Idea Cellular is looking to raise funds by selling part or complete stake in its tower business and has frozen hiring as part of a stringent cost-cutting drive to better its finances to better take on Reliance Jio Infocomm whose entry was the main reason for the No. 3 telco to post its first ever net loss since listing.
At a post-result analyst call Monday, Himanshu Kapania, managing director of Idea Cellular, said the company has seen “unprecedented disruption” because of the free voice and data services being offered by Jio which had forced Idea to counter by lowering their rates. He added that the sector should stabilize once the newcomer starts charging for its services.
Kapania, however, indicated that the worst phase was in November and December and that the carrier has been able to hold its own through its own offers.
“The new entrant has peaked the number of subscribers that are hitting up in January and February, much lower pace of growth than November and December,” Kapania said.
But the need to strengthen its balance sheet and get back to profitability is paramount for Idea.
“We are open to monetising own towers as well as stake in Indus Towers. We are happy to monetize fully or partially and have no precondition as such,” Kapania said.
Idea owns 100% of its 11,000 captive towers via a wholly-owned arm Idea Cellular Infrastructure Services Ltd. (ICISL). It also has an over 11% stake in Indus Towers – a telecom tower JV with Airtel and Vodafone – through Aditya Birla Telecom Ltd. (ABTL).
According to recent media reports, American Tower Corporation (ATC) is a frontrunner to acquire Idea’s own telecom towers at an enterprise value of as much as Rs4,500 crore.
The company, which has so far garnered Rs 7000 crore in bonds to reduce its debt with the last tranche of Rs 500 crore being raised on Monday, said they have no plans to raise any more money as of now via this route. The company is also looking to refinance its high-cost borrowings. Idea’s net debt totaled Rs 49,138.2 crore compared with Rs 36,401.3 crore in the previous quarter.
The comments come after the carrier last Saturday posted a consolidated net loss and an on year revenue fall – both a first ever for India’s No. 3 telco since listing in 2007 – as a brutal price war triggered by the entry of Jio hit both its voice and data business in the fiscal third quarter ended December.
Idea shares ended 2.7% lower at Rs107.40 on the BSE, underperforming a flat broad market.
The firm said it is on a cost optimization drive across various levels. The possible options include intra-circle roaming (ICR) arrangements which will bring down the firm’s operating expenditures (OPEX) and sharing of infrastructure.
Kapania said they are in “advanced discussions” with rival telcos for infrastructure sharing for 2G, 3G, and 4G. This will help them reduce both capital expenditure (capex) and opex.
Idea as of now has a manpower freeze which means they will not hire unless necessary. “Huge amount of effort within the company has been done across all circles to bring down our operating costs,” added the MD.
Brokerage Credit Suisse noted that Idea’s EBITDA decline is sharper than Bharti’s 16% on quarter fall.
“Network and SG&A costs surged around 7% and 36% on quarter, respectively,” JM Financial said in another note. Further, subscriber churn rate for Idea increased to 6% per month from 5.4% in the previous quarter, resulting in higher gross adds, and thus higher subscriber acquisition costs.
JM Financial added that Idea’s EBITDA will decline further in the current January-March quarter due to Jio free-service.
During the call, Kapania said that Idea has been operating at a capex of 18-20% of revenue and would like to bring it down to the earlier 12-15% of revenue.
Kapania declined to comment on the company’s ongoing merger talks with Vodafone India but said the industry from a multi-operator model is in a consolidation mode and only those who can give integrated offers will survive.
Source: Economic Times