Idea: Steady quarter despite volume fall

Higher unit revenue and value-added services growth plus improvement in operational parameters should help

In a seasonally weak quarter, Idea Cellular reported a good set of numbers. While on a sequential basis its revenue was down 3.2 per cent, on the back of lower minutes of usage, the company managed to grow about 19 per cent on a year-on-year basis. This revenue growth is commendable, as the September quarter is typically weak. Also, it was better than the y-o-y increase recorded in the June quarter.

The growth was led by an increase in revenue per minute which moved up a robust 8.3 per cent year on year, from 41.3 paise to 44.7 paise. Sequentially, too, it rose 2.3 per cent from 43.7p in the June quarter. Although total minutes of use rose 10.5 per cent year on year, it was down 5.8 per cent seuentially, to 138.8 billion minutes.

The management cited seasonality as a reason. “The quarter is a weak one seasonally, due to lower access and power breakdowns. What accentuated the decline in minutes is the expansion in our rural customer base (which usually talks less during monsoon),” said Himanshu Kapania, managing director. On lower minutes of usage, the management indicated that earlier the rates were coming down and minutes were going up. Now, with discounted minutes down over the past couple of quarters, there is a balance between lower minutes of usage and a higher realised rate.

Says an analyst at a foreign brokerage, “The strategy of pricing-led growth is working for them. Revenue led by pricing growth is better than volume growth, as you are increasing prices on an existing infrastructure. While the macro scenario is poor currently, once the economy rebounds, you should see the volumes move up as well.”  

What will improve revenue per minute, according to the management, is the increased usage of mobile data. Mobile data was 5.1 per cent of revenue a year before and is now at 8.7 per cent. Non-data valued added services (VAS, such as ringtones) was down 280 basis points (bps) due to Telecom Regulatory Authority regulations, of double confirmation from users. Despite this negative data point, contribution of VAS to total revenue rose to 16.1 per cent from 15.6 per cent in the year-ago period.

While the Ebitda (earnings before interest, taxes, depreciation and amortisation) performance could have been better, analysts say better cost management, lower subscriber acquisition costs and falling trade commissions have stemmed the tide. Sales, general and adminstrative expenses are down sequentially by 4.1 per cent, helping the company cushion the fall in margins to about 60 bps to 31.2 per cent. Further, the company managed to bring down the Ebitda losses in new circles, from Rs 130 crore in the June quarter to Rs 126 crore in the September one.

Net profit at Rs 441 crore was down 3.1 per cent on a sequential basis but, importantly, above estimates. Analysts had estimated this at around Rs 430 crore. What helped limit the fall was lower finance and tax outgo. The company reduced its net debt from Rs 10,200 crore at the end of the June quarter to Rs 9,300 crore in the September one.

Other than seasonal factors, the company management has stated that they will be able to sustain the performance achieved in the June quarter. While seasonal trends were weak, the company reiterated two key parameters which have gone up on a comparable quarter last year. Minutes of usage per customer moved from 359 to 368 and average revenue per user has increased from Rs 148 to Rs 164, compared to the year-ago period.