Akash Jain
Idea Cellular has managed the threat of new entrant in a good manner and has narrowed its net loss in Q4FY18. The company surprised us with its better operating performance due to significant reduction in employee benefit and marketing costs.
We believe the stock is poised for a rally as current valuations are depressed and merger with Vodafone would add good synergies to the company and the combined entity will be a decent force in a competitive telecom
industry.
We do not rule out market share loss in the next few quarters but also expect recovery in FY20. With positive news flow, reduction in losses, we can expect a target of Rs 90 by FY19 end.
The company missed street participants’ estimates for both bottom-line and top-line performance on consolidated basis during the fourth quarter ended March 2018 result. The company’s revenue came in at Rs 6,137.3 crore drop of 24.47 percent on yearly basis, while operating profit at Rs 1,447.3 crore and net loss of Rs 1,017.9 crore in Q4FY18.
In Q4FY18, consolidated EBITDA margin stood at 23.6 percent as against 18.7 percent in the preceding quarter. Its mobile services average revenue per user (ARPU) was also lower at Rs 105 against Rs 114 in the previous quarter. The Company narrowed its consolidated net loss of Rs 962 crore in Q4FY18, a reduction from Rs 1,284.5 crore loss it reported during the December quarter.
The company blamed hyper competition and high regulatory headwinds for aggravating the industry's financial stress. The TRAI led regulation changes including reduction of domestic Mobile Termination Charge from 14 paisa to 6 paisa per minute and 'International mobile termination' settlement charges from 53 paisa to 30 paisa per minute further aggravated the financial stress for the existing industry operators for FY18, the loss witnessed a whopping increase to Rs 4,139.9 crore from Rs 404 crore in 2016-17.
Revenue from operations came in at Rs 28,278.9 crore in 2017-18 from Rs 36,676.8 crore in the previous fiscal.
In FY18, the company continued aggressive expansion of its wireless broadband infrastructure, adding 44,856 broadband sites (3G+4G) during the year. The broadband sites increased from 110,054 as on March 2017 to 154,910 sites as on March 2018 taking the overall network footprint on EoP to 286,356 sites.
The wireless broadband population under coverage now expands beyond 650 million Indian spread across 164,000 towns and villages in 22 service areas.
The overall capex spend for the year was Rs 7000 crore, majority of which was utilised for 4G expansion. The company’s gross investment in fixed assets has risen by nearly Rs 125500 crore.
The explosion in voice volumes driven by higher adoption of unlimited bundled plans has led to Idea’s highest ever sequential quarterly voice minutes growth at 16.9 percent in FY18 (on the back of 10.8 percent growth in Q3FY18). Sharp increase in volumes led to voice rate fall by 20 percent to 13.4 paisa per minute vs 16.8 paisa in Q3FY18.
Mobile data volume continued to witness robust sequential quarterly growth of 43.2 percent against 30.2 percent in Q3FY18 as Idea’s pan India mobile data network carried 818 billion MB of data this quarter. However, the mobile data rate declined to 1.4 paisa per MB down by 31.4 percent against 2.0 paisa per MB in Q3FY18.
Overall subscriber momentum remained strong with 6 million net adds on EoP in Q4FY18. But the blended overall customer ARPU downgraded from Rs 114 in Q3FY18 to Rs 105 in Q4FY18 due to enhanced competitive intensity.
The net debt of the company as on March 31, 2018 stood at Rs 52,330 crore. The company expects the debt to reduce significantly with monetisation of its stake in Indus Towers and completion of sale of its standalone mobile towers to America Tower Corporations.
Merger of Idea and Vodafone is in the final leg regulatory approvals and is expected to be completed in H1CY18. The proposed new leadership team of
merged entity was announced on March 22, 2018.
Idea Cellular said, “The Indian mobile industry witnessed another year of hyper-competition as well as high regulatory headwinds. The super aggressive price plans including the deep discounted unlimited voice bundled data plans, offered by most of the incumbent operators to retain their existing subscribers against abysmally low priced plans offered by new 4G operator, exploded the voice and data volume growth multi-folds.”
Disclaimer: The author is Vice-president, Equity Research at Ajcon Global Services. The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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