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Business News/ Market / Mark-to-market/  Idea Cellular: increased volumes, higher profitability
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Idea Cellular: increased volumes, higher profitability

The growth in Idea Cellular's December quarter earnings came on the back of a surge in volumes as well as increased profitability

Investors might well cheer the better-than-expected results; although the overhang of the upcoming auctions and the recent rally in the company’s shares could act as a check as well. Photo: BloombergPremium
Investors might well cheer the better-than-expected results; although the overhang of the upcoming auctions and the recent rally in the company’s shares could act as a check as well. Photo: Bloomberg

India’s telecom incumbents, Bharti Airtel Ltd and Idea Cellular Ltd, have been in a sweet spot, with competition having weakened considerably in the past two years. Operating profits of the two companies had risen by over 20% in the quarter ended September 2014. It appears that things are getting even better.

Idea Cellular has reported a 34.1% year-on-year (y-o-y) growth in earnings before interest, taxes, depreciation and amortization (Ebitda) for the quarter ended December 2014. The growth in earnings came on the back of a surge in volumes as well as increased profitability.

The number of voice minutes carried on the company’s network increased by 5.1% sequentially, while data volumes grew by 16.9%. Ebitda margin rose by 140 basis points (bps) sequentially, far higher than the 20-40 bps increase predicted by analysts at Kotak Institutional Equities and Barclays Research, respectively. Apart from scale benefits, the company appears to have benefited from lower diesel prices and a higher contribution from data services. Data services contributed to 15.7% of total wireless revenues, compared with 14% last quarter and 9.5% a year ago. On a y-o-y basis, margins rose by 330 bps. In the past two years, Ebitda margin has risen by as much as 790 bps.

Interestingly, just as in the September quarter, average price realizations in the voice segment dropped marginally, which the company attributed to competitive pressures and an increased contribution from relatively new operations. As pointed out earlier in this column, tariffs have risen in the past two years to levels where incumbents are earning a decent profit, but at the same time are at sub-optimal levels from the perspective of competitors, who are still running large losses. If tariffs rise by too much, it could allow some smaller competitors to compete better.

So, while the muted growth in voice realizations may come across as a negative, investors are likely to brush it aside, especially with earnings growing by well over 30% on a y-o-y basis. Investors might well cheer the better-than-expected results; although the overhang of the upcoming auctions and the recent rally in the company’s shares could act as a check as well.

The writer doesn’t own shares in the above-mentioned companies.

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Published: 27 Jan 2015, 08:29 PM IST
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