Idea's net drops 88% on higher costs, misses estimates

A man walks past a shop displaying Idea Cellular Ltd's logo on its shutters in Mumbai
Idea Cellular on Monday reported a 88 per cent year-on-year (y-o-y) drop in its consolidated net profit at Rs 91.46 crore for the September 2016 quarter mainly on account of higher expenses and inflationary pressures even as the company witnessed a decline in voice realisation. The net profit was way lower than the Rs 193.7 crore estimated by analysts, according to a Bloomberg poll.

The country’s third largest mobile operator had reported a net profit of Rs 762.27 crore in the year-ago period.

“Higher network running expenses due to accelerated expansion, increased subscriber acquisition and servicing cost, and multiple inflationary pressures resulted in overall operating cost increase,” the firm stated.

The Aditya Birla Group firm further said its margin was adversely impacted by depreciation charges of Rs 1,954.3 crore (up 36.1 per cent y-o-y) and finance cost of Rs 1,004 crore (up 221 per cent).

Idea added the launch of 4G services in 10 circles and 3G in some areas also had its impact on margin.

The company’s revenue, however, increased 7.2 per cent to Rs 9,300.23 crore in the reported quarter from Rs 8,675.37 crore in the year-ago period. The Street had pegged revenues at Rs 9,417 crore.

Idea said its sequential voice revenue declined 5.3 per cent mainly because of voice realisation rate, which dropped 3.4 per cent from 34.3 paise a minute in the first quarter of FY17 to 33.1 paise a minute in the second quarter, and fall in voice minutes.

Also, high competition in the sector is resulting in slow revenue growth trends, with Idea’s overall quarterly revenue growth at its lowest at 7.2 per cent. Operating profit came in at Rs 2,840 crore versus Rs 2,790 crore in the year-ago quarter, but again, it was lower than Bloomberg consensus estimate of Rs 2,990.7 crore.

The company’s results conform to Indian Accounting Standards (Ind AS).

“With the adoption of Ind AS, the financials of Indus (joint venture) and ABIPBL (associate) are consolidated at PAT (profit after tax) level only. Accordingly, the consolidated total comprehensive income, including 16 per cent share from Indus and 49 per cent from ABIPBL (Aditya Birla Idea Payments Bank) stands at Rs 90 crore against Rs 757 crore in the second quarter,” Idea said.

Idea said it was looking to increase its investment in the network by Rs 1,000 crore.

“The company is gearing up to expand its wireless broadband coverage using the spectrum won in recently concluded auction and plans to spend incremental equipment capex of Rs 1,000 crore in FY17. With this, the capex guidance is revised from an earlier level of Rs 6,500-7,000 crore to Rs 7,500-8,000 crore,” Idea said.

“In the past two years, the company has made Rs 45,000 crore of investments and which has been used to buy spectrum as well as to be able to incrementally add 85,000 sites,” Himanshu Kapania, managing director of Idea Cellular, told Business Standard: “We are in the process of building a world-class broadband infrastructure. When you are making such large upfront investments, the monetisation and profits are going to follow but currently, we are in investment phase,” he added.

The company said 4G services would be expanded to 20 service areas from the present 11 and 3G services to 15 service areas from the present 13.

Idea added five million new mobile data customers, taking the total number of data users on its network to 54 million at the end of the quarter.

The blended mobile data average revenue per user (2G, 3G and 4G) stood at Rs 130 compared to Rs 144 in the same period a year ago, but data usage per subscriber increased to 694 MB in the reported quarter from 615 MB last year.

Idea said it has 130,633 2G sites, 60,467 3G sites, and 24,945 4G sites.

During the quarter under review, the company added 5,006 mobile sites for 4G service and 9,236 sites for 3G service.

The net debt at the end of quarter stood at Rs 36,400 crore, including all payment obligation due for spectrum excluding auction commitment made in October 2016.

Idea shares closed at Rs 77 a unit, down 3.75 per cent compared to the previous close on the BSE on Monday. The results came after the market hours on Monday. 

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