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Business News/ Money / Idea Q4 rings in profit surprise
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Idea Q4 rings in profit surprise

Idea Q4 rings in profit surprise

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Pan-India mobile telephony company Idea Cellular Ltd’s March quarter results

Profit expansion was a culmination of several positive factors. Amid stiff competition, revenue grew 6% on a q-o-q basis to Rs3,347 crore. The AV Birla company added five new circles in the quarter taking its presence to 22 circles. Idea’s management stated that the market share increased from 11.4% to 12.7%, in established circles it inched up from 17.5% to 18.8%.

Graphic: Ahmed Raza Khan / Mint

Operating profit margin, which had dipped in the third quarter by 140 basis points to 25.8%, rose in the fourth quarter to 27.6%.

However, a key contributor to higher profit was the other income of Rs52 crore, which was absent in the previous quarter. Without this element, net profit would have been about Rs214 crore—still higher than estimates.

Of course, Idea has had to battle it out like its peers on tariffs. While the MoU (minutes of usage) improved by 2.3% on a q-o-q basis, the Arpu (average revenue per user) dipped from Rs200 to Rs185. Hence the average realized rate has been on the decline for the last few quarters. Tariff competition and the use of multiple SIM cards (this enables customers to switch loyalties) are factors that pull down Arpus. Most analysts’ projections state that migration of subscribers to lower tariff plans will put pressure on margins going forward.

Also See Subscriber growth helps Idea post 5% rise in profit

Idea’s shares were actively traded even before the announcement of the results and closed 4% higher at Rs63.80. The earnings per share of Rs3.40 is discounted about 18 times.

Despite the good results, cash outflows for the much-touted 3G spectrum auction and tariff wars in existing circles could put pressure on profit margins in the coming quarters. Clarity on these counts would determine whether there could be a re-rating in the stock.

Write to us at marktomarket@livemint.com

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Published: 04 May 2010, 12:36 AM IST
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