Idea profit falls on expansion costs

Idea profit falls on expansion costs

Mumbai: Idea Cellular Ltd, India’s fifth largest mobile phone company said in a statement on Monday its net profit for the three months ended September almost halved from Rs263 crore in the preceding quarter, and a senior executive attributed the decrease to the company’s increased investments in expanding operations and marketing in a quarter when it launched its service in Mumbai and acquired smaller telco Spice Communications Ltd.

The results surprised analysts. “Nobody anticipated this and probably this will continue as the Bihar launch is round the corner,"said Sanjay Chawla, senior telecom analyst at Anand Rathi Research, a Mumbai brokerage, referring to the company’s imminent launch in Bihar.

Idea’s results do not include those of Spice. The company, part of the Aditya Birla Group, ended the corresponding quarter of last year with Rs220.33 crore in net profit after tax on total revenue of Rs1,564.35 crore.

Revenue for the quarter ended September was Rs2,303.7 crore, 5.7% higher than Rs2,178.1 crore in the preceding quarter and 47.26% higher than Rs1,564.35 crore in the September quarter last year.

Sanjeev Aga, managing director of Idea Cellular, said in an interview that the “strain" was “anticipated", and reasoned that the dip in profits was due to being “in a phase of strengthening and growing the company".

Idea’s market share grew from 9.4% on 30 June to 9.8% on 30 September and the company ended the quarter with 30.30 million subscribers.

In the six months to September, the company added 6.38 million subscribers.

Chawla, however, said that the company’s average revenue per user, or Arpu, had fallen significantly in this period. In a report, Anand Rathi had predicted a 3.4% drop in Arpu for Idea in the quarter ended September compared with the preceding quarter.

According to Chawla, the actual drop was 5.9%, and the fall could be on account of the company’s launch in Mumbai.

Idea launched its service in Mumbai in late August. By the end of September, the company had 100,211 subscribers, a number Aga termed “satisfactory". Mumbai is one of India’s most competitive telecom markets. Vodafone Essar has close to four million subscribers in the city and Bharti Airtel 2.61 million. The key challenge for Idea, say analysts, is on the operating side.

According to a report by HDFC Securities, fund infusions by Providence Equity Partners Llc. (of Rs3,500 crore) and Telekom Malaysia (of Rs7,293 crore during the Spice merger) will help Idea meet its expenses in expanding its reach.

The Spice acquisition gave Idea a pan-Indian presence. On Monday, the company said in a statement that it would spin off licences in two service areas, Punjab and Karnataka, to comply with India’s guidelines on telecom mergers.

Idea has its own licences in these areas where Spice was also present and according to Indian law, one company cannot own more than 10% in two competing licences. It wasn’t immediately clear whether the company would receive a refund of the licence fee from the government. The statement was silent on this and Aga declined comment on the issue.

“Their balance sheet will be strengthened further (with the equity infusion). The point is that they have to deliver on the operating side," said Anand Rathi’s Chawla.

Reuters contributed to this story.