Ideal choice for Idea Cellular

Idea Cellular posted better than expected numbers for the fourth quarter ended March 31, 2011. Consolidated revenue increased by 7.1%, while Ebitda (earnings before interest, tax, depreciation and amortisation) increased 13.4% Rs1,075.2 crore against Rs948.2 crore crore in the fourth quarter of the previous year and net profit rose 12.9% to Rs274.5 crore against Rs243 crore. Net sales were at Rs4,234.7 crore compared to Rs3,955.6 crore in the same period last year.

The highlight of the company’s results is that it has increased its market share from 12.6% to 13.6% and continues to be the third largest telecom operator in the country. Traffic growth was higher by 9% at 8.5 billion minutes.

Revenues were higher despite a lower average realised rate of 40.6 paise as compared to 41.8 paise in the previous quarter. This resulted in average revenue per user (Arpu) for the quarter coming down by 4% to ¤161 compared to the previous quarter.

Idea added the largest number of subscribers — 9.6 million — during the fourth quarter taking the total subscriber base to 83.3 million.

The company has also been the main beneficiary in the number portability. Subscriber acquisition cost has increased from 13.5% to 14.7%. This has not prevented margins remaining stable at 24% (adjusted for one time charges).

Idea has launched 3G in 9 circles and is planning to increase its coverage to 3,200 towns from 700 currently. The company currently has 1.55 million 3G subscribers (93% prepaid subscribers). Roll-out cost thus will keep on increasing for the next couple of quarters. The company has given a guidance of Rs4,000 crore in capital expenditure.

Though Idea Cellular has been one of the fastest growing telecom companies, the legal tangles in which the sector is finding itself in might limit upside in the stock.