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Business News/ Market / Mark-to-market/  Better realizations boost Idea Cellular’s revenues in Q1
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Better realizations boost Idea Cellular’s revenues in Q1

The gains from volumes and prices meant Idea was able to grow revenue 7.3% sequentially, way ahead of what some analysts were expecting

The call on the stock is essentially ‘Jio worries versus fundamentals’, for now, say analysts, though they believe these worries are ‘overdone’. Photo: Bloomberg Premium
The call on the stock is essentially ‘Jio worries versus fundamentals’, for now, say analysts, though they believe these worries are ‘overdone’. Photo: Bloomberg 

Idea Cellular Ltd’s performance in the quarter ended June will likely impress investors. The main concern after the March quarter numbers was the deterioration in realizations because of price competition. In the June quarter, Idea Cellular seems to have done away with discounts and freebies in some markets.

Voice revenue per minute (RPM) grew 1.9% sequentially after a 3.4% fall in the March quarter. Average revenue per MB of data traffic grew better, up 4% sequentially compared with a 14.5% fall in January-March. Although voice RPM could continue to be volatile on a quarterly basis, the “general trend is up," analysts from Kotak Institutional Equities wrote in a post-results note.

What’s heartening is that the company has been able to increase volumes as well. Voice traffic grew 5.2% sequentially while data volumes grew 19%. As the company entered new markets and data subscriber additions gathered pace, the contribution of non-voice business to Idea Cellular’s revenues continued to rise. Sequentially, the contribution of data to service revenues increased 140 basis points (bps), better than 60-80 bps growth the company saw in the two preceding quarters. One basis point is one-hundredth of a percentage point.

Overall, the gains from both volumes and prices meant Idea Cellular was able to grow consolidated revenues 7.3% sequentially, way ahead of what some analysts were expecting. Moreover, it was able to record a 1.5 percentage points increase in operating margins to 33.2%. This increase was not only owing to the realization gains but also operating leverage and savings from selling and administrative expenses.

Thanks to recent fund-raising and free cash flow generation, net debt as a proportion of net worth has fallen to less than one.

As growth in voice market slows and consumers upgrade to smartphones, the data businesses will gain more traction. While there are some worries that this could eat into voice traffic in urban areas, a large rural subscriber base helps. A 1% increase in average minutes of usage per user (MOU) in the June quarter should add to investor comfort.

However, data RPM is likely to be volatile just like voice. The entry of Reliance Jio Infocomm means that price competition will continue to linger on in this segment and companies could even face disruptive pricing.

The “call on the stock is essentially ‘Jio worries versus fundamentals’, for now," wrote the Kotak analysts, though they believe these worries are “overdone."

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Published: 21 Jul 2014, 08:40 PM IST
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