Idea Cellular could get relief from tower sale

High spending on data rollout, cut-throat competition, big debt leave Idea with tough choices

Idea Cellular stock was up 4.4 per cent on Tuesday after reports that the company wants to sell its telecom tower portfolio for $1 billion or just under Rs 6,800 crore. Although there was no statement from the company on Tuesday, the management had earlier indicated it intended to "monetise" its tower assets to bring down its debt. The Street's reaction is with reason, given the pressure on the business as well as the high debt of the company.

As of September, Idea Cellular Infrastructure Services had 9,772 towers, with tenancy ratio of 1.68. The ratio indicates the average number of tenants per tower; any increase in the ratio leads to exponential rise in profit.

The sale deal translates into an enterprise value (EV) per tower of Rs 71 lakh. This is higher than recent tower deals such as ATC buying 51 per cent stake in Viom - EV per tower at Rs 50 lakh. Higher proportion of ground-based towers (63 per cent; rest on rooftop) for Idea Cellular could be the reason for the better EV.

Idea Cellular

If Idea were to sell its stake in Indus Towers, where it has 11.15 per cent stake (others are Bharti Airtel and Vodafone), there would be further reduction in debt. Credit Suisse says Idea's net debt to operating profit could fall to 2.8 times from the current 3.5 by FY18. Net profit per share, if its entire tower portfolio were to be sold, would improve 65-72 per cent. Analysts believe Idea is stretched by a net debt of Rs 36,401 crore at the end of September, with ratio of net debt to net worth at two times. 

Apart from debt reduction, Idea would emerge better-prepared to fight the ongoing data war and cut-throat competition. The company has lost revenue market share in the September quarter. Revenues were down 5.2 per cent, leading to a 52-basis-point fall in revenue market share to 18.8 per cent, quarter over quarter. This, market share growth is a far cry from the pace seen over the past seven years, when share doubled to 19 per cent. Idea is stepping up its spending on data rollout to catch up with bigger peers. Idea's data revenue growth (22 per cent of revenues) lags behind Airtel (25 per cent of revenues) given lack of adequate data capacity in top cities (which show higher data growth), according to Ambit Capital. While the apparent move to sell its tower assets is a positive, most analysts believe Idea faces tough decisions ahead: Either it must safeguard its leadership in key circles or expand aggressively across India and fight battles on many fronts.