Idea Cellular: Well played

Despite some formidable competition from Reliance Communications, Idea Cellular posted some reasonably good numbers in the March 2009 quarter driven by the relatively small drop in the minutes of usage (MOU), which fell just over 3 per cent to 402 minutes. The fall in the average revenue per user (ARPU), at 4.5 per cent sequentially to Rs 254 too wasn’t bad, helping stand-alone revenues grow 9 per cent sequentially to Rs 2,860 crore.

Standalone operating margins were flat at just under 26 per cent, but consolidated numbers were strong with the operating profit margin up 210 basis points to 27.6 per cent. The good news is that operating losses from the Mumbai and Bihar circles have reduced, but cost pressures will remain as the telco rolls out its network in other circles.

Although the company has cash of around Rs 6,000 crore, it plans to use most of this for capital expenditure and so may need to borrow to bid for 3G licences. At Rs 60, the Idea stock trades at an EV/EBITDA (enterprise value/earnings before interest tax and depreciation) multiple for 2009-10 of just under six times, while the EV/EBITDA multiple for market leader Bharti Airtel is around seven times.