Idea Cellular Posts Lower-Than-Estimated Loss In Q4 

Idea Cellular Ltd. reported a loss for the second straight quarter as its spectrum-related costs rose and revenue fell due to tariff cuts to counter free services by new entrant Reliance Jio Infocomm Ltd.

The Kumar Mangalam Birla-led company reported a net loss of Rs 327.7 crore in the three months ended March compared to a net profit of Rs 451.7 a year ago, according to its filing to the stock exchanges. The loss was, however, less than half of the consensus estimate of analysts tracked by Bloomberg.

In an effort to retain its existing mobile subscribers, Idea Cellular was forced to reduce is voice and data tariffs by up to 27.6 percent over the previous quarter, the company said in a statement. Average revenue per user (ARPU) dropped by close to 10 percent over the previous quarter, with the sharpest fall seen in voice realisation. While data usage per subscriber grew 36.2 percent, its data ARPU remained flat over the previous quarter as the number of data customers fell by 6.4 million.

Reliance Jio offered free voice and data services for first six months and started charging only from April 1, hurting existing telecom operators over the last two quarters. Its 4G-only offering has driven consolidation in the sector and forced rivals to scale up their data services.

With the new entrant starting to charge for its services, albeit very slowly, the sector is expected to return to growth in the ongoing financial year, Idea Cellular said in its statement.

In the fourth quarter ended March, Idea Cellular’s revenue declined 14 percent year-on-year to Rs 8,109.1 crore, in line with analysts’ estimates. Revenue fell 6.36 percent compared to October-December, which is known to be a seasonally weak quarter.

Other Earnings Highlights

• Earnings before interest, taxes, depreciation and amortisation (EBITDA) fell 34 percent to Rs 2,196.5 crore from the year-ago period.
• EBITDA margin contracted by more than 800 basis points to 27 percent, led by higher network expenses, and increased subscriber acquisition and servicing costs.
• Finance costs for the company increased by 20.2 percent to Rs 1,081.6 crore.
• For the year ended March, Idea Cellular had a total debt of Rs 51,672 crore compared to Rs 37,549.6 crore a year ago.

Merger Talks

Idea Cellular and Vodafone India Ltd. are in merger talks to create India’s largest mobile operator. A joint merger notification has been filed with the Competition Commission of India (CCI) and a scheme of arrangement has been filed with the Securities and Exchange Board of India and stock exchanges, Idea Cellular said in the filing.

Its shares have dropped 17 percent since the company confirmed the merger talks. While brokerages consider the merger to be a positive move, none of the analysts have changed their rating on the stock. Nine out of the 31 analysts tracked by Bloomberg have a ‘buy’ rating on Idea Cellular, with a return potential of 23 percent over a 12-month period.