Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Idea Cellular: First cut - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Dec 29, 2006

    Idea Cellular: First cut

    Idea was originally incorporated as Birla Communications Limited, with the license to provide cellular services in Maharashtra and Gujarat. Later on, stake acquisitions by AT&T and the Tata Group, the company was renamed Birla-Tata-AT&T, with operations spread in Andhra Pradesh and Chattisgarh. The company seeking brand positioning changed its name to Idea Cellular Limited in 2001 and breached the 1 m subscriber mark. The company has, in the past few years, seen exponential growth in terms of additions to its subscriber base. However, as is evident, the additions have not been enough to help it sustain its market share. Idea currently caters to 11 circles in India, effectively covering around 70% of the country's population.

    Footprint of Idea Cellular's growth in India
    Year No. of
    Subscribers (m)
    No of
    Circles covered
    Circles in India
    1997 0.1 2 22
    2002 1.0 5 22
    2003 2.0 5 23
    2004 5.0 8 23
    ## 2006 11.8 11 23
    ## Data for November 2006
    Source: Company Website, COAI

    The mantra for growth
    Idea, like its peers Bharti Airtel and Hutch-Essar, has, at the centre of its focus, aggressive growth in subscriber base going forward. Currently, the company commands a market share of 11.7% consolidated for the 11 circles where it operates. While the company has not been able to grow at the pace at which its peers have grown in the past few years, it has managed a growth, which has been in line with the overall industry growth rate. With a market share of net adds of approximately 21% and plans to have a pan India presence soon, the good show in performance is likely to continue. What is also encouraging is that although it had been a late entrant in Delhi (the only metro in which it currently operates), it has managed to notch up a good 11% market share in just four years of its operations there.

    Subscriber data comparison of Idea and India GSM subscribers
    Year No. of
    Subscribers (m)
    Total Subscribers
    in India
    1997 0.1 0.8
    2002 1.0 785.8% 10.5 1219.6%
    2003 2.0 100.0% 22.0 109.8%
    2004 5.0 150.0% 37.4 70.0%
    ## 2006 11.8 136.8% 100.8 169.6%
    ## Data for November 2006
    Source: COAI, Equitymaster Research

    Eyeing India!
    Idea has outlined a large expansion plan over the next few years, in order to offer its services across the length and breadth of the country. With operations spanning across 11 circles currently, the company is already charting its course of action for a nationwide coverage. Towards this, in July 2006, the company applied for additional licenses to offer its services in the remaining 12 circles. Of this, it has already received clearances from the Department of Telecommunication (DoT) for the Mumbai and Bihar circles. Services in these circles are likely to be rolled out by early 2007. Also a portion of the funds raised from its forthcoming public issue is likely to be used to fund such plans. Having a pan India presence will not only lead to reduced inter connection usage charges as the company will be less dependent on other cellular mobile service providers for carrying its calls, it will also result in it having a greater leverage in negotiating network equipment deals as also in its revenue sharing agreements with other operators.

    Snapshot of financials
    The company has been able to grow its topline at a CAGR of over 50%, over the past three years, which has been come on the back of sustained expansion efforts. Although impressive, the rate may have been a little slow on relative basis, but it also needs to be understood that most of it has come by way of organic expansion. The improvement in EBIDTA and net profit margins, in recent times is also very heartening. We expect the net profit margins to improve even further as growth in revenues from increased subscriber base will directly flow to the bottomline. As far as the strength of balance sheet is concerned, the Debt to equity ratio of 0.76, which is expected to comedown even further post the company's IPO, which gives us comfort regarding the company's ability to tap the capital markets for further expansion. However, the ratio should not be so low as to negatively impact the RoE. Here also growth in subscriber additions holds the key so far as the return on equity (RoE) is concerned. Any decline on this front, is likely to keep the RoE depressed.

    Financial snapshot
    Unit FY 2004 FY 2005 FY 2006 30-Sep-06
    Revenues Rs m 13,114 22,675 29,734 19,127
    EBIDTA Rs m 39,111 8,281 10,826 6,597
    OPM % 29.8% 36.5% 36.4% 34.5%
    PAT/(Loss) Rs m (2,009) 671 2,001 1,919
    NPM % 3.0% 6.7% 10.0%
    RoE % 2.4% 7.3% 7.0%
    D/E x 0.5 0.8 1.1 0.8
    Source: Company's draft red herring prospectus

    While we believe that the company possesses one of the strongest balance sheets amongst its peers, the low return ratios are indeed worrying. It is here that the company's plans of rolling out a pan India presence and targeting aggressive subscriber additions will most likely decide to what extent the returns improve. So far, the company seems to be on the right track of increasing its subscriber base, which is the magic mantra of cellular business in India. However there are a few factors that need to be noted and watched out for. Particular worrisome is the fact that it has not been able to match the pace of growth in the over all GSM subscriber base in the country. What is also disturbing is that, its market share since its existence has been unstable, owing to high churn in its subscribers.

    Market share of Idea Cellular Ltd.
    Year No. of
    in India
    Idea's share in
    India's subscriber
    base (%)
    1997 0.1 0.8 14.2%
    2002 1.0 10.5 9.5%
    2003 2.0 22.0 9.1%
    2004 5.0 37.4 13.4%
    ## 2006 11.8 100.8 11.7%
    ## Data for November 2006
    Source: COAI, Equitymaster Research



    Equitymaster requests your view! Post a comment on "Idea Cellular: First cut". Click here!


    More Views on News

    Bharti Airtel: A Good Quarterly Performance (Quarterly Results Update - Detailed)

    May 6, 2016

    Bharti Airtel has reported a8.4% YoY growth in the topline and an increase of 2.8% YoY in the bottomline for the quarter ended March 2016.

    Bharti Infratel: Ends the Year Positively (Quarterly Results Update - Detailed)

    Apr 27, 2016

    Bharti Infratel has reported a 7.3% YoY growth in the topline and an increase of 18.7% YoY in the bottomline for the quarter ended March 2016.

    Bharti Infratel: A Good Quarter (Quarterly Results Update - Detailed)

    Apr 8, 2016

    Bharti Infratel has reported a 4.9% YoY growth in the topline and an increase of 11.5% YoY in the bottomline for the quarter ended December 2015.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 (Close)