Graphic: Mint
Graphic: Mint

Ahead of merger with Vodafone, Idea Cellular reports its weakest results

While Vodafone India appears to be in a slightly better position, the merged Vodafone-Idea entity will start on a weak footing

After showing signs of resilience in the second half of FY18, things have deteriorated for Idea Cellular Ltd in the June quarter. Adjusted revenues dropped 2.9% on a sequential basis. In comparison, Bharti Airtel Ltd reported feeble growth, while service revenues at Vodafone India Ltd fell 1.4%.

Customer churn too is higher at Idea. It lost more subscribers than Vodafone, whereas Airtel saw net additions. This performance should worry investors.

Idea’s operating expenses saw a material rise in the June quarter on a sequential basis. Add to this the continuing reduction in average revenue per user, and Ebitda (earnings before interest, tax, depreciation and amortization.) fell to as low as 660 crore. These are the weakest results Idea has reported as a listed company. Note that interest and financing cost stood at 1,384 crore last quarter, more than double its operating profit.

While Vodafone India appears to be in a slightly better position, the merged entity will start on a weak footing. The loss in subscribers by both companies signals that a squeeze on investments is beginning to hurt. Unless there is a sizeable equity infusion into the merged company, it is likely to continue losing market share at a brisk pace.

According to the management, once the current phase of tariffs being below costs ends, it is inevitable that industry’s fortunes will revive. But that recovery is not yet in sight.

If Reliance Jio Infocomm Ltd’s pricing policy continues to see encouraging results, the firm may not find an immediate need to raise tariffs, warns Kotak Institutional Equities.

Jio reported a 14% quarter-on-quarter increase in revenue last quarter, even at a time when tariffs were under pressure. The firm reported an increase in profits as well.

Further with Jio focusing on the feature phone and post-paid segments, analysts fear the pressure on profitability will continue for the sector.

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