Idea Cellular announces financial results for Q3

Company Brief

New Delhi, January 21, 2010

The 9 month period ending Dec'09 placed a 'double stress test' upon the Idea business model. On the one hand, the Indian telecom market, with already the world's lowest tariffs, witnessed savage competitive price cuts during this period. Consequently, Idea incurred an erosion in average realised rate per minute (ARR) to 51p in the quarter ending Dec'09, down - 15%, in just 9 months. As a second stress point, Idea rolled out operations in 7 new service areas during this 9 month period, thereby absorbing an incremental EBITDA loss of Rs 1,920 mn for these brand-new launches, and correspondingly higher loss at the PAT level. Despite these double stresses, for the first nine months of FY10, standalone PAT was up by 12.1% compared to the first 9 months of FY09, while Cash Profit of Rs 21,384 mn was up by 28.9%.

The steep QoQ ARR decline to 51p came in Q3, down from 56p in Q2. Notwithstanding, Idea still increased its revenue and EBITDA in the established 11 service areas by 4.2% (Rs. 1,139 mn) and 4.4% (Rs. 354 mn) respectively over the last quarter. The EBITDA margin for these 11 service areas also remained unchanged from the previous quarter at - 30%. Standalone PAT, even after absorbing the losses from new launches, has declined only by Rs 554 mn in Q3 over Q2, despite a one time income of Rs 317 mn in Q2, and an incremental charge of Rs 179 mn in Q3 on account of ESOP re-pricing. Cash profit for Q3 stood at Rs 6,983 mn. On a standalone basis, the total minutes on network grew by 14.9% on a QoQ basis, a strong indicator of customer preference

Results, both for Q3 FY10, and for YTD Q3FY10, speak of the enormous robustness and resilience of the company's business model, to emerge stress-tested and battle ready. The financial results are also an

indication that any future competitive price cuts will only hasten the expected sector shake-out. With the launch of operations in J&K, West Bengal, Kolkata, Assam and NESA during the quarter, the company is now a pan India operator, which also means that the peak funding period for 2G operations, is now behind. The balance sheet of the company, with a net debt of only Rs. 37,460 mn against a networth

of Rs 141,181 mn as of Dec'09, together with an average cash generation of around Rs. 7,000 mn per quarter, provides a solid base to support future investment and any level of competitive pressure

going forward.

Improving capacity utilization and operational efficiencies, the leveraging of spectrum and scale advantage in incumbent areas, a calibrated approach for new areas, sophisticated processes, brand power, and a strong balance sheet, position Idea to emerge competitively stronger during and after the current difficult phase of market overcapacity and hyper competition.

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Daneesh Ardeshir

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