Telecom: Firms continue to bear Reliance Jio’s scars
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It’s been over a year since Reliance Jio Infocomm Ltd started commercial services, but India’s telecom firms are still suffering the consequences of its aggressive launch. While the relatively small firms are effectively shutting down, even the leading firms in the sector are now in a far worse financial position.
Idea Cellular Ltd reported a 19.7% year-on-year (y-o-y) drop in revenue for the September quarter, and its Ebitda fell 47.1% to Rs1,502 crore. Ebitda stands for earnings before interest, taxes, depreciation and amortization. Its pre-tax loss expanded to 24% of revenue against 16.5% in the June quarter. But nowhere is the pain more evident than in Idea’s net debt/Ebitda ratio, which has reached unwieldy levels of 9 times based on annualized profit for the September quarter.
True, Idea has announced the sale of its stand-alone towers to American Tower Corp. for Rs4,000 crore, which will help it reduce debt. But that is just a drop in the ocean. Its net debt-Ebitda ratio would drop only marginally to between 8.8-8.9 times, simply because of the additional tower lease rentals the company will now have to bear.
Vodafone India Ltd reported a 17.8% drop in y-o-y revenue and a 41% drop in Ebitda. That means, for the Idea-Vodafone combine, revenue and profit fell 18.7% and 43.9%, respectively. Vodafone’s net debt to Ebitda ratio isn’t much lower at 8 times, based on annualized profit for the September quarter.
Bharti Airtel Ltd has been doing relatively better, thanks to its healthier balance sheet, giving it the ability to invest aggressively and take on Jio. Even so, the wireless business reported a 17% y-o-y drop in revenue and a 33% drop in Ebitda. And free cash flow from wireless operations stood at a negative Rs1,897 crore, higher than the deficit of Rs645 crore in the June quarter.
But Airtel’s net debt-Ebitda stands at a much lower 2.95 times, giving it the ability to continue large investments in its network. Besides, the value of its tower assets is much higher, and it has been monetising them gradually to lower its leverage. The big surprise in Airtel’s results was the turnaround in Africa operations, with the Ebitda margin rising to 32.3% in Q2 against 23.1% a year ago. It’s little wonder Airtel’s shares have been doing far better when compared with Idea’s in recent months.