Idea Cellular: First cut - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Idea Cellular: First cut

Dec 29, 2006

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
YearNo. of
Subscribers (m)
No of
Circles covered
Circles in India
## 200611.81123
## 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
YearNo. of
Subscribers (m)
Total Subscribers
in India
19970.1 0.8
## 200611.8136.8%100.8169.6%
## 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
UnitFY 2004FY 2005FY 200630-Sep-06
RevenuesRs m13,11422,67529,73419,127
EBIDTARs m39,1118,28110,8266,597
PAT/(Loss)Rs m(2,009)6712,0011,919
NPM% 3.0%6.7%10.0%
RoE% 2.4%7.3%7.0%
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.
YearNo. of
in India
Idea's share in
India's subscriber
base (%)
## 200611.8100.811.7%
## 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

1,300% in One Year - Are You Kidding Me? (Views On News)

Nov 29, 2021

An amount of Rs 1 lakh invested in the midcap stock a year ago would have turned into Rs 15 lakh today.

Bharti Airtel's Humongous Rights Issue to Open on 5 October. Key Points Investors Should Know (Views On News)

Sep 23, 2021

Shares of Bharti Airtel trade near record high ahead of rights issue.

This Company has Quietly Built an Enviable Startup Portfolio (Views On News)

Sep 22, 2021

The startups era has just begun, and it will provide massive opportunities to those who can spot the right trends at the right time.

More than 450% Gains for Tejas Networks in the Past Year. What Next? (Views On News)

Aug 18, 2021

Shares of Tejas Networks are up 173% since January 2021. Is the rally justified?

Can Vodafone Idea Survive if Government Provides Support? (Views On News)

Aug 3, 2021

Despite the company making several efforts to improve its operational efficiency, its financial position has sharply deteriorated.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

How to Find Your Next 10-Bagger in this Market (Profit Hunter)

Nov 19, 2021

The #1 make or break factor in your portfolio you shouldn't ignore.

MobiKwik IPO Opens for Subscription Soon. Key Things to Know Before Subscribing. (Views On News)

Nov 20, 2021

The Rs 19 bn issue is set to hit the market soon.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Dec 2, 2021 01:23 PM