Standout quarter for Idea Cellular

Performance across parameters ahead of Street expectations

Aided by an increase in realisations, higher usage and data growth, Idea Cellular's standalone numbers beat Street expectations across all operational parameters for the June quarter. The Street fears of a trade-off between lower realisations and higher volumes, which occurred in the March quarter were unfounded. Idea reported a 3.44 per cent sequential growth in realisations per minute and a 5.2 per cent rise in overall minutes of usage. Realisations per minute in the March quarter had dropped three per cent sequentially.

The management has indicated it would pursue this balanced growth approach, where realisations and usage are trending up.

Coupled with higher data contribution, revenues grew 7.3 per cent on a sequential basis to Rs 7,556 crore, much above the estimated 4.8 per cent growth. Sharp increase in data volume growth and higher average realisations per MB helped register a 23.6 per cent rise in mobile data revenue growth. After a falling trend, realisations per MB increased by one paise to 26.3 paise in the quarter.

Strong operating performance also reflected in the Ebitda (earnings before interest, taxes, depreciation and amortisation) growing at 14 per cent sequentially(to Rs 2,266 crore), backed by higher operating leverage and cost control. Margins, thus, were up 180 basis points to 30 per cent, with the management indicating these could be improved.

Better operating performance and a Rs 362-crore dividend from Indus Towers helped Idea double net profit over the previous quarter to Rs 1,011 crore. Consolidated net profit was up 23.5 per cent sequentially at Rs 728 crore, with Ebitda margins at 33.2 per cent (up 150 basis points) on net sales of Rs 7,561 crore. Bloomberg consensus had pegged consolidated net sales at Rs 7,338 crore and net profit at Rs 618 crore crore.

Strong cash profit of Rs 2,000 crore in the quarter and internal accruals, coupled with recent fund-raising via a qualified institutional placement of Rs 3,000 crore, was used to bring down debt by Rs 5,000 crore to Rs 14,000 crore. Net debt to Ebitda now stands sharply down at 1.54 times versus 2.41 in the March quarter. The management believes this level keeps it well placed to raise more funds if necessary, especially given the spectrum renewal coming up. Debt is expected to come down further, as the company has got approval to raise Rs 750 crore through a preferential issue to Axiata.

The key worry for Idea would be the spectrum renewals. Circles up for spectrum renewal in FY15 account for 62 per cent of Idea's revenues. As about 80 per cent of this spectrum is in the 900 MHz, which saw aggressive bidding in the February auctions, any aggressive bidding can dramatically increase Idea's costs. Analysts peg this cost at Rs 20,000 crore over the next three years.