last eight-nine months, ARPUs have been within a narrow band. So I am not so worried about our ability to sustain both revenue growths in a profitable manner.

Q: Do you see ARPU stabilizing closer to 270 or closer to 290 over the next few quarters? 

A: I would not say about quarters but if you ask me about secular projection for the next four-six quarters I would say that there would be a steady decline. The peak up of ARPUs is peaking from the new rural consumers and is not as much of a laggard as was feared. Also income from value added services is incrementally inching up, so there are compensatory factors. 

Q: Where will margins stabilize? Do you think around 34%, given the EBITDA breakeven you spoke about for the new circles in six months? 

A: Our margins from our older circles are closer to 36%; I am not talking of the Indus factor because when we shift, there will be cut in margins which will be compensated by savings elsewhere. We would hope that we would at least hold on to these kinds of margins in the older circles into the future. When the newer circles come inevitably, if you launch - you are creating value and wealth, going forward you will have losses and they are planned losses. They strengthen the company. So now that is a function of how much we launch and how much fast. Therefore looking at weighted average margin is not very sensible when you have got two completely disparate - there is a company within a company.  

Therefore if you talk of net margins, once we launch Bombay, Bihar, Orissa or Tamil Nadu, certainly they will come down but if you disaggregate and do categorize the sum of parts it is a much stronger company. 

Q: It is believed that for some of the rural circles the gestation period is actually lower. Are you worried though in the same count about what might happen in circles like Mumbai and the fact that they might be over penetrated by the time you actually get operations running? 

A: We are not worried because we know it and we have got our hands around that. Mumbai and Delhi have started to taper they are not growing rapidly as they were growing three years ago. But the large parts of India are still in intense growth phase and so therefore next one to four years, one would have something slowing down and something speeding up.  

Q: What kind of an average customer adds do you see over the next few months of this year, more than one million every month?