Idea Cellular is part of the Aditya Birla group and is the sixth largest wireless operator in India with an 8.5% market share in total wireless subscribers. It currently operates in 11 circles, which comprise one metropolitan circle of Delhi, three category A circles of Andhra Pradesh, Gujarat and Maharashtra, six category B circles of Haryana, Kerala, Madhya Pradesh, Rajasthan, Uttar Pradesh (UP) (East) and UP (West) and one category C circle of Himachal Pradesh.
The present operations of Idea Cellular in 11 of the total 23 circles cover 57.7% of India’s population and about 57.9% of India’s current subscriber base. End December 2006, the company had 12.44 million subscribers, with network coverage of 1,627 census towns and 1,980 other population centers.
Idea Cellular has received unified access services (UAS) licences for metropolitan circle of Mumbai and category C circle Bihar. In addition, the company has nine license applications pending for further circles, which, if obtained, would give it complete access to the entire Indian market. It intends to roll out services in Mumbai circle shortly by installing a network comprising about 1,597 cell sites covering the entire city. The company will expand and strengthen its network in recently rolled out circles of Himachal Pradesh, Rajasthan and UP (East) and install about 105, 810 and 1,247 additional cell sites, respectively, in these circles.
Recently, Idea Cellular was awarded a National Long Distance (NLD) licence by the Department of Telecommunications. It will set up the NLD network by March 2008.
Idea Cellular wants to redeem the outstanding 483 cumulative non-convertible preference shares of Rs 10 million each.
To fund this expansion plan, Idea Cellular has lined up a public issue to raise Rs 2125 crore (excluding the greenshoe option) at a price band of Rs 65 to 75. The company has already made a pre-IPO placement of Rs 375 crore to its promoters/promoter group, Aditya Birla Nuvo and Birla TMT Holdings, and will finance some part from internal accruals.
Strengths
- The Indian telecom market (including GSM and CDMA) is one of the fastest growing in the world, adding nearly six million subscribers a month. Mobile subscribers are estimated to increase to approximately 210 million by FY 2008, from 146.54 million subscribers end December 2006. Factors like falling handset costs, attractive tariffs and extensive reach have reduced the entry barriers for new subscribers and, thus, expanded the market available to telecommunication service providers.
- Idea Cellular has received UAS licences for the Mumbai and Bihar circles. Soon, it will launch its services in these circles. As the mobile penetration level in Bihar is quite low, there are market opportunities and good growth potential for the company.
- Idea Cellular’s NLD licence will allow the company to carry intra-circle as well as inter-circle traffic on its own network, resulting in saving of significant carriage charges that the company currently pays and reduction in operating costs.
Weaknesses
- In the absence of pan-India presence like other integrated operators, Idea Cellular is unable to provide seamless roaming services and is forced to share its revenue with other operators with whom it has roaming arrangement for its subscribers. Beside, the company is largely dependent on a number of relevant fixed-line, NLD, ILD and other mobile operators for its interconnection arrangements and leased-line arrangements. However, in future, both these concerns will be resolved as it starts operations in newer circles, expanding its presence throughout India, and commissions its own NLD network.
Valuation
At the price band of Rs 65 - Rs 75, the annualised EPS for the nine months ended December 2006 on post-issue equity (assuming the greenshoe option is exercised in full), works out to Rs 1.5 - Rs 1.6. PE works out to 42.3 – 47.8, respectively. Bharti Airtel, with a pan-India presence in GSM (in all 23 circles), trades at 39.9 times of annualised nine months consolidated earning. Reliance Communication (RCom), with CDMA presence in 21 of the 23 circles and GSM presence in eight circles (thereby constituting a pan-India presence in all 23 circles), is trading at 34.5 times annualised nine-month consolidated earning. Notably, RCom is a fully integrated telecom service provider with significant presence in almost all telecom services including NLD and international.
On the basis of annualised nine-month consolidated revenue, the market capitalisation to sales works out to 8.39 for Bharti Airtel, 7.12 for RCom, 3.64 for Tata Teleservices (Maharashtra), and 4.28 - 4.85 for Idea Cellular. The market capitalisation per wireless subscriber for Bharti Airtel and RCom works out to about Rs 45684 and Rs 33360, and for TTML Rs 20352, while that for Idea Cellular it is about Rs 14030 – Rs 15886.