Idea vs. Bharti: Game of numbers - Views on News from Equitymaster

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Idea vs. Bharti: Game of numbers

Mar 29, 2012

Continuing with our series comparing Idea Cellular with 'big brother' Bharti, in this article we will compare the key operating metrics of Bharti Airtel and Idea Cellular, which will throw light on which is the better of the two.

The mobile or the wireless business is the largest contributor to revenues for both the companies particularly for Idea Cellular. As a result, we would be comparing the operating numbers for the Indian mobile business of these companies.

Let's first start with the revenue numbers over a period of time.

If we compare the average revenue per user (ARPU) of the two, we see Bharti clearly emerging as a leader.

Source: Company data

But the interesting thing here is that Idea has been slowly and steadily closing the gap between itself and the ARPU of Bharti.

If we delve deeper and look at the revenue or rate per minute (RPM) profile, we see a different picture. Idea Cellular has given Bharti a run for its money when it comes to RPM. And let us face it; comparing RPM is better than comparing ARPUs. This is due to the business models adopted by the companies in India. In India, the telecom business is more like a 'minute factory' wherein the minutes drive the revenues as well as the profitability for the companies. As minutes increase, the costs get apportioned over a larger base thus giving rise to lower cost per minute. The only thing driving profits then would be the rate that the company is able to charge for its minutes.

Source: Company data

A major reason as to why Idea has done well on the RPM front is due to its high proportion of active users. As of end of January 2012, 93.18% of Idea's users were active as per the TRAI (Telecom Regulatory Authority of India) report. The same figure for Bharti stood at 91.17%. In fact, if we go back in history, Idea has managed to grow its percentage of active users. And since February, 2011, it has actually been way ahead of Bharti in this regard.

Source: TRAI

Let us switch to the profitability picture now. Are these subscribers and minutes equally profitable for the two companies?

Source: Company data

The story here is different. Bharti did suffer a drop in EBITDA per minute during the phase of intense competition in telecom at the end of 2008 and beginning of 2009. However, it was able to recover quickly and take its profitability to a level that was higher than that of Idea. But here too, Idea has slowly started to narrow the gap between itself and the market leader.

It is important for investors to compare the operating metrics of these companies keeping the shareholder returns in mind. But what matters is how the two companies rank up in terms of their financials as well as their valuations. We will cover these in our next and final article in the series.

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1 Responses to "Idea vs. Bharti: Game of numbers"

Sundaravaradan S

Mar 29, 2012

Idea Vs. Bharti:

To me the Author appears to be clearly biassed towards Idea; although the Graphs clearly shows Bharti is better than Idea.
Hope the next article, the Author writes more clearly.

Like (1)
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