“Idea Cellular Ltd. Conference Call” · Welcome to the Idea Cellular conference. For the...
Transcript of “Idea Cellular Ltd. Conference Call” · Welcome to the Idea Cellular conference. For the...
“Idea Cellular Ltd. Conference Call”
January 23, 2009
Call Leaders: Mr. Sanjeev Aga - Managing Director, Idea Cellular Limited. Mr. Akshaya Moondra – CFO, Idea Cellular Limited.
Idea Cellular Limited January 23, 2009
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Moderator: Ladies and gentlemen, good afternoon. I am Rochelle, the moderator, for this
conference call. Welcome to the Idea Cellular conference. For the duration of this
conference call, all participants’ lines will be in the listen-only mode. After the
presentation the question and answer session will be conducted. We have with us today,
Mr. Sanjeev Aga – Managing Director of Ideal Cellular, Mr. Akshaya Moondra – Chief
Financial Officer of Idea Cellular along with other key members of the senior
management, on this call. I want to thank the management team on behalf of all the
participants for taking valuable time to be with us.
Given that the senior management is on the call participants are requested to focus on
the key strategic and important questions, to make sure that we make good use of the
senior management’s time. You may have some detailed oriented questions, which you
may direct to Mr. Pradeep Agrawal who is coordinating Investor Relations at Idea
Cellular.
I must remind you that the discussions on today’s call may include certain forward
looking statements and must be viewed therefore in conjunction with the risk that
company faces.
With this I hand the conference over to Mr. Sanjeev Aga. Thank you and over to you
sir.
Sanjeev Aga: Thank you Rochelle and on behalf of Idea, I wish you all investor, analysts and other
friends on the call, a very Happy New Year. Yesterday our board has adopted the un-
audited financial results for our 3rd Quarter ended 31st December. These results, along
with our quarterly performance report, have already been released yesterday. I hope
some of you have had the opportunity to see them.
Let me start with a few highlights. Since our last earnings call, we have been allocated
GSM spectrum for all balance service areas between Idea, ABTL and Spice. Today, we
have GSM spectrum for all service areas of India. We expect to launch services in
Orissa during the April to June quarter and in Tamilnadu during the July to September
quarter. By the end of this calendar year, that is by December 2009, we should be
through with all other new service area launches.
Secondly, we have concluded the open offer to Spice’s public shareholders during
October. Spice Communications is now a joint venture between Idea Cellular, TMI and
Green Acre, pending its eventual merger with Idea through a court process. Idea holds
41.09% of Spice Communications with effect from 16th October.
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Thirdly, we have, in early December, received the infusion of Rs. 21bn that is Rs.2100
Crores, from a Providence associate for the issue of 1.925 mn compulsorily convertible
preference shares, into ABTL.
During the quarter, Idea, Bharti Infratel and Vodafone Essar has signed an Indefeasible
Right of Use Agreement which is called the “IRU”, with Indus Towers which has
already taken effect from 1st January, 2009. Approximately 11,100 towers of Idea are
covered under this IRU agreement and accordingly these towers have become rent
paying towers for us with effect from 1st of January. My colleague Akshaya will
subsequently share more details with you about this financial arrangement.
Our NLD network is expanding well and we now carry approximately 25% of our NLD
traffic on our own NLD network. This is up from nil or practically nil at the start of this
fiscal year. On the ILD front we have started direct routing with Dialog of Sri Lanka
being the first routing through our ILD network, which is the Spice ILD network.
For the fiscal year 2008-2009, our CAPEX guidance is Rs.6,500 Crores or Rs.65bn. For
the next fiscal year, our guidance is in the range of Rs.60 bn, inclusive of new service
areas but we have made no assumptions for 3G and should the 3G auction happen and
should we get some licenses, then obviously next year’s figure would change quite
significantly.
I now turn from these few pieces of information to some analysis and I am doing this
because in the last few months we have received innumerable questions and queries and
concerns on the subjects of, our EBITDA margins, on what will happen with our new
service area launches, what about competition from new players and so on. I think
“Idea” is not a company which is very well understood, and also our perspective may
not be exactly that of the market. And therefore it may be useful if we share our
perspective with you very briefly, so after that you can draw your own conclusions.
Let me first share some data with you. As on end of December 2008, we had a sum
total of 39,289 cell sites. Compare this with a figure of one year ago, the figure then
was 21,197. Now if you consider a cell site as a unit of network capacity, the
investment during the last 12 months represents a massive 85% increase in network
capacity. If you go more granular and distinguish between sites which are owned by us
and sites where we are tenants and pay rent, the rent paying sites have actually
increased from 31st December, 2007, to 31st December, 2008, from 8,721 to 21,459,
that is a whopping 146% increase in rent paying sites, in just 12 months. Now you
know that cell sites do not just pop up by accident, if we have increased our rent paying
cell sites by 146% in the last 12 months, it means our company has deliberately planned
Idea Cellular Limited January 23, 2009
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an increase in OPEX and has deliberately planned a reduction in EBITDA margin. That
is not bad news. Looking at margins on a static basis may completely misses the
picture. If we had cut down our new cell sites to half of what we have done in the last
12 months our margins would have been much better because the impact on revenue
would have been very marginal, but the business would have become much weaker.
Now why are we doing these investments into the future? a) It is not widely recognized
that Idea is the Number #1 company in four service areas of India representing almost
23% of the national market. That means that in 23% of the national market Idea is the
leading player, is the Number #1 player. And if you include service areas where Idea is
Number #2 or almost Number #2 you cover almost half of India. To us in Idea, it makes
eminent sense to capitalize upon these opportunities and build a business of enduring
value. Investments in the last year and in fact in the year before that in management
processes, in IT, in service delivery, in the Idea brand, in network quality and quantity
are all part of that large design. The investments are higher this year and will reduce in
the subsequent years.
When we turn to some of our new service areas launches, we are aware of the unique
strength that only Idea brings to the table, but we are also very cognizant that we are
entering a market 10 years after the first incumbent and we are entering with 1800 MHz
spectrum. So our approach to these new service areas is very much more calculated,
very much more conservative and very much more measured. We will obviously ensure
that the Idea brand promise is sustained and delivered, but we will take a very close
watch on financial parameters. We believe that these new launches, thanks to the
strengths that we bring to bear, will be value accretive for Idea, which may or may not
necessarily be the case for everyone else.
The Idea P&L this year has demonstrated the company’s capacity to absorb huge
investments for future value creation and still shows satisfactory results. Bland
comparisons with one year ago are meaningless. One needs to disaggregate and one
needs to look at the dynamics at the service area level. As a company we follow our
conviction and not the mood of the stock market. We have an extremely strong balance
sheet, in the last four quarters our quarter on quarter revenue growth has successively
been 16.1%, 9.7%, 5.8% and now 13.9% for the quarter just concluded. To my
knowledge this is not matched by any other major telecom company in India. Every
year, for the last two years, Idea has emerged stronger. It is our expectation that one
year later the same thing will be said of the year that is going to happen.
I finally turn to the question of new competition. We have been asked what happens if
the market goes from six players to ten players, from ten players to fifteen players and
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so on. To our mind licensing has become irrelevant. There is a fundamental paradigm
change which has not been recognized and will become obvious perhaps in a year or
two. By distributing a dozen licenses per service area, the government has in effect
made telecom an unlicensed sector. It has fundamentally become like any other sector
where anyone can enter. So if new players enter in the belief that they can reduce prices
and sustain business that is for them to figure out. At Idea we are focused only on our
competitiveness. None of us can predict what will happen in the very short term, but
our fundamental long term outlook is completely unaffected by entries or exits of new
marginal players or new players.
I would now like to handover to my colleague Akshaya who will give a little more
color to our financial results.
Akshaya Moondra: Thank you Sanjeev and good afternoon to participants from India and a good morning
to overseas participants. I will now take you through the financial highlights for the
quarter.
To start with, let me explain that the standalone results in Clause 41 format represent
results of Idea as a separate legal entity and consolidated results include all its
subsidiaries and joint venture. In effect Idea standalone results in Clause 41 do not
include the result of Bihar operations which are carried out under ABTL and ICISL,
which are wholly owned subsidiaries of Idea. However we wanted to give results of full
Idea business operations to our investors and analysts and with that in mind the media
results and quarterly report contains results of Idea and its wholly owned subsidiaries
on standalone basis as one segment, which in effect includes Bihar operations.
The consolidated results are similar to consolidated results of Clause 41 and also
include proportionate results of Spice and Indus. The consolidated results for the first
time include Spice results from 16th October to 31st December, 2008, to the extent of
41.09% of Idea’s stake in Spice Communications. On this basis, let me now take you
through the financial performance of the company in line with the results given in our
quarterly report and media release.
On a standalone basis, that is excluding proportionate share of Spice and Indus, our
revenue of Rs.26.2bn has grown by 13.9% on a Q-on-Q basis. The EBITDA has shown
a growth of 11.9% compared to the last quarter and stood at Rs.6.80bn. EBITDA
margin for the quarter was at 26% compared to 26.4% in the last quarter showing a
reduction of 0.4% mainly due to full quarter impact of Mumbai and Bihar launches.
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However, if we look at the performance of 11 service areas, the revenue has increased
by 12.1%. More importantly, EBITDA margin for 11 service areas of Idea has
improved by 1.3% from 28.1% for the quarter ended September 2008 to 29.4% for the
current quarter. Network operating cost as a percentage of revenue has gone up by
1.1% due to aggressive rollout of cell sites coupled with a higher proportion of rented
sites, as Sanjeev has already covered in his opening remarks.
Interest & Financing charges in this quarter reduced by Rs.855 mn from last quarter due
to income from investment of funds received from TMI during the last quarter and
Rs.21bn received from Providence in the beginning of December 2008. Forex loss
during the quarter has been Rs.131 mn mainly on payables for equipment supplies.
Depreciation and amortization for the quarter has increased by Rs.583 mn from the last
quarter. Net profit of Rs.2562 mn was higher by Rs.1061 mn compared to the last
quarter mainly because of increase in EBITDA of Rs.724 mn and a combined net
decrease of Rs.337 mn in Interest & Finance charges, Depreciation & Amortization and
Tax.
Let me now turn to the consolidated results, the consolidated revenue including Spice
and Indus of Rs.27.3bn for the quarter showed a growth of 18.5% over the last quarter.
While EBITDA margin at 25.5% has declined by 0.8% over the previous quarter. The
main reason for reduction in the EBITDA margin is lower EBITDA margins of joint
ventures and the full quarter loss of newly launched service areas of Mumbai and Bihar.
At Idea standalone level the addition to the Gross Block including Capital work in
progress for this quarter was Rs.13.5bn.
As Sanjeev mentioned, the Indus IRU has now been signed and it became effective
from 1st January 2009, it is important at this stage to explain the impact of this change.
Essentially this will result in a lower CAPEX model for Idea but a higher OPEX
resulting in lower EBITDA margins going forward. The estimated financial impact of
the Indus transaction on Idea will be that EBITDA will be lower by approximately 4%
to 5% in FY2010. However lower CAPEX will result in lower interest and depreciation
and hence the impact at the PBT level will be only about 2% to 2.5%. On the other
hand Idea will consolidate 16% of Indus profits in its financials and the negative impact
of 2% to 2.5% mentioned above could be compensated in the consolidated financials at
the PAT level. I may mention here that any appreciation of investments in Indus will be
in addition to the operational impacts explained before.
With this I would like to handover back to Rochelle and open the floor for questions
and answers, thank you.
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Moderator: Thank you very much sir. Ladies and gentlemen we will now begin the question and
answer session. Anyone who wishes to ask a question may press * and then 1 on their
touchtone phone. If you wish to remove yourself from the questioning queue please
press * and 2. Participants are requested to use handsets while asking a question.
Anyone who has the question may press * and 1 at this time. Our first question is from
the line of Suresh Mahadevan of UBS, please go ahead.
Suresh Mahadevan: Sir thanks a lot for the conference call and congrats on a good set of numbers. I had one
basic question which relates to competition which I think investors are quite worried
about in the sector. Now, I do appreciate your comments that you look at the business
on a long term basis but I think what might be useful for us, is to get your views on
how you think about the recent pricing moves of competition particularly Reliance’s
GSM entry strategy, in terms of what your thoughts are on that? And secondly I do
understand that you have cut prices in Bombay and it will be good to hear from you,
how you have responded to that so far? And thirdly, how you might respond in the
future because obviously this trial offer may continue for a while because of the
spectrum implications here. So, I just wanted your thoughts on this, which will be very
useful to all the investors in the call, thanks.
Sanjeev Aga: Hi Suresh, I thought your chief interests were Bollywood and Cricket but you are
asking me questions which are very difficult for me to answer. Well let me say a few
things, you know telecom is a complex sector and there is no example across the world
where any player has been able to extract a big price premium and there has been no
real example where people are able to operate on an enduring basis on a price discount
either. You have to analyze for yourself what might be the reasons, are they to do with
market strategy?, are they to do with other strategy? I do not have any answer myself.
Sometimes pricing is a product of strategy; it is also a question of what you can get
away with. So it is very difficult for me to answer this question and frankly I would
never answer a question on any specific competitor for a specific market. And similarly
on the whole Idea stays competitive, but Idea is never a discount brand, it is an
aspirational brand, as much as you can have aspiration in telecom. And appropriately
people will have defensive strategies, not just us but everyone else, but I really cannot
give you too much more color in that.
Suresh Mahadevan: Sir, maybe you can outline what you have done so far. I think Bombay you have done
pricing reductions?
Sanjeev Aga: I will not comment because these things are done by our people, I have a rough Idea
but I do not myself take a decision and it is not related to the event that you are talking
of.
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Suresh Mahadevan: Okay and I mean how do you see, at least, pricing going forward in this sector. I mean
as you said it is probably difficult to sustain at price premium for a long time but if
prices do drop, I think sooner or later, operators may have to respond it.
Sanjeev Aga: No Suresh, that is why I talked to you about competition, because I could ask you the
same question, you are working for a bank. What happens if your competitor stops
charging a fee, how would you answer that? And fundamentally you have to realize we
have moved from a license raj or a license sector mindset. Now just for a moment,
imagine there was no licensing. That is the assumption we work on in our company,
Are we worried? Let anyone enter the market. So just change your paradigm, and then
you will start to find the answers to your question.
Now maybe in the short run there might be a price flurry or price cuts or there may not
be, who knows what will happen. But for a moment put yourself, just work on the
assumption that there is no license required. We work on that assumption. Let anyone
enter the telecom sector in India, it makes no difference to our fundamental business
outlook. Short term things who can forecast? As I have said at the beginning in my
introductory remarks, this has effectively become an unlicensed sector. Because when
you move away from three to four to five after eight, ten, eleven, twelve it does not
matter if there are twenty four let anyone come in.
Suresh Mahadevan: There are really no barriers to entry.
Sanjeev Aga: There are no barriers to entry, there are, at the moment, a few barriers to exit but I have
a feeling that in the next couple of year, those barriers will also go away. You could ask
that question on any sector. You could ask that questions to a pharmaceutical company,
you could ask that question to a toothpaste manufacturer, what happens if someone
comes in and starts giving away its toothpaste free? it won’t happen for any length of
time. The whole world is witness to that. In the short run anyone can try anything.
Suresh Mahadevan: Okay, sir thanks.
Moderator: Thank you Mr. Mahadevan. The next question is from the line of Mr. Shubham
Majumdar of Macquaire. Please go ahead.
Shubham Majumdar: Hi Sanjeev I had two questions, One is, could you just give us some color on your
ARPUs of the existing 11 service areas; they have gone up fairly significant in this
quarter and if I am doing my numbers right, Mumbai and Bihar service area combined
ARPUs seems to have come in at extremely good level of Rs.465. Now, is there an
initial sort of lift in the numbers, given there is a huge concentration of high ARPU
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customers from the Birla Group itself and just a color on those ARPU numbers, That is
the first question.
Sanjeev Aga: Yeah Shubham hi, Overall as ARPUs have gone up from 261 to 266 and I am just
trying to get the breakup between 11 service areas and 2 service areas.
Shubham Majumdar: And how do you reconcile that with Bharti and the trends that you have basically been
seeing in the sector.
Sanjeev Aga: Bombay and Bihar, it is really not Birla Group; Birla Group is still not that big but it is
true there could be high data usage. The fundamental reason why ARPUs are high is
not what you are thinking.
What happens is that, you start getting in-roaming income from across the country and
the moment you have a network, that starts flowing in. But if your subscriber tally is
small, that is distributed over a smaller subscribe number. So it gives an illusion of a
very high ARPUs and as time goes by and as our subscribe base is increasing that will
taper off. So that is the first real reason as to why they are appearing to be high. That is
true for any company which is reporting its numbers accurately.
About Bharti, I did not had a chance to look at the Bharti numbers but from what I
understand, they also had an increase on ARPUs and we had a small reduction in
minutes of use per subscriber. Now this is a hard one for us to take one quarter’s data
and be able to say that this is part of a trend.
But let me just talk some things to you, you know our realized rate per minute has gone
up from Rs.0.62 paisa to Rs.0.64 Paisa. So that could be one factor that there has not
been a drop in rates and so there is no reason for MOUs to keep going up. It could also
be the fact that once our MOUs come to high levels like 400 to 500 minutes then
elasticity does start weakening and then we really cannot make of what has been the
impact of the economic environment because October-November-December has been a
little difficult both in urban and rural India and whether that had a little bit of shaving
off of consumption, is hard to say. The numbers are small and they are within a very
narrow band and it is for a quarter, so I do not or our entire company is not drawing
long term conclusions.
Shubham Majumdar: Sure Sanjeev. You know just a small input there, Bharti’s ARPUs was down 2%
quarter on quarter and were down significantly on a year-on-year basis. So I was just
wondering as to how on a 13 service areas basis, even if Mumbai and Bihar did have
that up lift post the launch period which I completely understand, how your overall
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numbers actually went up so much? Yeah I do appreciate that it is probably reading too
much in to one quarter’s numbers but just to get a perspective on Bharti.
Sanjeev Aga: Well our revenue has gone up so that is just the way the numbers come out. Our
revenue has gone up, our value added services in total terms, may not be in percentage
terms, is doing better. We are also getting a little bit of input from new things like data
cards and so on. So I guess that it is a combination of all that, may be we are doing a
little better on the roaming front, maybe we were not as badly affected as Bharti, in
terms of international in-roaming, because our dependence on that is a little lower than
theirs or Vodafone’s as they have a stronger business model for international roaming.
But I do not have answers to your question I am just taking pot shots.
Shubham Majumdar; Sure, sure, that is helpful Sanjeev. The second question I have is, you are talking about
nine more service area launches essentially in calendar 2009, right?
Sanjeev Aga: We are talking of Tamilnadu if you include Chennai then that is two, Orissa three,
Assam four, North East five, West Bengal six, Calcutta seven, J&K eight, but we really
think of Tamilnadu as one and Bengal as one.
Shubham Majumdar; Sure, So essentially what is the breakeven period because you seem to have done
significantly better on a quarter on quarter basis in terms of the profitability metrics in
Mumbai and Bihar, given you have 2 service areas operating for 90 days each in this
quarter while in the last quarter you just had Mumbai operational for 41 days. So from
there, is there any conclusion that you can draw in terms of how sequential post
declines can happen once the service areas goes live and is that something one can
extrapolate to next 7 or 8 service area launches as well? And finally if you would just
give us picks on how many years of EBITDA breakeven are you looking at from the
portfolio of 10 new service areas launches that you are doing?
Sanjeev Aga: The answer is quite varied and the most important thing is containing the total capital
outlay. We are looking at it in two or three different boundary conditions that we need
to meet and I will not share our internal targets in a conference call, but one is how
much outlay do you have in every year, which is your total exposure. How much is
your cash breakeven period? And of course what are your other parametric expectations
in terms of subscribers, revenue, EBITDA and so on? So all this has to be done while
keeping the standard which a consumer expects from an Idea brand. That is another
boundary condition which has to be met. But generally speaking, on an average in the
old paradigm a couple of years for EBITDA breakeven would be a rough average. In
the new paradigm where you do not have your own towers and entirely we take towers
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on rental it would be a couple of months longer, but I mean very very rough and in
some cases it would be quicker.
Shubham Majumdar: And once they turn EBITDA breakeven, if you sort of look at Mumbai, Bihar and the
incremental launches that you are looking to do, what sort of EBITDA margins in
longer terms, three to four years, that you broadly think this portfolio can get to, given
that you are the 7th or 8th or 9th player in these markets and given how incremental
economics of the business does look like. Do you think that this business portfolio can
actually get to a 25% or 30% plus EBITDA margin with all things considered?
Sanjeev Aga: Shubham I will answer your question but first let me say something which sounds a
little pompous. There is a difference between a 9th operator and an Idea entering a new
market as we are finding, for example in Bihar or as we are finding in Bombay. We do
not have any half hearted launches. We ensure that all systems are working from day
one, we bring lot of plug and play management systems into place. We are finding that
in terms of consumer preference, we do not start from the bottom of the ladder, we
would not be right up there but we move up the ladder pretty quickly from the day of
launch. So that is something which is perhaps working for us but not for everyone, that
is point number one so there is a difference between a 9th operator launch and Idea’s
launch.
Secondly, there are a couple of things that in the new market which even an Idea can
never overcome. One is the fact that, if the profitability is a function of scale then you
are starting from zero, so you will never have the scale of someone who has been there
for ten years. Number two, if profitability is a function of the spectrum band, then 1800
will never have the profitability of 900 MHz spectrum band. We are cognizant of this,
so obviously our profitability even five years down the line or four years down the line
will not be comparable to our incumbent service areas.
I would not give you a number whether it would be so much percentage, in fact we do
not look at EBITDA margins, we are going to eventually look at profit before tax. It
will never be as good as some of our stronger service areas and that is why we have got
a very polarized investment strategy. We are going for supremacy where we are strong
or reasonably strong and we are going on for a return on investment in meeting our
financial objectives, having an all India brand in our other service areas and that is why
I said our approach for these new service areas is more conservative, more measured,
more cautious. But having said that they will be value accretive. Value accretive means
that we will meet whatever is our hurdle rate of return. So does that give you an
indication that is about the best I could say.
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Shubham Majumdar: Sure and just as a quick follow on to that Sanjeev, if you just look yourself as a
company, another interesting way to look at it is, that among the top 4 or 5 operators
you probably have the lowest number of metro service areas actually covered and those
are some of the market that you are now launching in, especially in a scenario were
penetration in the metro markets, at least the reported sim penetration has reached 80%-
90% or 100%-120%, so the polarized investment strategy that you talk about, would be
more focused on this metro markets even as a late entrant and in a highly penetrated
market or would it be a bigger focus on the less penetrated markets? if you could just
throw some light on that.
Sanjeev Aga: It is not a trade secret I am letting out. Any company will evaluate it’s strengths and
weaknesses so you would look at how strong you are, what is the residual potential,
how important is that market in terms of national for example Bombay and Delhi may
not be very big opportunities going forward but they have an influence on attitudes in
the rest of the country. You would look at whether you are better placed or badly placed
and that is what we are doing. We have put our best foot forward for all the markets
where we are on 900 MHz, particularly where we are incumbents, we also put our best
foot forward in markets like Bombay and Delhi. We have a top class network so when
people use Idea they get a top class service, so we have one kind of approach here.
When I say polarized it is not into two colors there are many nuances, many shades and
there are many very different ways of looking at it, but at a broad level this is the kind
of polarization.
Shubham Majumdar: Okay thank you Sanjeev, appreciate it.
Moderator: Thank you Mr. Majumdar. The next question is from the line of Mr. Sameer
Naringrekar of BNP Paribas. Please go ahead.
Sameer Naringrekar: Good afternoon, my first question is related to, if you could just give us some sort of an
estimate about the number of network sites that you expect to have online by the time
you have a PAN India network rollout? And the second question is related to the access
charges, they seem to be creeping up, I know you have mentioned that you are carrying
about 25% of your NLD traffic, when should we expect higher carriage of your own
traffic on your NLD network?
Sanjeev Aga: Hi Sameer, your second question first. In exact terms we are carrying about 25% of our
traffic and I think in a previous earnings call we had mentioned that we hope to take
this up to 50% by the fiscal year end. Now whether we hit 50% by March end or April
end or May end, but it will be in that ballpark. And of course that means that there is
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some investment in terms of CAPEX going in here, but at the EBITDA level this would
certainly improve in percentage terms, in the coming quarters.
As far as cell sites is concerned, this is a moving target because cell sites are a function
of two things, what is the population we wish to cover, which is also a function of time
and secondly within the covered area how much capacity you require, which is a
function of how many consumers and how much traffic. So this is not a number I would
be able to give you with any certainty right now.
Sameer Naringrekar: But most operators that are looking at network site deployment of about 55,000 to
54000, so is that a rough estimate that we can work around with.
Sanjeev Aga: You know that is what I was trying to drive at the beginning. Roughly two years ago
we had 10,000 sites then we went to 20,000, this year it has come to 40,000, of course
this is not for the same service areas there are newer service areas. Now indicatively by
end of March this year, and this does not include Punjab and Karnataka, we will be in
the ballpark of 45000 to 46000 cell sites. Now you are asking me numbers for next
year, I have to do a little work and I am not carrying it handy, it will be available
somewhere else.
Sameer Naringrekar: That is fine thank you.
Sanjeev Aga: But I have given you an indication indirectly because I told you this year we expended
on CAPEX Rs.6500 crores including new service areas launches. Next year we are
expecting Rs. 6000 crores, of course not all of that goes into only network, there are
many other things to it and the prices of BTS not being the same, but that will give you
a ballpark idea of what the investment is going to be.
Sameer Naringrekar: Thank you.
Moderator: Thank you Mr. Naringrekar. The next question is from the line of Mr. Ajay Nandanwar
of Indea Capital. Please go ahead.
Ajay Nandanwar: Good afternoon, hi. I had a question about your CAPEX for FY2009. Out of the 6500
crores CAPEX how much of it would go towards like a new service areas Mumbai,
Bihar and other launches in Q4?
Akshaya Moondra: Are you asking what it the CAPEX in Mumbai and Bihar?
Ajay Nandanwar That is right.
Idea Cellular Limited January 23, 2009
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Akshaya Moondra: Actually it will be about 1100 Crores by the end of this fiscal year.
Ajay Nandanwar: Okay and you know your guidance for FY2010 of 6000 Crores, what are you factoring
in your new 8 service areas?
Sanjeev Aga: We are factoring in all the new launches. I have got the number before me and I will
like to give it to you but it does become competitive information. That also includes
what we will be doing in the Spice service areas, so this is really an all India figure it
could be 6000 Crores, it maybe 5% up or down
Ajay Nandanwar: And these 6000 crores, dose not include the 3G spectrum bid if you do that but would
this include the 3G BTS CAPEX or doesn’t include 3G BTS either.
Sanjeev Aga: No, this assumes that 3G will not come, this is an unrealistic assumption. I found a lot
of questions where people are asking whether investments in sites are never ending.
There was a period for the last two years where it was important for us to invest,
irrespective of whether the stock market likes it or not and we did that. That need is
now reducing, So had 3G not come in, in spite of the new service areas launches our
total investment would have been of this magnitude.
But most probably 3G is going to come in, and then there would be license fee if you
win licenses and then there would be roll out, and if there is 3G rollout there would be a
reduction in 2G expense, so that we have not attempted to take any punt as to what that
number would be because the 3G policy is not known. Therefore, this guidance of 6000
is really very theoretical, because this assumes that life will not change in terms of 3G.
Ajay Nandanwar: And when you enter new service areas, what is your sort of an internal hurdle rate and
what kind of market share are you expecting to get, over three to four years?
Sanjeev Aga: Internal hurdle rate is not very different, whatever you may have for your firm it will be
average. We have it in our Birla Group and within our company, cost of equity, cost of
debt and we use a 1:1 blend for our purposes. So whatever you assume it is going to be
plus minus one, so that is not very material. And what was your other question.
Ajay Nandanwar: You know what kind of market share do you target over say two to three year period?
Sanjeev Aga: We launched UP east and Rajasthan and Himachal exactly two years ago and we have
presently about 7% share with subscriber market, but it is a little higher in UP east and
lower in Rajasthan. It varies, in Bihar we might do better.
Idea Cellular Limited January 23, 2009
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Ajay Nandanwar: Assuming that your target of market share is roughly sort of high single digit, is that a
fair assumption to make?
Sanjeev Aga: No, I will not share our internal projections because that reveals our strategy and that is
different, but only thing that I can help you with is, that we expect this to be value
accretive. And therefore if you are looking at it from a valuation perspective, my advice
is to disaggregate service areas and to at least take whatever is invested as the value of
that service area if not higher, which is not often done. When you launch a service area
like Bombay or Bihar obviously margins will go down and obviously profits will go
down, it is completely wrong mathematics to take that reduced EBITDA then to apply
as if the country into same.
Ajay Nandanwar: One last question, right now you are having EBIDTA run rate at standalone basis
maybe 2000 to 2500 Crores or so, maybe slightly higher than that, but what kind of
debt levels as a company on consolidated basis you feel comfortable with this kind of
EBITDA profile, especially if you are looking at 3G and then CAPEX? You said 1:1
earlier, but given that you are almost debt free once the transactions go through.
Sanjeev Aga: Our net debt is at the moment under 2000 Crores for the whole company. And we have
got a huge debt facility so we have no funding constraint. Our expenditure will be
governed by what we think is sensible, it is not going to be governed by what we can
do.
Akshaya Moondra: Sanjeev if I may add, let us say even when we have a net debt of 2000 Crores, we have
liquid money of about 7700 Crores so considering that in mind, we will have a fairly
comfortable position in terms of our future debt to meet our requirements.
Ajay Nandanwar: At a company level how much debt would you guys feel comfortable taking on over
next two years or so. I mean I am not asking question and my question is not
availability, my question is more like from your perspective, let us say unlimited fund
is available, given your current balance sheet – my question is how much debt would
you guys consider taking on, at what stage you start feeling uncomfortable with more
debt?
Akshaya Moondra: That is what actually I was trying to answer. What I am trying to say is that we are
today not in a situation whereby for meeting all our requirements we will need to
stretch our debt. I mean our debt servicing will be very comfortable, I cannot give you
any specific figure but based on our requirements and whatever we have projected it is
not getting to a point whereby we have to see that are we stretching ourselves, because
of the current liquidity that we have.
Idea Cellular Limited January 23, 2009
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Ajay Nandanwar: Thanks so much.
Moderator: Thank you Mr. Nandanwar. The next question is from the line of Mr. Rajeev Sharma of
HSBC. Please go ahead.
Rajeev Sharma: Yeah many thanks for the opportunity. Couple of questions from my end, first is as you
provided initially at the starting of the call with the number of cell sites, it will be great
if you could provide similarly with the breakup of number of towers which you have in
terms of your own towers and the towers which are rented? And I also wanted to
understand the 11,100 towers which will get transferred to Indus, is it all that you
currently giving rent or are there more towers on which you would still be giving the
rent over and above Indus. The second question is what proportion of your network
OPEX before Indus was in terms of network rentals and what is the book value of the
towers estimated to be transferred from January 1 to Indus?
Sanjeev Aga: Rajeev you are like Ajantha Mendis. Your first question was, how much was owned
sites and how much rented sites. Now this is only Idea, we have not got Spice over
here, but as on December end our rented sites were 21,459 and our own sites, that
means sites which are placed on our own towers was 17,830. Now the number of
towers that are being transferred to Indus by the way of IRU are about 11,100, which
should all have one cell site of ours each.
All our towers in Madhya Pradesh, in Himachal Pradesh and in Maharashtra are not
part of Indus. They still remain in the assets of our company.
Akshaya Moondra: I think the net book value of the towers which will be transferred is in the order of
about 14500 mn.
Rajeev Sharma: Okay. And maybe I am repetitive but what I am trying to understand that, it is only
11,100 towers on which you give rent or there are more towers on which you will be
giving rent.
Akshaya Moondra: No, these are the towers which we are transferring to Indus so these are not rent paying
right now, once these are transferred to Indus with effect from 1st of January we will
start paying rentals on these towers.
Rajeev Sharma: And currently you pay rent on how many sites which is non Indus?
Sanjeev Aga: As I told you out of our total 39,200 odd sites, on 21,459 we pay rent right now, 17,830
are the sites where we do not pay rent. Out of these 17,830, 11,100 have been
Idea Cellular Limited January 23, 2009
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transferred by IRU to Indus and therefore become rent paying. So that will leave about
6,700 sites which will remain free of rent.
Rajeev Sharma: And what proportion of your current network OPEX pre-Indus, is network rentals on
those 21,459 sites on which you pay rent.
Sanjeev Aga: Rajeev we will give that offline to you.
Rajeev Sharma: Okay not a problem. Thank you very much.
Moderator: Thank you Mr. Sharma. The next question is from the line of Mr. Sanjay Chawla of
Anand Rathi. Please go ahead.
Sanjay Chawla: Hi good afternoon, thank you for the call and congratulations on a good set of results. I
have three sets of questions, one is for the Spice service areas the loss for the 77 days of
consolidation is Rs.345 mn. Should we just prorate this to the entire quarter for 92 days
to get the full quarter recurring net loss, that is questions one. Secondly, could you
provide some color on your expectations as to when would you achieve PBT breakeven
in Spice service areas? Thirdly, again related to Spice, are you dealing with the Quipo
on exclusive basis for tower leasing in the Spice service areas given the legacy
agreement that have been signed? And finally this 765 mn EBITDA loss reported from
Mumbai and Bihar, is this the peak EBITDA loss or do you expect the EBITDA loss to
peak in the next one or two quarters?
Sanjeev Aga: Sanjay you are smart guy, you said three questions and smuggled in four. Let me start
with the last one, I do not off hand remember the expected loss of Mumbai and Bihar,
but normally losses actually peak in the 2nd Quarter, because the revenue is very small
so really the OPEX flows into negative PBT. Therefore I expect that the loss of Bihar,
but I am not very certain of this, could increase because we are having more sites
rollout day after day. In the case of Bombay, we started with a very lavish network and
we have continued rolling out but that site rollout might show slowing down now. So in
the case of Bombay the EBITDA losses may start peaking very soon. In Bihar it could
take a while, but in Bihar we are getting a very good traction and we are getting good
traction in Bombay also.
As far as Quippo is concerned, we have no exclusive contract with them, past or
present, but we deal with them as a vendors of ours, both in Spice and in Idea, Spice of
course is now managed by us.
As far as Spice is concerned, yes the whole purpose of segregating accounts during the
quarter, for the period 1st Oct to15thOct and 16th Oct onwards, was to disaggregate the
Idea Cellular Limited January 23, 2009
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quarter into what is representative and what is not representative. So you are right in
saying that more or less the results from 16thOct to 31stDec have shaken off the
exceptional or one off items relating to the cost. Now there are going to be two kinds of
factors which will work in Spice, on the one hand we expect the management inputs,
that are being put into by the entire team there, is going to start getting us good results
during the calendar year 2009. So, on the subscriber front, on the margin front, on the
revenue front we expect the Spice service areas to do better than average. But having
said that, we are also going to invest a lot in these service areas in terms of network and
other things and more in Karnataka which is under invested. That would naturally put
some pressure on OPEX in the short term, which will all pay for itself in the long run.
On PBT let me answer that question in the next earnings call, because at the moment
we have not made the budget for that.
Sanjay Chawla: Sure thanks. Just one follow up on this, the total CAPEX guidance that you have given
for FY2010 is Rs.60 bn, does it include the Spice CAPEX?
Sanjeev Aga: Yes.
Sanjay Chawla: Okay thank you very much.
Moderator: Thank you Mr. Chawla. The next question is from the line of Mr. Miten Lathia of
HDFC Mutual Fund. Please go ahead.
Miten Lathia: Good afternoon sir, was wondering what is the marginal ARPUs in Mumbai and Bihar
would be looking like because you said the NPV of your new service areas investments
still seem positive to you, appreciate that very much but to us the incremental ARPUs,
built on the very broad number that TRAI comes out with, looks to be very dismal so it
could be very interesting to know from you if you could share what marginal ARPUs
have been in new service areas launches.
Sanjeev Aga: You know dismal is a very unattractive word. But on a long term basis we would not
have the kind of ARPUs which the leader has, it is not possible, they got the early
customer, the best customers and developed, matured customers. So surely a new
entrance has that handicap and therefore in the long term, our ARPUs will settle at a
level, which is lower than the market leader, but they would not be dismal.
Miten Lathia: No agreed, I was basically looking for a number if you could provide some sort of a
ballpark, , I am sure obviously everything is a minutes driven model and we appreciate
that, but even within those constraints?
Idea Cellular Limited January 23, 2009
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Sanjeev Aga: Miten, I got your question, I wish I could help you, but we for the sake of transparency,
give as much data as we could, so we give Bombay and Bihar together. But if I start
disaggregating Bombay and Bihar then I would have to do it for every service areas that
become too competitively sensitive.
Miten Lathia: I am sorry, I just took the Mumbai and Bihar as an example, probably in your older
service areas also if you have done some sort of a run through on the new guys coming
into the system over the last one year, that would also be helpful?
Sanjeev Aga: Yes its true that new guys or gals, because now you have increasingly higher
representation from the female gender which is one of the strength of our company, we
also have a higher proportion of rural subscribers, their ARPUs to begin with, is
certainly lower on the whole as they are from a lower income strata. And secondly, it is
a fact in telephony that your contact base builds up overtime, so you hit your peak
calling potential later. So it is generally true that new subscribers give you lower ARPU
and lower MOUs than the earlier subscribers.
Miten Lathia: But over a lifetime you think the NPV will be still pretty sizeable based on a very back
of envelop.
Sanjeev Aga: Yes, that is why we are doing it, otherwise why would we do it. And as I said what
maybe true of us, may not be true of everyone because, I think the stage of doing
spreadsheet models of 5th, 6th, 7th operator have gone. We have got to go, person by
person and see what works, what does not work. We have launched 3 service areas two
years ago we have launched Bombay three months ago, we have launched Bihar, two
months ago. So we had enough empirical data and anecdotal experience and evidence
to be reasonably sure about what we are doing.
Miten Lathia: Yeah, true sir, it would be good if you could have thrown some numbers, but that is
fine, thank you very much.
Moderator: Thank you Mr. Lathia, the next question is from the line of Mr. Simeon Kaul of CIMB,
please go ahead.
Simeon Kaul: Hi guys, I got disconnected, so I am not sure it has been asked, but when you see 3G
will come on board I was just wondering, just share your strategy on 3G and how
aggressively would you bid for 3G? And also on the interconnect rate, I am just
wondering what sort of impact we will have if it is reduced and finally wanted to
clarify, the 4-5% impact from Indus, it is not that the absolute amount are you talking
about EBITDA margins being for 4% to5% or lower?
Idea Cellular Limited January 23, 2009
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Sanjeev Aga: You asked me about 3G and interconnect rate, let me take interconnect first. We
believe, our company believes, that the current interconnect rate is not fully meeting the
cost of production for interconnecting. And so we believe there is no case for reduction.
But who knows what will happen, it may happen in next eight or nine months. But if
there is a reduction then it certainly affects you but then you will have to compensate
by pricing your outgoing minutes higher. And so long as it is for everyone it really does
not affect us competitively.
As far as 3G is concerned, as everyone knows, there are two parts to this exercise; one
is what you know in terms of savings on 2G equipment, in terms of releasing capacity
from 2G spectrum, in terms of getting some extra revenues from some extra
subscribers. And what you do not know is which way history is going to travel in the
future. So we would neither be aggressive nor defensive, we will take a very calculated
look, but at the moment even the policy is not known so I think we just have to wait a
little.
And last question was about Indus, the 4% to 5% which my colleague mentioned is a
drop at the EBITDA level because of those 11,100 site switch which are presently on
our own towers immediately starting to attract rent, but then there will be saving around
interest and depreciation which brings down the impact at the PAT level to little over
2% approximately. And finally at the end of the year we will consolidate whatever
profits Indus makes at the rate of 16%. And whether that will entirely mitigate or
substantially mitigate that 2% time will tell. But we expect it to be roughly neutral at
the PAT level. So it will be negative at the EBITDA level but at the end of the day it
will hopefully not amount to much here or there.
Simeon Kaul: That is absolute amount?
Akshaya Moondra: These we are saying as a percentage of revenues, if that is your question.
Simeon Kaul: That is right, yeah so I thought EBITDA is it less then one
Akshaya Moondra: Suppose, EBITDA today is X than we if we say 4% to 5% then it will become X%
minus 4% to 5% that is what we mean as a percentage of revenue, not in absolute
terms.
Sanjeev Aga: If my EBITDA say was 30, it would become 26 or between 25 and 26. The other thing
which we need to recognize is that this rental will remain fixed but are revenues
hopefully will keep rising. So over the coming years the negative impact on EBITDA in
percentage terms will reduce.
Idea Cellular Limited January 23, 2009
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Simeon Kaul: Okay thank you.
Moderator: Thank you Mr. Kaul. The next question is from the line of Mr. Anirudh Ganghar of
Goldman Sachs, please go ahead.
Anirudh Ganghar: Thank you for the opportunity, two questions from my side. First how much of your
service areas would you believe could have been ready say for the USO 200 basis
points reduction in the license fee from April 1. And second question was if you could
let us know the increase in AGR charges from 1st of January have been applicable and
if so, what will be the impact, thank you.
Sanjeev Aga: Yes, on that reduction of 2% we are waiting for the exact definition but from our
calculation almost all are service areas including the Spice service areas would qualify
or have already qualified..
Akshaya Moondra: The increase in the fee from 1st January has not been notified so there has been no
increase as yet.
Anirudh Ganghar: Alright and thank you very much.
Moderator: Thank you Mr. Ganghar, the next question is from the line of Mr. Rahul Singh of
Citigroup, please go ahead.
Rahul Singh: Yeah good afternoon everyone I just had one question on the CAPEX guidance of Rs.
65bn this year and Rs. 60 bn next year. Just wanted to get a sense of whether it is like to
like, whether both includes Spice, and more importantly in this year you still have
about 20% to 25% of the CAPEX because of owned towers, next year I presume that
number of owned towers could be very close to zero with Indus formulizing etc. etc. so
is it right to assume that Rs. 60 bn number is going to be closer to the pure active
CAPEX as compared to the FY2009 number because that will not be entirely like to
like.
Sanjeev Aga: Yes Rahul you have, more or less, got it right. This year Rs. 65bn is without Spice,
because Spice we consolidated only from 16th October, so Rs. 65bn. is for Idea without
Spice. Next year Rs. 60bn is with Spice. Your other question if you look at that, our
own towers which I think would come down to 7000 to 6000 after the IRU and the
Indus, that number would go up marginally because in the new service areas we would
have some owned towers. For example in Bihar we have a large number of own towers
and they continue to come up, but it would be fair to say that the majority of towers
would be on a rented basis.
Idea Cellular Limited January 23, 2009
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Rahul Singh: Okay sir, since you just touched up on Bihar, where you had an arrangement to share
towers with Vodafone, are Bihar towers included in the number of rent paying sites
which you gave 21,459.
Sanjeev Aga: Yes. As on 31st December, if we were tenant on a Vodafone site it would have been
shown as a rent paying site. And if Vodafone was a tenant on our tower then it would
be shown as our owned tower.
Rahul Singh: Okay thank you sir.
Moderator: Thank you Mr. Singh. The next question is from the line of Mr. Gaurav Jaitley of RIL
Equities. Please go ahead.
Gaurav Jaitley: Okay thank you. Just a couple of questions if I may. First I am a little bit curious about
why you have, it sounds like you have delayed the planned launches in Orissa and
Tamilnadu. I think your original guidance was for FY2009 and it sounds like you have
pushed it out by a couple of quarters. Just wondering what the motivation behind that
specially given that in this industry like you mentioned time is probably money here.
And second just from house keeping perspective, you re-branded the Spice markets this
quarter, just wondering what the SG&A spend on that was and because I am assuming
that is probably not going to reoccur next quarter, thank you.
Sanjeev Aga: We were not motivated to postpone it; we were compelled to postpone it slightly
because we had difficulty in getting microwave spectrum from the government in time,
that is required to order out some of the equipment. Also our standards for locating of
switches in terms of seismic zones, having occupation certificate and completion
certificates are rather strict, so we had a few niggles on that front. But when I
mentioned that we would launch Orissa in April to June it could well be very early
April or it could be even fag end of March, and when I said that Tamilnadu be in July
to September it could well be very early July. So it is not too much of a delay.
Gaurav Jaitley: Okay, great thanks, that is helpful and just on the SG&A expense on re-branding.
Sanjeev Aga: On re-branding whatever had to be spent has been spent and frankly we have a national
campaign going on the brand and that was the backbone of the re-branding. There are a
lot of local signboards and hoarding, Akshaya will give the numbers
Akshaya Moondra: Actually we have spent for the re-branding about 11 Crores in this quarter and the next
quarter it is likely to be of the order of 20 Crores, but if we look at the overall expense
on advertisement and promotion within this quarter to next quarter there will be a
marginal increase not a significant increase in Spice.
Idea Cellular Limited January 23, 2009
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Gaurav Jaitley: Great thank you very much. That is very helpful.
Moderator: Thank you Mr. Jaitley. The next question is from the line of Mr. Sunil Tirumalai of
Credit Suisse. Please go ahead.
Sunil Tirumalai: Hi sir, hello. Sir I had a question, book keeping question on Spice, I noticed that the
depreciation number for Spice’s financial has gone up since the time that the passive
infrastructure was sold out, any reason for that?
Akshaya Moondra: Can you tell me what figures are you referring to, since the Passive Infrastructure was
sold out much earlier.
Sunil Tirumalai: Yeah, so I mean before that the depreciation number was lower, was quite low and post
that it has been increasing sir I think you had a 77-80 Crores kind of figure currently.
Akshaya Moondra: Okay the sell off of passive infrastructure which was way back in January sometime, I
would not be able to respond to that right now but we can take it offline and we can
clarify that to you.
Sunil Tirumalai: Okay thank you very much.
Moderator: Thank you Mr. Tirumalai. The next question is from the line of Ms. Reena Verma from
Merrill Lynch. Please go ahead.
Reena Verma: Hi thank you for this opportunity, just a few quick questions. Sir, can you please update
us on where we stand with regard to the merger process for Spice? And just two house
keeping questions, one is on your taxes, can you please help us understand why your
tax rate has fallen so sharply on a standalone basis quarter-on-quarter? And also on the
CAPEX guidance, last quarter you told us you were looking at 75 to 80 bn excluding
Punjab, Karnataka and Indus so why the numbers are so much lower, thank you?
Sanjeev Aga: Hi Reena I was waiting for you to ask some house keeping questions. Akshaya will
answer the rest part but the main reason why this CAPEX is reduced from the last
earnings is that the launch of Orissa and Tamilnadu which we had thought would come
in this fiscal year, are going into the next fiscal so whatever expense on that account
would get transferred to next year. Secondly we have tallied everything and there have
been some economies which have also reduced the numbers in terms of pricing.
Akshaya Moondra: In terms of the merger, actually we are ready with the scheme, we also have put in the
demerger schemes for approval of the DOT and we are just waiting for in principal
Idea Cellular Limited January 23, 2009
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approval. Once we have the in principal approval from DOT for demerger of licenses
then we will run the demerger and the merger process together.
Reena Verma: So as and when the approvals come, the merger will be effective from fiscal 2009
onwards.
Akshaya Moondra: let us say it will take a while; at least let us say a minimum of six months from today to
run this process through. The appointed date is something which we need to decide
once we start the process, but most likely the appointed date of merger would now go to
the next fiscal year and not this fiscal year, but that is something on which we have to
take a final decision.
Reena Verma: Okay thank you. And on your taxes please.
Akshaya Moondra: Yeah, actually our tax consists of only FBT and deferred tax. The reduction has been
coming mainly from the recalculation of deferred tax, this is impacted by how our
CAPEX is likely to be in the coming years and as to what extent the tax holiday will
impact our tax loss that we are having right now, would it fall before the tax holiday
period or after the tax holiday period. So it is a combination of several factors but I
think when we run the projections over a longer period of time in the current
environment, it gives us a lower deferred tax calculation. So the reduction is coming
primarily from a lower deferred tax calculation.
Reena Verma: I see. Just one final question, this is on Spice, can you just please once again highlight
for us the accounting policy changes both in terms of revenue and depreciation and how
the quarter would have looked if policies had remained the same please.
Akshaya Moondra: Okay, the release that we have given for Spice yesterday carries most of the details but
just for the benefit of the entire audience, I would just mention that in terms of the
change in accounting policies one is, in case of Spice, some of the software was
capitalized, which as per our accounting standards, we do not capitalize There are few
factors so this is one change, second is that we have revised the useful economic life of
assets according to our accounting policies, the impact of that is 117 mn and these are
all one off adjustments which were done before the date of acquisition. Third is that the
depreciation on handsets below Rs.5000 value in Spice, earlier these were being
capitalized and amortized over twelve months, our policy is to write them off
immediately so now that is being done as per our policy. On the revenue, the
recognition of activation fee on prepaid products with validity, they were recognizing
revenue over a longer period of time, as per Idea policy now we are recognizing the
revenue upfront. The impact of that is of the order of 80 mn positive. I think these are
Idea Cellular Limited January 23, 2009
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the main changes which are related to the change in accounting policies. One more was
the unamortized share expenses and loan origination expenses which they were
amortizing over a longer period of time, as per our policy we charge it immediately, so
that is Rs.361 mn. The others are adjustments related to assets retired from active use
and impairment of license value which is not actually a change in accounting policy but
recognizing the assets and valuations as on the balance sheet date.
Reena Verma: Thank you very much, thanks.
Moderator: Thank you Ms. Verma. The last question is from the line of Mr. Anup Kulkarni of
Deutsche Bank. Please go ahead.
Mr. Srinivas: Sir this is Srinivas here from Deutsche, thank you for taking the call. Sir I have two
questions, one you have mentioned that the impact of Indus will be neutral in the next
possibly two year? We were under the impression when this deal has been struck;
industry commentary has been that it will be positive in terms of cost savings and that
will flow down to the Wireless companies. So is that a kind of a shift in that stance.
Secondly on Spice could you clarify, the Spice release mentioned that Idea and
affiliates own somewhere around 49% whereas you mentioned that you have 40% so
where is the balance actually owned and who owns that. If you could just clarify these
two you know then we will have may be more questions from our side?
Akshaya Moondra: Okay as far as the shareholding of Spice is concerned, Idea directly holds 41.09% so
which is consolidated, but Idea Group’s total holding with its affiliates is 49%. So
consolidation is at 41.09% whereas the total holding of the group is 49%.
Mr. Srinivas: Which affiliates are these sir?
Akshaya Moondra: There is a company by the name of Green Acre which was a party to the public offer.
Mr. Srinivas: And Green Acre is not held by Idea.
Akshaya Moondra: It is not held by Idea, it is an affiliate.
Mr. Srinivas: Does Idea have a stake in Green Acre.
Sanjeev Aga: No.
Mr. Srinivas: Not at all. Okay thanks. And on the Indus?
Idea Cellular Limited January 23, 2009
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Sanjeev Aga: On Indus you are saying that earlier there was an impression that its impact on P&L
next year would be positive
Mr. Srinivas: In the medium terms sir, that I suppose that is what we all were kind of expecting.
Sanjeev Aga: Yes, In the next one year it is our estimate, our estimate is not so sharp because Indus,
as we mentioned to you, its first year operating with IRU is going to be 1st January so
they have not drawn their first P&L statement with actual performance. So it is our
impression that on the PAT level next year the impact for us would be close to zero. It
is not really a reduction because you still have benefits of speed to market by their
availability and perhaps even lower rentals compared to what you would have done if
Indus had not been there. So these are some benefits which don’t show up in the P&L
directly. And secondly as Akshaya mentioned in his opening remarks if there is any
valuation, that is also a benefit. And as I mentioned, in the coming years the absolute
amount of rental will remain intact or will increase very marginally, but the revenue of
the company hopefully will keep growing so its impact in terms of percentage terms
will keep diluting. So it is a value adding process hopefully. But at the P&L level for
next year, my best guess is that it would be close to zero at the PAT level although it
will be negative at the EBITDA level.
Mr. Srinivas: And sir finally just wanted to clarify does the MOU or the IRU stipulate that Idea will
not be able to put its own towers in the Indus service areas. I mean would Idea,
Vodafone and Bharti I guess, are you not going to put any towers in the Indus service
areas?
Sanjeev Aga: Just one second, apart from that one other benefit is that if the tenancy in Indus
improves over the years, the profitability of Indus over the next four, five, six, seven
years will improve. Surely the first year would be the worst year. So I guess tenancy
improves, that is the way these infrastructure companies work, so the deal hopefully
should be a very interesting and positive thing but its impact on the first year could be
close to zero.
Your second question, whether we are allowed or not allowed. All the shareholders
have committed that we will in the appointed areas take all requirements from Indus
and that is in our interest to do so. However, there are some exceptional circumstances
where there are exclusions under the agreement, which are really where it does not
make sense for Indus to do something or something which is abnormal in nature, but it
is in everyone’s interest to give our tenancy to Indus which is our own company.
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Mr. Srinivas: Okay the reason I asked is that you said Mumbai there are 1000 towers which, I am
sorry Maharashtra, so those as you said will remain with you so they will not be part of
the appointed area, and Maharashtra is one of the appointed areas.
Sanjeev Aga: Yes. Let me explain, Even in Mumbai city we had, before Indus was formed, already
taken some towers on rental so they have been transferred, but when we had this Indus
deal sometimes ago then we had done an aggregation and tally of tenancies. So some
towers were excluded to arrive at a predetermined number and that is how the
Maharashtra towers were excluded.
Mr. Srinivas: Okay and that is obviously you are not going to grow anymore.
Sanjeev Aga: No we are not going to grow anymore but some got excluded.
Mr. Srinivas: Thank you very much sir, thank you very much.
Moderator: Thank you Mr. Kulkarni. Ladies and gentlemen due to constraints of time we are not
able to entertain any further questions. At this moment I would like to hand the floor
over to Mr. Aga for the concluding remarks. Please go ahead sir.
Sanjeev Aga: Thank you Rochelle and thank you ladies and gentlemen. And I will just summarize by
saying that we have, at least from our side, had a very, very satisfactory quarter. Of
course a quarter is just a quarter and life is much longer than a quarter, but things have
gone well for us and we remain on track, we hope to do our best. We are not too
worried about what happens in January or what happens in February; we are here for
the long term, but the long term does not mean 10 years. We are also very focused on
near term performance. Thank you very much for being on the call.
Moderator: Thank you very much gentlemen of the management. Ladies and gentlemen that
concludes this conference call. Thank you for joining us on the Chorus Call
Conferencing Service and you may now disconnect your lines.