idea project from suresh jaiswal 09936175259

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hi, me suresh

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  • sir; in ASSAM,,mainly in LAKHIMPUR district the network of idea is worst which leads to there is A bad impression of IDEA network.......... so, i kindly request you to please set up towers here so that we can get an immediate service... if you want to set towers then please contact here; milonjyotikonwar2@gmail.com..............THANK YOU
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idea project from suresh jaiswal 09936175259

  1. 1. 1 Summer traing report Ways to Increase the Idea Cellular Ltd. Submitted By : Nuzahat Afrose Submitted To : C.Lal IMS (Shepa) In partial fullfillment of the requirement of mba degree of u.p. Technical university, lucknow Session : 2009-10 EnrolmentNo…………….. RollNo.0918470034 INSTITUTE OF MANAGEMENT SCIENCES SHEPA (Nibia, Bachchaon, VRM Bypass, Varanasi-210011)
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  3. 3. 3 PREFACE I am highly obliged to the learners and the guider whose kind blessings energies me to complete my report. I would specially like to thanks and great regards to my guide Mr.Saurabh Jaisawal whose kind guidance, motivation made me to complete this reporton time. The project is carried out to translate the theoretical knowledge of subject into practical field work. This project is carried out in partial fulfillment of MBA – 2nd Semester coursefrom ISMT, Varanasi Nuzahat Afrose
  4. 4. 4 ACKNOWLEDGEMENT This report bears the imprint of many people. Right from the experienced staff of Idea Cellular Ltd, to the staff of Atal Bihari Vajpayee – Indian Institute of Information Technology and Management without whose support and guidance I would have not got the unique opportunity to successfully complete my internship in this esteemed organization. I would like to thank Mr. Amaljeet Singh, who allow me to do this project in Idea Cellular Ltd successfully. I take this opportunity to express my deep gratitude to all the employees of, Idea, Gwalior. Also I am indebted for the rich guidance, knowledge and suggestions provided by my guide, Mr. Yugal Kishore who took sincere efforts and illustrated the Marketing Concept and channel development in Idea Cellular Ltd, with their vast knowledge in the field, which helped me in carrying outmy internship. Last but not least, I also thank all those people whom I met in the industry during my internship and helped me to accomplish my assignments in the most efficient and effective manner. Date: Nuzahat Afrose Place:
  5. 5. 5 Contents
  6. 6. 6 INTRODUCTION As India's leading GSM Mobile Services operator, IDEA Cellular has licenses to operate in 11 circles. With a customer base of over 17 million, IDEA Cellular has operations in Delhi, Maharashtra, Goa, Gujarat, Andhra Pradesh, Madhya Pradesh, Chattisgarh, Uttaranchal, Haryana, UP-West, Himachal Pradesh and Kerala. IDEA Cellular's footprint currently covers approximately 45% of India's population and over 50% of the potential telecom-market. As a leader in Value Added Services, Innovation is central to IDEA's VAS Factory. It is the first cellular company to launch music messaging with 'Cellular Jockey', 'Background Tones', 'Group Talk', a voice portal with 'Say IDEA' and a complete suite of Mobile Email Services. Idea Cellular is a wireless telephony company operating in various states in India. It initially started in 1995 as a join venture between the Tatas, Aditya Birla Group and AT&T by merging Tata Cellular and Birla AT&T Communications. Initially having a very limited footprint in the GSM arena, the acquisition of Escotel in 2004 gave Idea a truly pan-India presence covering Maharashtra (excluding Mumbai), Goa, Gujarat, Andhra Pradesh, Madhya Pradesh, Chattisgarh, Uttar Pradesh (East and West), Haryana, Kerala, Rajasthan and Delhi (inclusive of NCR). The company has its retail outlets under the "Idea n' U" banner. The company has also been the first to offer flexible tariff plans for prepaid customers. It also offers GPRS services in urban areas.
  7. 7. 7 IDEA Cellular is a publicly listed company, having listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) in March2007. IIDEA Cellular is a leading GSM mobile service operator with pan India licenses. With a customer base of over 44 million in 17 service areas, operations are soon expected to start in Chennai Metro; Kolkata & West Bengal, North East & Assam, and J&K. A frontrunner in introducing revolutionary tariff plans, IDEA Cellular has the distinction of offering the most customer friendly and competitive Pre Paid offerings, for the first time in India, in an increasingly segmented market. From basic voice & Short Message Service (SMS) services to high-end value added services such as Mobile TV, Games etc - IDEA is seen as an innovative, customerfocusedbrand. IDEA 'Women's Card' caters to the special needs of women on the move, and 'Youth Card' covers the emerging youth segment. IDEA 'My Gang' - the widely popular community user group product recently bagged the prestigious 'Golden Peacock Award 2008' under the Most Innovative Product category at the "19th World Congress on Total Quality". A brand known for many firsts, IDEA was the first to launch GPRS and EDGE in India. IDEA has partnered with Research in Motion (RIM) to offer Blackberry services on its network. IDEA 'Net Setter'- Plug & Play, EDGE enabled USB Data Card offers affordable data connectivity with faster speed and consistency.
  8. 8. 8 IDEA offers seamless coverage to roaming customers traveling to any part of the country, as well as to international traveling customers across over 200 countries. IDEA Cellular has partnership with over 400 operators worldwide to ensurethat customers arealways connected while on the move, across theglobe. IDEA has received several national and international recognitions for its path- breaking innovations in mobile telephony products & services. It won the GSM Association Award for "Best Billing and Customer Care Solution" for 2 consecutive years. It was awarded "Mobile Operator of the Year Award - India" for 2007 and 2008 at the Annual Asian Mobile News Awards.
  9. 9. 9 Brief hisroty of the organization The chronology of key events of the Company from incorporation is set out below: Calendar year Events 2009 Subscriber base as on December 31, 2009: 57,611,872 Idea becomes a pan-India operator Emerging Company of the Year - fastest growing mobile operator in the world’s fastest growing telecom market 2008 Subscriber base as on December 31, 2008: 40,016,153 Idea acquired 9 licences for Punjab, Karnataka, Tamil Nadu & Chennai, West Bengal, Orissa, Kolkata, Assam, North East and Jammu & Kashmir Acquired Spice Communications with the operating circles of Punjab and Karnataka Launched services in Mumbai metro in the largest single Becomes pan-India operator in 2009 Acquired Escotel, incumbent cellular service provider in Haryana, UP(W) & Kerala and new licensee in HP Brand IDEA launched Delhi operations commence (Nov)
  10. 10. 10 metro city launch, ever Launched services in Bihar 2007 Subscriber base as on December 31, 2007: 21,054,027 Won an award for the "CARE" service in the "Best Billing or Customer Care Solution" at the GSM Association Awards in Barcelona, Spain Initial Public Offering aggregating to Rs. 28,187 million and Listing of Equity Shares on the Bombay Stock Exchange and the National Stock Exchange Merger of seven subsidiaries with Idea Cellular Limited Reached the twenty million subscriber mark 2006 Subscriber base as on December 31, 2006: 12,442,450 Became part of the Aditya Birla Acquired RPG Cellcom, service provider in Madhya Pradesh (Feb) Awarded MoU for merger between Birla AT&T and Tata Cellular Limited Andhra Pradesh signed (Jan)
  11. 11. 11 Group subsequent to the TATA Group transferring its entire shareholding in the Company to the Aditya Birla Group Acquired Escorts Telecommunications Limited (subsequently renamed as Idea Telecommunications Limited) Restructuring of debt Launch of the New Circles Reached the 10 million subscriber mark Received Letter of Intent from the DoT for a new UAS License for the Mumbai Circle. Received Letter of Intent from the DoT for a new UAS License for the Bihar Circle through Aditya Birla Telecom Limited. ABNL, the parent of Aditya Birla Telecom Limited, pursuant to a letter dated November 22, 2006, agreed to transfer its entire shareholding in Aditya Birla Telecom Limited to the Company for the consideration of Rs. 100 million. 2005 Subscriber base as on December 31, 2005: 6,473,962 Reached the five million Birla AT&T commence Cellular operations Maharashtra & Gujarat
  12. 12. 12 subscriber mark Turned Profit Positive Won an Award for the "Bill Flash" service at GSM Association Awards in Barcelona, Spain Sponsored the International Indian Film Academy Awards 2004 Completed debt restructuring for the then existing debt facilities and additional funding for the Delhi Circle. Acquired Escotel Mobile Communications Limited (subsequently renamed as Idea Mobile Communications Limited) Reached the four million subscriber mark First operator in India to commercially launch EDGE services 2005 2003 Reached the two million subscriber mark 2002 Changed name to Idea Cellular Limited and launched "Idea" brand name Commenced commercial
  13. 13. 13 operations in Delhi Circle Reached the one million subscriber mark 2001 Acquired RPG Cellular Limited and consequently the license for the Madhya Pradesh (including Chattisgarh) Circle Changed name to Birla Tata AT&T Limited Obtained license for providing GSM-based services in the Delhi Circle following the fourth operator GSM license bidding process 2000 Merged with Tata Cellular Limited, thereby acquiring original license for the Andhra Pradesh Circle 1999 Migrated to revenues share license fee regime under New Telecommunications Policy ("NTP") 1997 Commenced operations in the Gujarat and Maharashtra Circles 1996
  14. 14. 14 Changed name to Birla AT&T Communications Limited following joint venture between Grasim Industries and AT&T Corporation 1995 Incorporated as Birla Communications Limited Obtained licenses for providing GSM-based services in the Gujarat and Maharashtra Circles following the original GSM license bidding process. Vision It goes without saying that the brand vision of idea mirrors the company’s vision. The brand mission statement is...... To be the most customer-focused mobile service brand, continuously innovating to help liberate our customers from the shackles of time & space. Mission The India footprint Idea Anywhere connectivity - bringing India closer. The Technology Advantage Idea Tomorrow's technology to enrich today. The Customer Focus Idea Make a single interaction a lasting relationship.
  15. 15. 15 The Employee Focus Idea Nurture the roots that nurture our ideas. Objectives The summer internship done with Idea Cellular Objective was to find the ways of increasing the ARPU (Average Revenue PerUser) forthe company. The objective of the summer project was to understand the customer preferences while choosing a telecomservice provider. Othermainobjective of the projectwastostudythe trendsinthe International Telecommarket.
  16. 16. 16 STRATETEGYFOR IDEA CELLULAR The Idea Cellular Limited falls in the “question mark” quadrant of BCG matrix and in the High attractive and Strong Competitive strength category as per the GE Matrix. Thus they need to formulate some strategies to try capturing some market share, growing and building their brand image as well as brand value. Marketpenetration The company enters where the products and the market already exists. IDEA being a question mark that means it is competing in a high growth market but with a relatively low share compare to its competitors. Market penetration can be done by attracting competitor’s customers that implies increase in market share. The strategy that IDEA can adapt under market penetration is to attract non-users and convince to use their product more often. They are different market penetration strategies like cutting price, increase in promotion, and creating innovative distribution tactics. The target should be in such a way that IDEA sales volume relative to its competitors should be high as expressed in percentage. IDEA’s present market share is about 12%, and competitors like airtel, Vodafone, and bsnl have a market share of about 31, 23, and 19 percent respectively. Though telecom industry is growing rapidly every year, there is always a little increment in the percentage of sales for IDEA. To overcome this problem and to occupy the competitor’s position we recommend following strategies.  Increasing the mobile circles which are at present are only 11, so there is always a need to expand its services.  Target the rural segment in India which is expected to grow by 15% every year
  17. 17. 17  Launch different types of packages as per the requirements for different segments of the customers  Provide more high end services like GPRS, mobile internet services  Collaboration with different service providers on global basis to provide better facility to customers on roaming.  Tracing out the search patterns which are left untapped by the competitors to reveal new markets. Backward Integration – In July 2008 Swedish equipment supplier entered into a contract to provide technology “Ericsson Mobile organizer” to Idea cellular enabling its subscribers to serve email facility on its cell phones. Forward Integration – Company operate approximately 589 Idea” n “U and other showrooms which supplement the distribution channels and provide customer service. Horizontal Integration: Idea acquired the Modi family’s stake of 40.8% in spice which ultimately in a way increased the market share of Idea. This can be seen as horizontal integration Strategic Alliance 1) Product alliance Idea should form product alliance with a company that has a strong brand image and carry a promotion for one another. E.g. Acer in collaboration with Ferrari launched Acer Ferrari laptops which are catering to high end niche segment having high specifications and high price.
  18. 18. 18 2) PromotionalAlliance: Idea should form promotional alliances in collaboration with big movie houses or big retail brands to promote their products. Recently SONY Viao had a promotional alliance with “James Bond” latest movie “Casino Royale”.
  19. 19. 19 Organizationstructure &management Board of Directors - Mr. Kumar Mangalam Birla (Chairman) Smt. Rajashree Birla Mr. Sanjeev Aga (Managing Director) Mr. Arun Thiagarajan Ms. Tarjani Vakil Mr. Mohan Gyani Mr. Gian Prakash Gupta Mr. R.C. Bhargava Mr. P. Murari Mr. Biswajit A. Subramanian Dr. Rakesh Jain Mr. Juan Villalonga Navarro Dr. Hansa Wijayasuriya (Alternate to Mr. Juan Villalonga Navarro) Management Team - Corporate Leadership Team Mr. Sanjeev Aga, Managing Director Mr. Akshaya Moondra, Chief Financial Officer Mr. Anil K. Tandan, Chief Technology Officer Mr. Prakash K. Paranjape, Chief Information Officer Mr. Pradeep Shrivastava, Chief Marketing Officer Mr. Navanit Narayan, Chief Service Delivery Officer Mr. Vinay K. Razdan, Chief Human Resource Officer Mr. Rajat K. Mukarji, Chief Corporate Affairs Officer Mr. Rajesh K. Srivastava, Chief Materials & Procurement Officer Mr. Ambrish Jain, Director - Operations Mr. Himanshu Kapania, Director - Operations Circle Heads
  20. 20. 20 Mr. Iyer Subbaraman S., Chief Operating Officer, Andhra Pradesh Mr. Rajendra Chourasia, Chief Operating Officer, Madhya Pradesh & Chattisgarh Mr. Virad Kaul, Chief Operating Officer, Uttar Pradesh (West), Delhi & Haryana Mr. T. G. B. Ramakrishna, Chief Operating Officer, Kerala Mr. Sashi Shankar, Chief Operating Officer, Mumbai Mr. P.Lakshminarayana, Chief Operating Officer, Maharashtra & Goa Mr. Naozer Firoze Aibara, Chief Operating Officer, Uttar Pradesh (East) Mr. Sunil Kataria, Senior Vice President - Operations, Rajasthan Mr. Arul Bright, Senior Vice President - Operations, Gujarat Mr. M. D. Prasad, Senior Vice President - Operations, Bihar Mr. M. Srinivas, Senior Vice President - Operations, Tamil Nadu & Chennai Mr. Siva Ganapathi, Chief Operating Officer, Karnataka Mr. Anish Roy, Chief Operating Officer, Punjab, J&K and Himachal Pradesh Mr. Aloke Malik, Chief Operating Officer, East (Kolkata, Rest of Bengal, Orissa & NESA)
  21. 21. 21 Idea Cellular Limited An Aditya Birla Group Company Quarterly Report Fourth Quarter ended March 31, 2009 A D I T Y A B I R L A G R O U P istered Office: Suman Tower, Plot No. 18, Sector 11, Gandhinagar 382011, India the Corporate Office: 5 Floor, Windsor, Off C.S.T. Road, Near Vidya Nagari, Kalina Santacruz (East), Mumbai 400 098, India
  22. 22. 22 Supplemental Disclosures Unless stated otherwise, the financial data in this report is derived from our unaudited / audited consolidated financial statements prepared in accordance with Indian GAAP. Our financial year ends on March 31 of each year, so all references to a particular financial year are to the twelve months ending March 31 of that year. In this report, any discrepancies in any table between the total and the sums of the amounts listed are due to rounding-off. There are significant differences between Indian GAAP, IFRS, and U.S. GAAP; accordingly, the degree to which the Indian GAAP financial statements will provide meaningful information is dependent on the reader’s level of familiarity with Indian accounting practices. Any reliance by persons not familiar with Indian accounting practices on the financial information presented in this report should accordingly be limited. We have not attempted to explain those differences or quantify their impact on the financial data included herein. Unless stated otherwise, industry data used throughout this report has been obtained from industry publications. Industry publications generally state that the information contained in those publications has been obtained from sources believed to be reliable but that their accuracy and completeness are not guaranteed and their reliability cannot be assured. Although we believe that industry data used in this report is reliable, it has not been independently verified. Actual results may differ materially from those suggested by the forward-looking statements due to risks or uncertainties associated with our expectations with respect to, but not limited to, our ability to successfully implement our strategy, our growth and expansion, technological changes, our exposure to market risks, general economic and political conditions in India which have an impact on our business activities or investments, the monetary and interest policies of India, inflation, deflation,
  23. 23. 23 unanticipated turbulence in interest rates, foreign exchange rates, equity prices or other rates or prices, the performance of the financial markets in India and globally, changes in domestic and foreign laws, regulations and taxes and changes in competition in the industry
  24. 24. 24 2. Company Overview Idea Cellular Limited (“Idea”) is a leading mobile services operator in India, with ~ 39 mn subscribers as on March‘09. Idea has a subscriber market share of 19.5% in its 8 established service areas, and 14.5% in its 13 operating service areas. After inclusion of Spice Communications, Brand !dea has 43.02 mn subscribers, corresponding to a 11.0% national market share. A. Promoter Group Idea is part of the Aditya Birla Group, India's first truly multinational group. The Group has businesses in sectors ranging from metals, garments, cement, fertilisers, life insurance and financial services among others. Over 50% of the Group’s revenues are derived from overseas operations. The group operates in 25 countries, and is anchored by an extraordinary force of over 125,000 employees belonging to 25 nationalities. The current Group holding of 49.13% in Idea is made up of; Aditya Birla Nuvo Ltd. 27.02% Birla TMT Holdings Pvt. Ltd. 9.15% Hindalco Industries Ltd. 7.37% Grasim Industries Ltd. 5.52% IGH Holdings Pvt. Ltd. 0.08% Total 49.13%
  25. 25. 25 B. Key Shareholders AXIATA Group Berhad, previously TM International Berhad, through its affiliates has 14.99% shareholding in Idea Cellular, and a 49.0% holding in Spice Communications. With the proposed merger of Spice Communications into Idea Cellular, the Axiata Group holding in Idea Cellular would increase to around 20%. The Group, is one of the largest Asian telecommunication companies, focused in high growth low penetration emerging markets. AXIATA has a controlling interest in Malaysia, Indonesia, Sri Lanka, Bangladesh and Cambodia with significant strategic stakes in India and Singapore. India and Indonesia are some of the fastest growing markets in the world. In addition, the Malaysian grown holding company has assets in telecommunication operations in Thailand, Pakistan and Iran. As of December 2008, the Group, including its subsidiaries and associates, has close to 90 million mobile subscribers in Asia. The Group provides employment to over 25,000 people across Asia. Upon its de-merger from Telekom Malaysia in April 2008, AXIATA became an independent entity and simultaneously listed on the Malaysian stockexchange. Providence Equity Partners, through its affiliates has a 10.6% shareholding in Idea, and has also invested Rs. 20982 mn in ABTL through Compulsorily Convertible Preference Shares.
  26. 26. 26 C. CorporateStructure Idea Cellular Limited (Idea) 100% -- Idea Cellular Infrastructure Services Limited (ICISL) 100% -- Idea Cellular Services Limited (ICSL) 100% -- Swinder Singh Satara & Co Limited (SSSL) 41.1% -- Spice Communications Limited (Spice) 100% -- Aditya Birla Telecom Limited (ABTL) 100% -- Idea Cellular Tower Infrastructure Limited (ICTIL) 16% -- Indus Towers Limited (Indus) IICCIISSLL – tower company owning towers in Bihar and Orissa service area. IICCSSLL – provides manpower services to operating entities i.e. Idea & ABTL. SSSSSSLL– holds MSC real estate in the Delhi service area. SSppiiccee – provides GSM based mobile services in Punjab and Karnataka service areas. AABBTTLL – provides GSM based mobile services in Bihar service area, and has 16% shareholding in Indus. IICCTTIILL – holds towers de-merged from Idea, which will subsequently merge in Indus. IInndduuss – a joint venture between Bharti Infratel, Vodafone Essar and Idea (through ABTL), to provide passive infrastructure services in 15 service areas.
  27. 27. 27 Operating Service Areas (as on April 2009)) Brand “!dea” covers 16 telecom service areas, viz, Maharashtra & Goa, Gujarat, Andhra Pradesh, Madhya Pradesh & Chhattisgarh, Delhi, Kerala, Haryana, Uttar Pradesh West & Uttaranchal, Rajasthan, Uttar Pradesh East, Himachal Pradesh, Mumbai, Bihar & Jharkhand, Orissa, Punjab and Karnataka, covering ~ 80% of the all India subscriberbase. Of these, the 3 service areas of Rajasthan, UP East and Himachal Pradesh, were rolled out during Sep-Nov’06, while the 2 service areas of Mumbai and Bihar became operational during Aug-Oct‘08. The service areas of Punjab and Karnataka were added through Spice w.e.f October16, 2008.
  28. 28. 28 3. Reporting Guidelines: To facilitate an analytical perspective, the results have been formatted and grouped as under: a) Standalone – Idea, and its 100% subsidiaries, grouped together on a standalone basis. Effectively, this encompasses all mobile operations in India, excluding Spice and Indus. b) Consolidated – Idea and its 100% subsidiaries, and JVs, grouped together. This covers Idea operating service areas and the ABTL operating service area of Bihar, the proportionate consolidation of Indus (16%), and the proportionate consolidation of Spice (41.09% w.e.f. October16, 2008). JV financials have been consolidated as jointly controlled entities as per “AS 27 - Financial reporting of Interests in Joint Ventures ”. It may be noted that the consolidation of financials of two or more entities requires elimination of inter entity transactions. Illustratively, rentals paid by Idea to Indus, become expenses for Idea and revenues for Indus, on a standalone basis. However, upon consolidation, the proportionate revenue of Indus gets reduced to the extent contributed by Idea. The rental expenses of Idea also stand correspondingly reduced in the consolidated financials.
  29. 29. 29 4. Financial Highlights A. Standalone Profit & Loss Account B. Consolidated Profit & Loss Account
  30. 30. 30 C. Revenue & Profitability Break-up
  31. 31. 31 D. Summarized Balance Sheet
  32. 32. 32 5. Key Performance Indicators A. Financial Indicators – Idea Standalone B. Operational Indicators – Idea Standalone
  33. 33. 33 C. Operational Indicators – Spice
  34. 34. 34 6. Management Discussion & Analysis Fastest Growing Major Telco – Back to Back Years of Strong Market Gains Standalone revenues for the quarter at Rs. 28,626 mn, grew 9.2% on a QoQ basis. In a period marked by economic downturn and increased competitive and price pressure, Idea was able to maintain its strong growth momentum. Annual revenues of 99,622 mn show a growth of 47.9% compared to the last year. This revenue growth of 47.9%, on the back of the FY08 revenue growth of 53.6%, places Idea as the fastest growing major operator in one of the largest, fastest growing, and most competitive telecom markets in the world. Idea on a standalone basis, added 4.7 mn subscribers in the quarter, its highest ever. For the entire year FY09, subscriber base has grown by 79.2 %. In its 8 established service areas, Idea strengthened its market position by gaining 1% market share, and consolidating its position close to the market leader. In the 3 gestating service areas, Idea also increased its market share to 6.3%, from 5.8% a due to change in subscribers recognition criteria year ago. In the newly launched service areas of Mumbai and Bihar, Idea has acquired a 4.0 % share of the combined market, with a net adds market share of 16.6%, during last 6 months. Total Minutes on the Network at 44,224 mn grew by 9.9% on a QoQ basis. The Average Realised Rate per Minute, which had moved up from 62p to 64p in the previous quarter, settled at 63p.
  35. 35. 35 Indus IRU Impact Idea (standalone) rent-paying cell sites jumped from 21,459 at Dec’08 quarter end to 36,573 at Mar’09 quarter end. This increase of 15,294 cell sites includes 11,094 cell sites on Idea towers, transferred to Indus, through the IRU effective January 1, 2009. As of March’09, out of the 36,573 rent paying cell sites, 25,150 cell sites are on Indus Towers. The accounting treatment of the IRU arrangement increased the network operating cost for the March’09 quarter. Rental income that Idea was deriving from guest sites also ceased w.e.f. January 1, 2009, as these would accrue to Indus. The combined impact of these 2 factors was the equivalent of ~ 3.4 % EBITDA contraction for the quarter ended March’09. Until the merger into Indus is consummated, Idea will account for depreciation for the IRU towers. However, Idea will receive an IRU income for the transferred towers until the merger, which for the quarter ended March’09 was the equivalent of ~1.2% of the EBITDA. Therefore, the net negative EBITDA impact for the quarter was ~2.2 %. The above treatment does not include Idea’s pro-rata share of Indus’ profit/loss. The financials do not also capture the notional capex cost saving derived because of Indus, and the speed to market benefit. Upon consolidation, Idea’s share of 16% of Indus revenues is Rs. 1,870 mn. However, with consolidation eliminations, no revenue has been consolidated. An equal amount has been eliminated from the Indus rentals accounted by Idea. Further Idea has consolidated Rs. 1,196 mn as 16% share of Indus operating expenses, after elimination of IRU income received from Indus.
  36. 36. 36 Network Capacity Cell sites Idea rolled out 4,941 cell sites during the March’09 quarter, taking the FY09 4423050000tally to 19,437, and the EoP cell sites to 44,230. In the preceding year FY08, 40000Idea had added 14,679 cell sites. Thus, in the last 2 fiscal years, Idea has enhanced its cell site capacity 4.4 times, representing a massive 2479330000enhancement of capacity to build competitive strength. 2000010114The capacity already built, together with improved spectrum availability and 47631000018433049enhanced technology features will result in greater capex efficiency in FY10, 0and reduced capex intensity. FY04FY05FY06FY 07FY08FY09Total capex for FY09 was Rs. 54.5 bn. For FY10, including for new service area launches, the capex will indicatively be in the region of Rs. 60.0 bn. This estimate does not factor the unknown impact of a possible 3G auction. Financial Performance At the EBITDA level the net negative impact of Indus IRU is 2.2% for the quarter. However, EBITDA margin for Q4 at 25.9% is almost similar to the Q3 margin, indicative of other operational efficiencies which have absorbed the negative Indus IRU impact. Depreciation & Amortization for FY09 at Rs.13,212 mn increased by 50.7% on a YoY basis. Net interest and finance cost for FY09 at Rs.4,070 mn increased by 46.6% on a YoY basis. PAT for the quarter at Rs.3,032 mn was higher by 18.3% on a QoQ basis. After absorbing the losses of the new launches of Mumbai and Bihar, Profit after Tax for FY09 was Rs.9,754 mn.
  37. 37. 37 New Launches thBrand Idea has expanded its wings to its 16 service area, with the commercial launch of Orissa in April 2009. With this, Idea now covers ~ 80% of the national subscriber base. Preparatory work for other roll outs is on track, with Tamil Nadu planned for the Jun’09 quarter. Within the calendar year 2009, Idea plans to have pan India operations. Tailored Approachfor Different Service Areas Idea holds 900 MHz GSM spectrum in 9 service areas, which make up ~50% of the national market. This frequency band confers capex and opex benefits. It is also accompanied by early mover advantage. Idea is the mobility revenue market leader in 3 of these service areas, and is overall in the second spot. Thetwin advantages of spectrum and scale underpin Idea’s enduring competitive edge. In some of the remaining service areas, Idea pursues a strategy of optimisation as opposedto maximisation. It plans to achieve a pan India footprint and leverage synergies of scale and wider presence, and calibrated capex spend through infrastructure sharing. The focus is on operational and financial goals, and not on league tables. The service area tailored strategy is designed to enhance Idea’s long term competitiveness.
  38. 38. 38 Update on Spice Communications The accounts of Spice continue to be consolidated in proportion of the shareholding of 41.09%, until its eventual merger into Idea. Finalisation of the merger scheme is in an advanced stage and will be effective after the court order. Update on Indus Towers As the 3 shareholders, Bharti Infratel, Vodafone Essar Ltd and ABTL (100% subsidiary of Idea) signed the IRU with Indus effective January 01, 2009, Indus has started invoicing respective entities for the sites covered by the IRU. Idea has filed the scheme for demerger of towers to ICTIL. This will be followed by the filing of the merger scheme of ICTIL with Indus.
  39. 39. 39 7. StockMarket Highlights Idea Cellular Daily Stock price (NSE) & Volume (Combined of BSE & NSE) Movement Volume (no. of Shares) Closing Price 20,000,0005516,000,0005012,000,000458,000,000404,000,000350309999999999 9999999999-0-0-0-0-0-0-0-0-0-0-0-0-0-00-00-00- 0anananananananebebebebebebarar-arar-arar-ar-J-J-J-J-J-J-J-F-F-F-F-F-F-M-M- M-M-M-M-M0106121520232936169525270500011120011223BSE & NSE Combined VolumeNSE Cl Price8. Shareholding Pattern as on March 31, 2009:
  40. 40. 40 9. Glossary Definitions/Abbreviation Description/Full Form Annualized EBITDA Annualised figure of quarterly EBITDA ARPU (Average Revenue Per User) Is calculated by dividing services revenue (exclusive of activation charges and infrastructure revenues) for the relevant period by the average number of subscribers during the period. The result obtained is divided by the number of months in that period to arrive at the ARPU per month figure AS Accounting Standards as issued by the Institute of Chartered Accountants of India ARR (Average Realised rate) ARR is calculated as ARPU divided by MoUs Churn Churn relates to subscribers who are removed from the EoP base for discontinuing to use the service of the company. Circle/ Service Area Unless otherwise specifically mentioned, means telecom circles in India (including metropolitan circles) as defined by the DoT. Circles are classified as metropolitan circles and as category ‘A’, ‘B’ or ‘C’ Circles. The Circles are classified on the basis of the revenue generation capacity of each circle with category ‘A’ being considered the most revenue generating EBIT Earnings Before Interest and Tax EBITDA (Earnings before interest, This is the amount after deducting operating expenditure from total tax, depreciation and amortisation) income. Total income is comprised of service revenue, sales of
  41. 41. 41 trading goods and other income. Operating expenditure is comprised of cost of trading goods, personnel expenditure, network operating expenditure, license and WPC charges, roaming and access charges, subscriber acquisition and servicing expenditure, advertisement and business promotion expenditure and administration and other expenses EoP End of period FY /Fiscal Financial year ending March 31 GSM Global System for Mobile communications, the most popular standard for mobile phones in the world Indian GAAP Indian Generally Accepted Accounting Principles IRU Indefeasible right of use MoUs/Sub (Average Minutes of We calculate the MoUs/Sub as , total Minutes of Use in our network Usages per Subs) during the period divided by average of subscribers during the period Net Adds Refers to net customer additions which is calculated as the difference between the closing and the opening customers for the period Net Debt Total loan funds reduced by cash and cash equivalents Calculated as summation of Share Capital and Reserves & Surplus Net Worth reduced by debit balance of profit & loss account PBT Profit before tax PAT Profit after tax ROCE ROCE is calculated as a) for the year : PAT plus gross int. & fin. cost divided by average capital employed for the year, b) for the quarter : PAT plus gross int. & fin. cost for the quarter is annualised and divided by capital employed for the quarter. Capital employed is taken as average of opening and closing of Shareholders funds and Loan Funds reduced by debit balance of P&L account, for the respective period Subscribers Mobile telephone service customers TRAI
  42. 42. 42 Telecommunications Regulatory Authority of India, constituted under the Telecommunications Regulatory Authority of India Act, 1997
  43. 43. 43 SWOT ANALYSIS ORGANIZATION Attractive existing footprint–The subscriber base under brand Idea, increased from 24 million as of end March 2008 to 43.02 million as of end March 2009, a growth of around 79%, taking its national market share to 11%. Original licensee in seven of the Established Circles, providing incumbency advantages-The established service areas are Delhi, Andhra Pradesh, Gujarat, Maharashtra, Haryana, Kerala, Madhya Pradesh and Uttar Pradesh (West). The New Service Areas are Uttar Pradesh (East), Rajasthan, Himachal Pradesh, Bihar, Mumbai, Karnataka, Punjab, Orissa, Chennai & Tamil Nadu, Jammu & Kashmir, Kolkata & West Bengal, and Assam & North East. leader in two of, and established positions in the remainder of, the Established Circles. Strong distribution channels. High quality network structure. Innovation –always comes out with new products.IDEA is the winner of ‘The Emerging Company of the Year Award' at The Economic Times Corporate Excellence Awards 2008-09. The company has received several other national and international recognitions for its path-breaking innovations inmobile telephony products & services. It won the GSM Association Award for “Best Billing and Customer Care Solution” for 2 consecutive years. It was awarded “Mobile Operator of the Year Award -India” for 2007 and 2008 at the Annual Asian Mobile News Awards. A national brand -The Company through its participative work environment, skill development activities, and by championing the values of commitment, integrity, passion, seamlessness and speed, promotes strong bonding
  44. 44. 44 with its employees. During the year, it has again undertaken sharing of value creation by granting another tranche of employee stock options to the eligible employees. The findings of OrganizationHealth Study (OHS) have been analyzed, which are very encouraging, and concern areas are being suitably addressed. The employee strength onrolls stood at 6,481 as on March 31, 2009. Attractive growth –From 11.8 million subscribers in 2006 to 24 millionin 2008 ,then to 43 million by end of March 2009 and to 51 by end of 2009 is really a great performance from Idea. Part of the Aditya Birla Group-IDEA Cellular is an Aditya Birla Group Company, India's first truly multinational corporation. The group operates in 25 countries, and is anchored by over 1, 30,000employees belonging to 30 nationalities. The Group has been adjudged the ‘6th Top Company for Leaders in Asia Pacific Region' in 2009, in a survey conducted by Hewitt Associates, in partnership with The RBL Group, and Fortune. The Group has also been rated ‘The Best Employer in India and among the Top 20 in Asia' by the Hewitt-Economic Times and Wall Street Journal Study 2007.Their promoters-1. Aditya Birla Nuvo Limited2. Grasim Industries Limited 3. Hindalco Industries Limited 4. Birla TMT HoldingsPrivate LimitedWeaknesses -Equity Ratio: The Company's Debt-Equity ratio is high as compared to its peers. Moreover, the Company needs the approval of the lenders under its financing arrangements before undertaking certain significant corporate actions. The Company revenues are derived solely from providing mobile services and it is dependent on four of the Established Circles for a significant proportion of its revenues.
  45. 45. 45 The Company had accumulated losses amounting to Rs. 19.23 billion and Rs. 17.23 billion for financial years 2005 and 2006 respectively. The Company may not be in a position to pay dividends until it clears its accumulated losses. Opportunities Indian telecommunication industry is expected to continue to enjoygrowth due to its low teledensity and increasing affordability of mobile telephone and services. The strong growth in the sector continues, mainly due to expansion of telecom networks to rural India, the reduced cost of entry and the reduced cost of handsets. Low penetration, more particularly in rural India, provides opportunity for further growth, and your company, an incumbent GSM player with 900 MHz spectrum in about half of India, is well positioned to tap this opportunity. The contribution of service sector to the GDP has improved significantly from 29% in 1950 to 54% in 2005. This is primarily due to growth of information- technology and information technology enables services. This will further stimulate the demand for mobile telecommunication services. The regulatory environment is improving and there is greater clarity in existing rules and procedures. This would enable operators in improving network quality. Also raising of funds will become easier due to greater predictability of operational environment. from new technologies is an inherent threat. While the planned 2100 MHz spectrum auction for 3G services will lead to additional cash outflow, it will also open new revenue streams. The Company’s strong balance sheet and market standing, positions it to participate effectively in such auction. Threats There is intense competitionin the Indian telecommunication industry. Idea Cellular faces significant competition from private companies that have a pan-
  46. 46. 46 India footprint such as Bharti Airtel, Tata Teleservices and Reliance Communication Ventures. Also it faces competition from government owned companies such as BSNL and MTNL. technology is evolving very rapidly in the telecommunications industry. For instance, “Wi-Fi”and “Wi- Max”which allows for voice data transfer have been tested and handsets with such technology maysoon be available in the Indian market. Moreover, satellite communication voice data transport medium like “Skype”may become a serious competitor in the long distance voice data transfer business.Porter’s five forces - Analysis the external environment1.Competitive rivalry within the Industrya.Principal competitors- industry leader Bharti Airtel. Bharti Airtelhas 24.3% customer market share and 33.8% revenue market share. India has 18.8% customer market share and 20.7% revenue market share. Idea Cellular has 11.2% subscribers market share and 12.1% revenue market share BSNL has subscriber share of 12.7% and mere 10.2% of revenue share Reliance Communications is the worst performerwith 18.9% customer market share and pathetic 11.5% revenue market share. (Data mentioned are by end of August 2009)b.Salient strengths - full advantage of its wide network and fixed line subscriber base, and has established itself as the provider with maximum coverage over the country. Bharti Airtel has dominated the scene with wide reach, innovative packages, catchy ads, and has emerged the leader of the pack. Reliance Communications also has the wide network to its advantage. Tata tele-services banks on the Tata-trust factor to gain foothold in the market. Vodafone is hitting the Indian market in a huge way. They have large cash reserves at their disposal to
  47. 47. 47 wipe out the competition in future. Weaknesses- BSNL lines are mostly marred by congestion,bottlenecks and they have failed to capture the attention of the customers with attractive offers. Unstable range and poor customer support are Airtel ’ s minuses. Ambiguous schemes have reduced Reliance ’ s popularity. Indicom has not really been able to fully capitalize its goodwill factor. c.Their basis for competition-Vodafone and Idea are comparatively new entrants into the market and hence the rest of the competition has anadvantage over them. Also both these brands have undergone rebranding more than once, and subsequently have had hiccups with people not realizing the transformation. Giants like BSNL, Airtel and Reliance have wide networks in the nooks and crannies of thecountry, while Idea is still to open account in several states. 2.Bargaining Power of CustomersThe bargaining power of customers determines how much customers can impose pressure on margins and volumes. Customers bargaining power is likely to be high because Customersuse multiple mobile services these days and hence have a good knowledge of the pros and cons of each service provider. Telecommunication industry comprises a number of operators is not related to h shave low margins and are price sensitive product.3.Bargaining power of suppliersIn this industry there is less number of suppliers compared to other industries such as the manufacturing or textile industry.
  48. 48. 48 I.Mobile handset suppliers –although there are many handset suppliers in the country, some service providers have their own handset manufacturing units operating inthe country like the Reliance Classic and Tata Indicom (backward integration). Some of the telecom companies also have some collaboration with major handset manufacturers like Samsung, L.G, and the Blackberry for their CDMA services.II.Some other suppliers include optical fibre suppliers and aluminium (for the construction of towers) suppliers. Here the suppliers have a limited bargaining power.III.Another important one is the software assistance where the suppliers have some edge. Major solution providers include TCS, Infosys, Wipro, etc. While Reliance and Tata have their own software services other players like Vodafone and Idea depend on the above mentioned software service providers. 4.Threat ofnew entrantsIndian telecom sector provides unprecedented opportunities for foreign companies in various areas such as 3G, virtual private network, international long distance calls, value added services etc. The market is witnessing M&A activities that are leading to consolidations in the industry. This trend has assisted companies in expanding their reach in the Indian telecom market to offer better services to the customers. The Indian telecom industry has always attracted foreign investors. In fact, the cumulative FDI inflow, from August 1991 to March 2007, in this sector amounted to $3,892.19 million. This makes telecom the third largest sectorto attract FDI since the liberalization. Although the entry barriers are in place like license and high fixed costs, still we observe many new players emerging from the state-level to national-level. This includes Aircel, Virgin, Spice and Unitech.
  49. 49. 49 5.Threat from substitutesTelecom sector offers a wide range of services in India such as wireline, CDMA, GSM, internet, VoIP, IP etc. Internet telephone is emerging as a best substitute for the mobile telephony because it is cheaper and video can also be added. The increasing use and penetration of internet in the country also augments this. Other facilities on the internet such as Google talk, Yahoo Messenger, Rediff Bol are used at an unprecedented level by the youngsters of this country. These are the major substitutes for the mobile telephony. Maybe this is on of the reasons why the major service providers also have their presence in internet service. Idea’s strategyIdea is not the market leader in India. They were operating in a few circles earlier and were considered a regional player. Recently Idea started operations in many states as part of their national roll out plan and they have operations in 2200 towns in India. Idea has been focusing on value added services (VAS) from its inception which is reflected in its products. They have always taken extra care in providing customer friendly and competitive Pre Paid offerings. Differentiation and innovation can be associated with Idea right from its beginning. It’s clear from the following: Power', ‘2 Minutes Outgoing Free’, ‘Lifelong offer’, ‘Women'sCard’, 'Lifetime Idea'etc are some of the offerings of IDEA. first cellular company to launch music messaging with 'Cellular Jockey','Background Tones', 'Group Talk',a voice portal with 'Say IDEA'and a complete suite of Mobile EmailServices. are also providing GPRS and EDGE services for transferring data. new product introduced by IDEA is the EDGE enabled USB Data Card which is
  50. 50. 50 named as 'NetSetter'. Initially ‘NetSetter’ was offered to post paid customers only. Now it is available to prepaid customers in selected circles. partnership with IIFA for 10th Anniversary Awards, its association with Mumbai Indians in IPL and major sought after programs in television like MTV Roadies and Idea Star singerclearly shows its marketing strategies. They always seek something different and is always in touch with the youth of the country as they easily switch to other services. ad campaign showing AbhishekBachanin different settings but all clearly showing their corporate social responsibility is great. Their approach is different from others. was the first to provide one rupee STD calls in the country. Now when every one else gives per second billing and also 50 paisaper minute, Idea offers at 49 paisaper minute. As far as Idea is concerned it should not start a price war with Vodafone and other large players in the industry. This is because Vodafone has a lot ofmoney with them to suffer the losses and eventually emerge as the winner and it is almost doing that. Idea can only afford to come out with some differentiated tariff plan that does not result in a war with the leaders like Airtel and Vodafone. Indian telecom is already in trouble with the lowest tariff in the world. Differentiation and innovation is the way forward for Idea in this already bleeding industry, otherwise it will be a severe bloodshed.
  51. 51. 51 Growth in Installed Capacity Performance Highlights - Sequential drop in Top-line due to subdued rural demand: Idea Cellular recorded a 0.1% qoq drop in its consolidated top-line, on account of the subdued rural demand due to the delayed monsoon (rural areas contribute ~40% to the company’s top-line). However, on a yoy basis, the top-line grew by 29.1%. Idea’s standalone subscribers moved up from 42.8mn to 46.8mn qoq in 2QFY2010 (30.4mn in 2QFY2009), while the total subscriber base, including Spice, has moved up from 47.1mn to 51.5mn qoq in 2QFY2010 (34mn in 2QFY2009). However, the ARPU (Idea standalone), was down by 20.5% yoy and 9.9% qoq to Rs209. Segment-wise, the top-line growth, (including Spice) was backed by National Long Distance (NLD) services, which grew by 25% qoq (87% yoy growth) to Rs269cr. The revenues from Passive Infrastructure services, which had a miniscule revenue contribution of Rs9cr in 2QFY2009, were up by 2.1% qoq in 2QFY2010 to Rs225cr. The only laggard in the growth during 2QFY2010 was a 2.8% qoq de- growth (27.5% yoy growth) in the Mobility services segment to Rs2,926cr. Minutes of Usage (MoUs) declined by 11% yoy and 6% qoq to 375 minutes for Idea Standalone, while MoUs in Spice stood at 429, down by 1.1% yoy and 5.5% qoq. In 2QFY2010, Idea Standalone recorded Rs182.2cr of Revenues from its newer circles, Mumbai, Bihar, Orissa and Tamil Nadu (incl. newly launched services in Chennai), witnessing a growth of 27.6% qoq. - EBITDA losses innewer service areas contracts EBITDA margins: Idea standalone continued to witness EBITDA losses in its new service areas, while the existing 11 areas witnessed a 40bp qoq drop in margins. On a consolidated basis in 2QFY2010, Idea recorded a 167bp qoq contraction in its EBITDA Margins. This was mainly due to a 73bp increase in personnel expenditure, and an 80bp rise in subscriber acquisition and business promotion expenses. The margins in the Indus business witnessed a 110bp qoq increase on account of pass- through costs and benefits from vendors on recurring expenses. On a yoy basis, the margins were up by 89bp, mainly on account of a 447bp reduction in Roaming and Access Charges, and a
  52. 52. 52 224bp drop in subscriber acquisition and business promotion expenses, vis-à-vis an increase of 600bp in Network Operating Expenditure. - Higher Interest costs and effective tax rate suppress the Bottom-line: Owing to a 21.6% qoq increase in interest costs and an increase in the effective tax rate from 6.4% to 14% in 2QFY2010, the Bottom-line declined by 25.9% qoq. On a yoy basis, the Bottom-line spurted by 52.8%, mainly on account of strong operational efficiency.
  53. 53. 53
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  55. 55. 55 Outlook and Valuation In addition to the five newer service areas, Idea has recently expanded to the service areas of Jammu & Kashmir, Kolkata & West Bengal, and North East & Assam. It now covers a total of 18 service areas, which will contribute to revenues from 3QFY2010 onwards. This move is in line with the company’s expansion plan to garner a pan-India presence, for seizing upcoming opportunities, like the demand in Broadband services, Value Added Services and the forthcoming 3G auction, once the regulatory and pricing environment in the Indian Telecom Sector stabilises. Hence, the company’s operational expense is expected to be on the higher side in the coming quarters, as it focuses on brand-building and high-end technology to match up with the growing demand, and for increasing its coverage in rural areas. For these initiatives, Idea has planned a capex of Rs45bn in FY2010. Going forward, we expect Idea Cellular to record a CAGR of 23% in its consolidated Top-line over FY2009-11E, while the Bottom-line is expected to record a CAGR de-growth of 1.5% over the same period. We estimate the company’s mobile subscriber base (excluding Spice) to post a CAGR of 32% over FY2009-11E and to touch 67.9mn, while including Spice, the subscriber base is estimated to post a CAGR of 31.4% to touch 74.3mn. We estimate blended ARPUs (ex- Spice) to post a CAGR decline of 15% to Rs190.4 by FY2011E. At the CMP, the stock is trading at a P/E of 20.2x FY2011E EPS and an EV/EBITDA of 6.1x FY2011E EBITDA. On account of the significant headwinds being faced by the Indian Telecom Sector in general, and little scope of an improvement in the near-term profitability of Idea in particular (with an increase in the opex and capex), we believe that the company is currently trading at expensive valuations. Hence, we maintain a Reduce on the stock, with a Target Price of Rs49. We have valued Idea’s core business at Rs27 and have valued the Tower business (16% stake in Indus) at Rs22 per share, based on our DCF estimates.
  56. 56. 56 ACCUMULATE Performance Highlights Price Rs43 „ Top-line soars on strong subscriberadds,Spice consolidation: Idea Cellular recorded a strong 59.6% yoy and 18.5% qoq growth in consolidated Target Price Rs48 Top-line in 3QFY2009 driven by an increase in its mobile subscriberbase, which grew by an impressive 62.4% yoy and 12.6% qoq.At the end of Investment Period 12months 3QFY2009, Idea had a mobile subscriber base of 34.2mn, recording net adds of 3.8mn over the quarter. Including Spice, the company’s subscriber Stock Info base stands at 38mn. Gross mobile average revenues per user (ARPUs, ex-Spice) rose 1.6% qoq (fall of 5.7% yoy) to Rs271 (Rs266 in 2QFY2009, Sector Telecom Rs287 in 3QFY2008). The sequential rise in ARPUs was due to higher Market Cap (Rs cr) 13,299 in-roaming Revenues. Spice ARPUs rose 8% qoq to Rs279 (Rs259 in 2QFY2009). Part of the Revenue growth was due to consolidation of Spice Beta 1.0 with effect from October 16, 2008 (proportionate basis,with 41.09% stake) and proportionate Revenues from Indus Towers. 52 WK High / Low129 / 34 Minutes of Usage (MoUs) declined 1.7% qoq to 410 minutes per user per Avg Daily Volume 1948137 month. On a yoy basis,however, this metric grew by a decent 8.8%. Thus, Face Value (Rs) 10 the MoU fall sequentially led to rise in realisations, with Revenues per Minute (RPMs) increasing 3.2% qoq, even as they fell by over 13% on a yoy basis. BSE Sensex 8,674 In 3QFY2009, the company launched operations in the Bihar circle and full impact of the Mumbai launch was also absorbed.These circles recorded Nifty 2,679 Rs48.3cr of Revenues.Top-line for the 13 service areas of the company (ex-Spice) grew by a robust 53.2% yoy and 13.9% qoq.BSE Code 532822 NSE Code IDEA „ Margins fall on expansion, higher rental sites and Access Charges: In 3QFY2009, Idea recorded a significant 777bp yoy and 81bp qoq contraction Reuters Code IDEA.BO in EBITDA Margins. Network Expansion costs rose, as a percentage of Sales, by 513bp yoy and by 270bp qoq.This quarter, the number of BloombergCode IDEA@IN
  57. 57. 57 rent-paying sites for Idea rose by 146% yoy to 21,459 (8,721 in 3QFY2008). ShareholdingPattern(%) This led to the significant rise in Network Expenses. Roaming & Access Charges also rose by 148bp yoy, as a percentage of Sales (7bp qoq). Promoters EBITDA losses of158.4% (Rs76.5cr) in the Mumbai and Bihar circles also 49.1 adversely impacted the company’s Margin profile. MF/Banks/IndianFIs 6.7 „ Lower Margins, higher Depreciation reduce Bottom-line: Owing to FII/ NRIs/ OCBs Margin contraction and higher Depreciation (up 72.9% yoy), Idea’s 40.1 Bottom-line for the quarter declined 7.3% yoy. However, on a qoq basis, Indian Public/Others 4.1 strong growth of 52.3% was recorded due to lower Net Interest Costs (down 42% qoq) due to Rs179.4cr of Interest Income recorded. Abs. 3m 1yr 3yr* Key Financials (Consolidated) Sensex (%) (11.2) (50.7) (32.7) Y/E March (Rs cr) FY2007 FY2008 FY2009E FY2010E Net Sales 4,366 6,720 10,094 14,451 Idea Cellular (%) (3.5) (61.3) (49.9) % chg 47.2 53.9 50.2 43.2 * Since listing on March 9, 2007 Net Profit 502 1,042 804 909 % chg 148.2 107.6 (22.8) 13.0 Harit Shah EBITDA Margin (%) 33.6 33.5 26.7 25.1 FDEPS (Rs) 1.6 3.2 2.5 2.8 Tel: 022 – 4040 3800 Ext: 345 P/E (x) 27.6 13.3 17.2 15.3 e-mail: harit.shah@angeltrade.com EV/EBITDA (x) 10.7 8.6 5.3 4.3 RoE (%) 30.3 36.4 10.5 7.4 RoCE (%) 18.4 19.8 12.2 17.1 Sales/GFA (x) 0.6 0.6 0.6 0.7 Mobile ARPUs (Rs/user/month)340 295 257 247 Source: Company, Angel Research January 23, 2009 1
  58. 58. 58 Idea Cellular Telecom Subscriber growth drives Top-line; first quarter of Spice consolidation In 3QFY2009, Idea Cellular recorded a strong 59.6% yoy and an impressive 18.5% qoq growth in consolidated Top-line primarily driven by growth in the company’s mobile subscriberbase, which grew 62.4% yoy and 12.6% qoq to 34.2mn. Over the year, Idea added 13.1mn mobile subscribers,while over the quarter it added 3.8mn subscribers,implying monthly net adds of 1.3mn. Gross mobile ARPUs fell by 5.7% yoy but rose 1.6% qoq to Rs271 (Rs287 in 3QFY2008 and Rs266 in 2QFY2009). This was the first quarter of consolidation of Spice with the company. The consolidation is with effect from October 16, 2008. At the end of the quarter, Idea held 41.09% stake in Spice Communications, with the balance holding distributed amongst Telecom Malaysia International (TMI) and Green Acre, an affiliate. Proportionate consolidation of Indus Towers was also done, with proportionate Revenues from joint ventures at Rs127.3cr. This boosted Top-line. Excluding this, Revenues from its 13 service areas (including Mumbai and Bihar) grew 53.2% yoy and 13.9% qoq.Mumbai and Bihar recorded Rs48.3cr in Top-line and ended the quarter with 3.3 lakh and 2.7 lakh subscribers,respectively. At the end of 3QFY2009, Idea’s marketshare in its circles of operations stood at 17.6% v/s 17.2% at the end of 2QFY2009 and 17.3% at the end of 3QFY2008.
  59. 59. 59 Exhibit 1: Total MoUs on Idea’s network (Mn minutes) 41,000 CQGR 17.4%34,000 27,000 20,000 13,000 6,000 1QFY072QFY073QFY074QFY071QFY082QFY083QFY084QFY081QFY092QFY093QFY09 Source: Company, Angel Research Idea’s MoUs witnessed a fall of 1.7% qoq, even as yoy growth in this metric was decent at 8.8%. MoUs per month stood at 410 as against 417 in 2QFY2009 and 377 in 3QFY2008. On account of this fall, realisations (RPMs) rose by 3.2% qoq to 64 paise, while on a yoy basis,a fall of 13.5% was witnessed.The total MoUs on Idea’s network grew by an impressive 79.2% yoy and by 10.8% qoq,crossing 40bn minutes (40.25bn). Exhibit 2: Mobility Business - Operating metrics (excluding Spice) Particulars 3QFY08 2QFY09 3QFY09 % chg yoy % chg qoq
  60. 60. 60 Revenues (Rs cr) 1,710 2,301 2,621 53.2 13.9 Mobile subscriber base (Mn) 21.1 30.4 34.2 62.4 12.6 Gross mobile ARPUs (Rs/month) 287 266 271 (5.7) 1.6 Totalminutes of usage (Mn) 22,457 36,315 40,254 79.2 10.8 Revenues per minute (Rs) 0.74 0.62 0.64 (13.5) 3.2 Minutes of use per user/month 377 417 410 8.8 (1.7) EBITDA (Rs cr) 569 608 680 19.4 11.9 EBITDA Margins (%) 33.3 26.4 25.9 (7.3) (0.5) EBITDA/minute (Rs) 0.25 0.17 0.17 (33.4) 0.9 Source: Company, Angel Research; Note: These metrics are for the 13 service areas that Spice currently operates in and do not include Spice Communications. Margins fall on expansion, higher rental sites and Access Charges In 3QFY2009, Idea recorded a significant 777bp yoy and 81bp qoq contraction in EBITDA Margins. Network Operating Expenditure rose, as a percentage of Sales, by 513bp yoy and by 270bp qoq. This quarter, the number of rent-paying sites for Idea rose by 146% yoy to 21,459 (8,721 in 3QFY2008). This led to the significant rise in Network Expenses. Roaming & Access Charges also rose by 148bp yoy,as a percentage of Sales (7bp qoq). EBITDA January 23, 2009 2 Idea Cellular Telecom losses of 158.4% in the Mumbai and Bihar circles (Rs76.5cr) also adversely impacted the company’s Margin profile. Exhibit 3: Consolidated Revenue break-up (Rs cr) 3QFY08 2QFY09 3QFY09 % chg yoy % chg qoq Revenues Established circles 1,710 2,295 2,572 50.4 12.1 Newer circles - 5 48 - 828.8 Sub-total - 13 service areas 1,710 2,300 2,620 53.2 13.9 Proportionate revenue from JVs - 7 127 - 1,858.5
  61. 61. 61 Inter-segment eliminations - 3 17 - 402.9 Total 1,710 2,303 2,731 59.7 18.5 EBITDA Established circles 569 644 756 32.9 17.4 Newer circles - (37) (77) - - Sub-total - 13 service areas 569 608 680 19.4 11.9 ProportionateEBITDA from JVs - (1) 17 - - Total569 606 697 22.4 14.9 EBITDA Margins (%) Established circles 33.3 28.1 29.4 (3.9) 1.3 Newer circles - (703.8) (158.4) - 545.5 Sub-total - 13 service areas 33.3 26.4 25.9 (7.3) (0.5) Proportionate JV EBITDA margins - (20.0) 13.3 - 33.3 Total 33.3 26.3 25.5 (7.8) (0.8) Source: Company, Angel Research Lower Margins, higher Depreciation reduce Bottom-line Owing to Margin contraction and higher Depreciation (up 72.9% yoy), Idea’s Bottom-line for the quarter declined 7.3% yoy. However, qoq, strong growth of 52.3% was recorded due to lower Net Interest Costs (down 42% qoq) due to Rs179.4cr of Interest Income earned from investment of the funds raised by the company recently. Receives GSM spectrumfor all circles Idea Cellular has received GSM spectrum across all the circles where it hitherto had licences to operate but had no spectrum. Thus,the company will roll out operations in these circles over the course of the next few months and is well on course to become a pan-India GSM-based cellular operator. However, being a late entrant in circles like Orissa (to launch in 1QFY2010), Tamil Nadu (2QFY2010 launch scheduled)and West Bengal, the company could face ARPU and EBITDA pressures in these circles as it launches and gains scale.
  62. 62. 62 Issues 1.925mn Compulsorily Convertible Preference Shares to Providence affiliate Idea Cellular on December 5, 2008 received Rs2,100cr from an affiliate of Providence Equity Partners by way of subscription to 1.925mn Compulsorily Convertible Preference Shares, which will be converted into 16.14% of the equity capital of Aditya Birla Telecom (ABTL) post conversion. Signs IRU with Indus Towers to transfer 11,100 towers; to impact Margins by 4-5% Idea Cellular has signed an Indefeasible Right to Use (IRU) agreement with Indus Towers, the tower joint venture (JV) between itself, Bharti and Vodafone involving the transfer of 11,100 of its towers to Indus, each of which will have one cell site for Idea. Thus, out of the balance of 17,830 towers that were until now non-rent paying, 11,100 will become rent-paying on the books of Indus. The approximate book value of these towers is Rs1,450cr. This will lead to a significantly higher component of rent-paying towers for Idea and capex will get converted into opex. There will be a 4-5% impact on EBITDA Margins in FY2010 on account of this. However, lower Depreciation and Interest costs will offset the impact to an extent on the Bottom-line. Moreover, with consolidation of 16% of Indus, the impact is likely to be limited to around 2-2.5% at the Net Profit level. January 23, 2009 3
  63. 63. 63 Idea Cellular Telecom Outlook and Valuation Going forward, we expect Idea Cellular to record a CAGR of 46.3% in Top-line over FY2008-10E, while Bottom- line is expected to record a CAGR fall of 7.5% over the period on account of significant Margin pressures. We estimate the company’s mobile subscriber base (including Spice) to post a CAGR of 52.9% over FY2008-10E to 56.1mn, while ARPUs would post a decline in CAGR of 8.4% over the period to Rs247. At the CMP, the stock is trading at a P/E of 15.3x FY2010E EPS, EV/EBITDA of 4.3x FY2010E EBITDA and at an EV/subscriber of US $67.5 on our FY2010E subscriber base. We believe the company is well-positioned in terms of spectrumholdings across the country. Strong fund infusion from recent initiatives like the stake sale in ABTL and the Spice deal with TMI will result in a well-funded Balance Sheet and Net Debt-Equity ratio of just 0.19x. However, the environment going forward is likely to become more difficult given intensifying competition, falling ARPUs, cost pressures owing to rapid expansion of coverage area, leading to Margin pressures,which are likely to get further exacerbated due to roll outs in newer circles (higher initial EBITDA losses), which would in turn exert significant pressure on Profitability, and regulatory risks. With RCOM’s GSM roll-out and the upcoming GSM launches of Tata Teleservices, apart from circle expansion by Aircel (GSM) and Shyam-Sistema (CDMA) as well as newer operator roll-outs, the competitive environment is expected to further intensify. We downgrade our 12-month Target Price to Rs48 (Rs66), which includes Rs22 as the
  64. 64. 64 value of the core business after downgrading the P/E multiple to 8x (10x), and Rs26 as the value of its 16% stake in Indus Towers. We recommend an Accumulate on the stock and believe that while the company’s recent initiatives will enable it to build a strong business in the longer-term, the increasingly difficult environment is likely to exert significant strain on its key operating and financial parameters, thereby limiting major upsides in the stock price. January 23, 2009 4 Idea Cellular Telecom Exhibit 4: 3QFY2009 Consolidated Financial Performance Y/E March (Rs cr) FY2009 FY2008 % chg FY2009 % chg 9MFY2009 9MFY2008 % chg 3Q 3Q (yoy) 2Q (qoq) Net revenues 2,731 1,710 59.6 2,303 18.5 7,212 4,752 51.8 Operating expenditure 2,034 1,141 78.2 1,697 19.8 5,188 3,156 64.4 Operating profit (EBITDA) 697 569 22.4 607 14.9 2,024 1,596 26.8 Other income 1 - 0 1 - Interest charges (Net) 87 78 11.8 150 (41.6) 390 157 148.1 Depreciation & Amortisation 394 228 72.9 303 29.9 972 617 57.5 Income before income taxes 216 264 (17.9) 154 40.5 663 822 (19.3) Tax (3) 27 (111.6) 10 (131.3) 36 56 (34.9) Net income 219 237 (7.3) 144 52.3 627 766 (18.2) Diluted EPS (Rs) 0.7 0.9 (21.1) 0.5 42.0 2.2 2.9 (25.1) EBITDA margin (%) 25.5 33.3 26.3 28.1 33.6 Net profit margin (%) 8.0 13.8 6.3 8.7 16.1 Mobile ARPUs (Rs/user/month) 271 287 (5.7) 266 1.6 271 301 (10.0) Source: Company, Angel Research
  65. 65. 65 Growth in sales: Aditya Birla Group A US $28 billion corporation, the Aditya Birla Group is in the league of Fortune 500. It is a multinational corporation based in Mumbai, India with operations in 25 countries. The group is a major player in all the industry sectors it operates in. The Group has been adjudged the best employer in India and among the top 20 in Asia by the Hewitt-Economic Times and Wall Street Journal Study 2007. The origins of the group lie in the conglomerate once held by one of India's foremost industrialists Mr. Ghanshyam Das Birla. He bequeathed most of these companies to his grandson, Mr. Aditya Vikram Birla – the father of the current Chairman of the group, Mr. Kumar Mangalam Birla. Mr. Kumar Mangalam Birla is the grandson of Mr. Basant Kumar Birla, who heads his own independent business conglomerate. Several other members of the Birla Family own and run their independent business groups. Aditya Birla is organized into various subsidiaries that operate across different sectors. Among these are viscose staple fibre, non-ferrous metals, cement, viscose filament yarn, branded apparel, carbon black, chemicals, Modern retail (under the 'More' brand of supermarkets, and also under the Trinethra, and Fabmall brands until recently), fertilizers, sponge iron, insulators, financial services, telecom, BPO and IT services. The Group consists of four main companies, which operate in various industry sectors through subsidiaries, joint ventures, etc. These are Hindalco, Grasim, Aditya Birla Nuvo, and UltraTech Cement. We have focused on the Idea Cellular SBU of Aditya Birla Group. It is One of India's leading GSM mobile service operators; IDEA Cellular is headquartered in Mumbai and has over 30 million subscribers. Innovation is central to IDEA's Value Added Service products. It was the first to offer 'Global SMS' in over 540 networks across all technology platforms. It has also acquired Modi family’s Spice. But then it even faces tough competition from various major players. The leading Mobile Networks today in India are Airtel, Vodafone (sold by Hutchinson Essar to Vodafone), BSNL, MTNL, Orange, Aircel, Tata Indicom, Idea, BPL etc. Each of these companies has a tough competition with one another. BSNL & MTNL being government sectors have more advantages than other Private sector Companies.
  66. 66. 66 Strategic Business Unit- Idea Cellular Limited Idea Cellular Limited has a share of 12% in the total GSM telecom market in India (as on Mar’08). The Entire Telecom Industry is growing at a rate of 25% as compared to the base year 2006-07. This can be termed as a moderately growing Industry and it is expected to grow in the coming years. We are thus putting the middle line of the vertical axis in our BCG matrix as 15% as a division between low and high growth. The first BCG matrix will be plotted for Idea Cellular Limited, our chosen SBU, with respect to the market leader, Bharti Airtel. Taking the market share of Bharti as 1X, the relative market share of Idea comes as 0.39X. The BCG matrix thus, would look like as under. BCG Matrix of Idea Cellular Limited with respect to Airtel owthRate(in%) 15HIGH30
  67. 67. 67 Analysis of BCG matrix: In the above matrix, Idea Cellular Limited falls in the first quadrant of “QUESTION MARKS”. The circle size represents the absolute market share (i.e. 12%) of our SBU in the telecom sector. We will formulate the strategies which Idea should follow in the later part of this project. 10X 1X 0.39X 0.1X Relative Market Share
  68. 68. 68 Plotting the Competitors 1. Bharti Airtel: Bharti Airtel is the market leader in the telecom sector with a market share of 31%. The market challenger in this industry is Vodafone. So we plot the BCG matrix of Airtel with respect to Vodafone. Taking the market share of Vodafone (i.e. 23%) as 1X, the relative market share of Airtel comes as 1.35X. The BCG matrix of Airtel will look as under: BCG Matrix of Bharti Airtel with respect to Vodafone Analysis of BCG matrix: In the above matrix, Bharti Airtel falls in the quadrant of “STAR” with respect to the market challenger. The circle size represents the absolute market share (i.e. 31%) of Airtel in the telecom sector. 2. Vodafone Essar: Vodafone is the market challenger in the telecom sector with a market share of 23%. The market leader in this industry is Vodafone and so we plot the BCG matrix of Vodafone with respect to Airtel. Taking the market share of Airtel (i.e. 31%) as MarketGrowthRate(in%) 0LOW15HIGH30 HIGH 10X 1.35X 1X 0.1X Relative Market Share
  69. 69. 69 1X, the relative market share of Vodafone comes as 0.74X. The BCG matrix of Airtel will look as under: BCG Matrix of Vodafone with respect to Airtel Analysis of BCG matrix: In the above matrix, Vodafone falls in the quadrant of “QUESTION MARK” with respect to the market LEADER. The circle size represents the absolute market share (i.e. 23%) of Vodafone in the telecom sector. 3. BSNL: BSNL is another competitor ahead of IDEA in the telecom sector with a market share of 19%. The market leader in this industry is Airtel and so we plot the BCG matrix of BSNL with respect to Airtel. Taking the market share of Airtel (i.e. 31%) as 1X, the relative market share of BSNL comes as 0.61X. The BCG matrix of Airtel will look as under: BCG Matrix of Idea CellularLimitedwithrespect to Airtel MarketGrowthRate(in%) 0LOW15HIGH30 HIGH 10X 1X 0.74X 0.1X Relative Market Share MarketGrowthRate(in%) 0LOW15HIGH30 HIGH
  70. 70. 70 Analysis of BCG matrix: In the above matrix, BSNL falls in the quadrant of “QUESTION MARK” with respect to the market LEADER. The circle size represents the absolute market share (i.e. 19%) of BSNL in the telecom sector. 10X 1X 0.6X 0.1X Relative Market Share
  71. 71. 71 GE Matrix The GE matrix for Idea Cellular will be made keeping the following two major dimensions: 1. Market Attractiveness 2. Business Strength Market Attractiveness: This dimension forms the Vertical axis of the GE matrix. The factors which we have considered which may affect the industry attractiveness for our SBU are: 1. Overall Market Size: IDEA operates in an industry which has overall revenue of Rs. 125 Billion and has a subscriber base of 261.07 million customers. Thus it has a huge target audience and we need to give substantial weightage to this factor. We have given it 0.20 out of 1.0. 2. Market Growth Rate: The telecom industry is growing at 25%. As previously stated, this can be considered as a moderately growing and having high growth opportunities with the growth of Indian economy. But in the current recession scenario, we decided to give it a little less weightage of 0.15 out of 1.0. 3. Profitability: Telecom industry net profits just increased from 12% to 14% from the last Market Attractiveness Weightage Rating(1-5) Weighted Score Overall Market Size 0.20 4 0.8 Market Growth Rate 0.15 4 0.6 Profitability 0.10 3 0.3 Technological Development 0.15 4 0.6 Global Opportunities 0.05 5 0.25 Market Rivalry 0.20 5 1.0 Pricing 0.15 3 0.6 Total 1.00 4.05
  72. 72. 72 fiscal year. Due to no such significant increase in profitability as compared to sales, we have given it a weightage of 0.10 out of 1.0. 4. Technological Development: With new technologies like 3G knocking at the doors of Indian telecom sectors, technological development will be an important factor to be considered in the business policies towards our chosen SBU. Hence a weight of 0.15. 5. Global Opportunities: Bharti has started making forays into global markets. With the expected entry of many foreign players in the near future, this can open the door for global opportunities for Indian players. Hence the weightage of 0.10. 6. Market Rivalry: Indian telecom sector is an Oligopoly where 80% of the market share is picked by only 4 players. Also the future guarantees the entrance of several big global names in this sector. Hence clearly market rivalry weighs above others at 0.20 out of 1.0. 7. Pricing: Being an Oligopoly, pricing strategies are a key for any player to make profits in such a competitive sector. Thus we have given it equal weightage as technology and more than even factors like profitability and growth rate. Factors considered for Market Attractiveness The rating is done on a scale of 1-5 where the industry attractiveness is rated associated with the industry as a whole. Here 1 represents very unattractive and 5 represents very attractive. We can see the difference in weightage and type of rating varying in the different factors. The market growth rate can have a low weightage as compared to market size but has the same rating because growth rate is attractive for the players in the market. Also pricing may have much more weightage as compared to global opportunities but the ratings are the other way round. This is for the reason that pricing strategies are not that attractive to the company because of strong competition and regulations whereas global opportunities are more attractive for the industry. Based on the above assumptions substantiated by the industry facts and growth avenues, the weighted total score for market attractiveness in case of Idea Cellular comes to be 4.05.
  73. 73. 73 Business Strength: 1. Market Share: The market share of Idea Cellular is 12%. Well it just acquired Spice Communications and is among the top 4 players in GSM sector. But being a market follower its primary motive is profitability. Thus we gave less weight to market share. 2. Market Growth Rate: Idea being a small player has ample of scope to grow but its growth rate puts little effect to market rate as compared to other players. So it has again been given weightage of 0.10. 3. Profit margin relative to competitors: This is the most important aspect of Idea’s competitiveness. IDEA’s profit margin increased about 4 percent from 2006-07(11%) to current profit margin (15%) that is 2007-08. This is an area where it would like to have a competitive edge. 4. Technological Innovation: Idea was the first telecom operator to launch GPRS and EDGE technology. We have given high weightage to support its innovational outlook. Recently it formed a alliance with “high tech computers” (HTC). It also launched and secured a position of leader in value added services like “cellular jockey”, “background tones”, and “group talk”. 5. Brand Reputation: IDEA already has a backbone “Aditya Birla group” which has already established as a global and truthful image. Being a part of Aditya Birla Group, it has to carry a brand name. But now its strategy would be more of brand building than brand reputation. So we have given a low weight. 6. Sales Distribution Effectiveness: The breadth of the distribution network has grown by over 30% in the past year. In addition to this the company is operating additional 589 Idea ‘n U and showrooms which supplement the distribution channels and provide customer service. 7. Advertising and Promotional Effectiveness: Idea went for aggressive promotional techniques such as having Abhishek Bachhan as the Brand Ambassador. The tag line “What An Idea” was very successful proving the effectiveness of the advertising and promotional activities carried by Idea.
  74. 74. 74 8. Pricing strategies and Customer Loyalty: By adopting different pricing strategy it discriminates among its customers. For example it has different pricing strategies for postpaid subscribers and prepaid subscribers. Key Competitive Factors Weight Rating(1-5) Weighted Score Market Share 0.10 4 0.4 Market Growth Rate 0.10 4 0.4 Profit Margin relative to competitors 0.15 5 0.75 Technological Innovation 0.15 4 0.6 Brand Reputation 0.10 4 0.4 Sales Distribution Effectiveness 0.10 3 0.3 Advertising and Promotional Effectiveness 0.15 4 0.6 Pricing strategies 0.05 4 0.2 Customer Loyalty 0.10 3 0.3 Total= 3.95
  75. 75. 75 LOWMEDIUM HIGH STRONG MEDIUM WEAK 5 3.66 2.33 15 3.66 2.33 1 19% 1
  76. 76. 76 he factor for Industry attractiveness will remain same for market leader as well. Bur the competitive strength will differ and so the weights and ratings. It is evident from our above assumptions about Airtel that they will lesser rating to profit margins and more towards advertising and promotional effectiveness and brand reputation. The GE matrix of Airtel will look like as under:- STRONG MEDIUM WEAK 5 3.66 2.33 1 5 3.66 2.33 1 31% 1
  77. 77. 77 The GE matrix for Airtel indicates that it lies in the 1st quadrant corresponding to high market attractiveness and strong competitive strength. GE Matrix for Vodafone The market challenger Vodafone will again have the same Market Attractiveness dimension as the other players but will have an entirely different competitive strength dimension. Assuming Vodafone’s company objectives to be more focused on building a customer loyalty, we assign it a weight of 0.15. Also its sales and distribution effectiveness is much lesser than Airtel or Idea, so give a weight of 0.05 to it. Vodafone has a brand reputation of the world’s largest telecom provider which it has to maintain even in the Indian Telecom Industry. For that it would definitely look to emphasize more on advertising and promotional effectiveness. So both these factors are given 0.15 weights. Market Attractiveness Weightage Rating(1-5) Weighted Score Overall Market Size 0.20 4 0.8 Market Growth Rate 0.15 4 0.6 Profitability 0.10 3 0.3 Technological Development 0.15 4 0.6
  78. 78. 78 Vodafone may still assign lower rates brand loyalty as compared to sales distribution effectiveness as they would like to put a competitive front in the distribution network. Moreover they would find advertising effectiveness and pricing strategies more attractive than a higher profit margin. The above assumptions led us to the different dimensions and the corresponding GE matrix. Market Attractiveness Global Opportunities 0.05 5 0.25 Market Rivalry 0.20 5 1.0 Pricing 0.15 3 0.6 Total 1.00 4.05 Key Competitive Factors Weight Rating(1-5) Weighted Score Market Share 0.10 4 0.40 Market Growth Rate 0.10 4 0.40 Profit Margin relative to competitors 0.10 3 0.30 Technological Innovation 0.10 4 0.40 Brand Reputation 0.15 3 0.45 Sales Distribution Effectiveness 0.05 5 0.25 Advertising and Promotional Effectiveness 0.15 4 0.60 Pricing strategies 0.10 4 0.40
  79. 79. 79 Competitive Strength Customer Loyalty 0.15 3 0.45 Total= 3.60LOWMEDIUM HIGH STRONG MEDIUM WEAK 5 3.66 2.33 1 23% 5 3.66 2.33 1
  80. 80. 80 Plotting the GE matrix for Vodafone, we found that it lies in the quadrant corresponding to High market attractiveness but average internal evaluation, i.e. average business strength. STRATEGIES FOR IDEA CELLULAR The Idea Cellular Limited falls in the “question mark” quadrant of BCG matrix and in the High attractive and Strong Competitive strength category as per the GE Matrix. Thus they need to formulate some strategies to try capturing some market share, growing and building their brand image as well as brand value. Market penetration The company enters where the products and the market already exists. IDEA being a question mark that means it is competing in a high growth market but with a relatively low share compare to its competitors. Market penetration can be done by attracting competitor’s customers that implies increase in market share. The strategy that IDEA can adapt under market penetration is to attract non-users and convince to use their product more often. They are different market penetration strategies like cutting price, increase in promotion, and creating innovative distribution tactics. The target should be in such a way that IDEA sales volume relative to its competitors should be high as expressed in percentage. IDEA’s present market share is about 12%, and competitors like airtel, Vodafone, and bsnl have a market share of about 31, 23, and 19 percent respectively. Though telecom industry is growing rapidly every year, there is always a little increment in the percentage of sales for IDEA. To overcome this problem and to occupy the competitor’s position we recommend following strategies.
  81. 81. 81  Increasing the mobile circles which are at present are only 11, so there is always a need to expand its services.  Target the rural segment in India which is expected to grow by 15% every year  Launch different types of packages as per the requirements for different segments of the customers  Provide more high end services like GPRS, mobile internet services  Collaboration with different service providers on global basis to provide better facility to customers on roaming.  Tracing out the search patterns which are left untapped by the competitors to reveal new markets. Backward Integration – In July 2008 Swedish equipment supplier entered into a contract to provide technology “Ericsson Mobile organizer” to Idea cellular enabling its subscribers to serve email facility on its cell phones. Forward Integration – Company operate approximately 589 Idea” n “U and other showrooms which supplement the distribution channels and provide customer service. Horizontal Integration: Idea acquired the Modi family’s stake of 40.8% in spice which ultimately in a way increased the market share of Idea. This can be seen as horizontal integration Strategic Alliance 3) Product alliance Idea should form product alliance with a company that has a strong brand image and carry a promotion for one another. E.g. Acer in collaboration with Ferrari launched Acer Ferrari laptops which are catering to high end niche segment having high specifications and high price. 4) Promotional Alliance:
  82. 82. 82 Idea should form promotional alliances in collaboration with big movie houses or big retail brands to promote their products. Recently SONY Viao had a promotional alliance with “James Bond” latest movie “Casino Royale”.
  83. 83. 83 Growth in Human Resources – The Company through its participative work environment, skill development activities, and by championing the values of commitment, integrity, passion, seamlessness and speed, promotes strong bonding with its employees. During the year, it has again undertaken sharing of value creation by granting another tranche of employee stock options to the eligible employees. The findings of OrganizationHealth Study (OHS) have been analyzed, which are very encouraging, and concern areas are being suitably addressed. The employee strength onrolls stood at 6,481 as on March 31, 2009.
  84. 84. 84 Future plane : Idea Cellular bets big on 3G, WiMAX Our Bureau Plans to enter rural, neglected circles to gain subscribers Bangalore , Jan. 11 Telecom operator Idea Cellular is betting on both 3G and WiMAX. 3G is the third generation telecom network which will bring faster data access to subscribers who want to connect to the Internet. A WiMAX (Worldwide Interoperability for Microwave Access) network will mean users can avail themselves of high-speed broadband Internet wirelessly over their laptops. The Aditya Birla owned company has 3G ready networks as it has sourced latest equipment from global vendors. Hence upgrading to 3G will not be an issue, said sources. The worldwide 3G subscriber base is expected to be 540 million in 2010, according to market researcher InStat. Trials in 3 cities Idea is simultaneously conducting indoor WiMAX trials in three cities - Pune, Bangalore and Kochi. The Government has freed spectrum for a limited amount of time for Idea and a few other operators to conduct indoor and outdoor trials in various parts of the country. Eyes rural circles Idea also plans to enter rural and neglected circles as a strategy to gain subscribers.
  85. 85. 85 The company recently filed for an IPO with SEBI and hopes to use part of the funds to roll out network in Bihar. It has paid Rs 10 crore as licence fees to enter the state. The state suffers a tele- penetration of just 7 per cent, compared to a national teledensity average of 14 per cent. However, Bihar is the third most populated circle in the country, according to sources. The North East, another circle where telecom revolution is still in its early stages, is also on Idea's radar. The operator will begin to catch up with other players with its new backing by a single promoter - the Birla group. It plans to `cover gaps quickly', reported sources on Thursday. Other advancements in the telecom industry will help it cut costs - use of e-mail to send bills to customers; sharing cell sites; smaller base transmission stations that will mean lesser infrastructure requirements and expenses and independent tower operators. Along with its plan to go for a national long distance licence, it will also look at international long distance in the near future. Idea has a net worth of Rs 600 crore while its accumulated losses are in the range of Rs 1,500 crore. It has 1.3 crore subscribers and an average revenue per user of Rs 376. The market share owned by the operator is 8.4 per cent. The company's IPO is expected to fetch Rs 2,500 crore. It has also opted for 15 per cent greenshoe option, which will bring the value to Rs 2,875 crore. It plans to pay back preferential shares worth Rs 600 crore once the IPO is out by mid-Februrary.
  86. 86. 86 FinancialAnalysis Of The Company For At Least Three Years Idea Cellular seems like a good investment for the long term. India is one of the fastest growing cellular markets in the world and this is likely to continue for next five years at least. PE valuation If we look at FY 2008 Q1 results, the PAT figure stood at Rs 305.8 crore. With 2,635,360,539 shares outstanding, the eps works out to be around Rs 1.16. However this quarter had an investment and forex gains of Rs 78.8 crore. Removing these as exceptional items, the profit figure stands at Rs 227 crore and eps stands at Rs 0.86. For FY 2008, the eps is expected to be Rs 4+. At Rs 120, the stock is trading at 30 times FY 2008 earnings. Idea Cellular will nearly double its PAT in FY 2008 compared to FY 2007. Considering the growth that Idea has been showing, a forward PE of 30 seems fair valuation. For last four finnacial years, the PAT for Idea Cellular has been FY 2004 - Rs -200 crore (loss). FY2005 - Rs 66.60 crore FY 2006 - Rs 210.61 crore FY 2007 - Rs 509.30 crore FY 2008E - Rs 1050 crore (estimates) As April 2008 comes closer, people will start looking at FY 2009 (April 2008 – March 2009) earnings. Idea Cellular's FY 2009 eps is estimated to be around Rs 5.5. At Rs 120, the forward PE based on FY 2009 earnings works out to be 21.81. FY 2010 eps should be surely more than Rs 7. If we give Idea Cellular a forward PE of 22-23 in 2009, one can expect a price of Rs 160+ in next two years (mid 2009). Investors can accumulate the stock around Rs 110-Rs 112.
  87. 87. 87 The stock has gone below the 50 day EMA and may see some downside in the short term. Currently the stock is fairly valued. There isn't much upside in the near term and this is not a trading call. Idea has been struggling to enter the Mumbai, Bihar and Jharkhand market because of spectrum unavailability. This issue is expected to be resolved by end of FY 2008. Once Idea starts operating in these circles, it will get the fuel required for growth for next 2-3 years. Idea Cellular board has approved the formation of a separate subsidiary for its tower business. There will surely be some cost benefits and value unlocking due to this restructuring, but there is not enough clarity regarding it. Most probably the gains will be marginal and will have no major impact on the actual earnings.
  88. 88. 88 My view remains the same right now. The margins are getting squeezed and this is having an effect on the PAT figures. Also government's new spectrum policy will make it difficult and expensive for existing GSM players to get fresh spectrum. News in today's papers = Reliance Communications wants to reduce rates in the GSM sector - this means even thinner margins for players like Idea. The high growth time for mobile operators is now almost over. Once CDMA players like Reliance Communications enter GSM market, the competition will increase further.I still think the target of Rs 160 by mid 2009 is achievable. (Actually it has already touched 160 twice in October. - 160.8 on 16th and 160.9 on 18th).However, if you buy Idea at Rs 130, Rs 160 in 18-21 months will not be that great a return If you wish to invest in this stock, I suggest you buy it at a lower levels - something like Rs 115.There is less risk in this stock for the long term, but I don't think it can give spectacular growth from now on.Personally, I would look at other sectors like power, capital goods, financial services etc. Telecom no longer attracts me.Not a bad move. Idea is losing its sheen.However Reliance Communications seems fully valued at this price (going at a PE ratio of more than 50). You should not really expect anything more than moderate returns in next one year. It will soon enter the GSM arena and this may bring in some additional revenue. However, the whole mobile space is now getting saturated and margins are unlikely to improve in the next few quarters.
  89. 89. 89 Problem being faced by the organization : On its Q1-11 financial results earnings confernece call, Idea Cellular MD Sanjeev Aga fielded quite a few questions around 3G. While declining to share specific rollout plans, he said that the company will not be stingy with its 3G launch, and that their 3G coverage will be much more than 25% in less than a year. Idea Cellular is expecting allotted of spectrum in September, expects all large companies to truly launch services in the months of December, January and February. “You could always sneak in and launch something earlier, but by the time you test, integrate and provision, it would be around that period.” Idea expects to launch 3G services within the 2010-11 fiscal. - Idea expects 3G to release voice capacity and data, with data being a function of how many people have 3G devices and want to use data, “but inter alia the voice capacity will also be transferred from 2G to 3G, particularly where there is congestion and where there are 3G enabled terminals.” - Of about Rs. 58 billion for the 3G Spectrum fee, only Rs. 19 billion was short-term debt. As of 30th June 2010, Idea had a total debt of about Rs. 98 billion. – Handset Subsidies: Aga doesn’t believe that handset subsidies will play a big role in India, and it never has. “handset subsidies work when there are two or three operators. So one big handset guy might tie up with someone. These things do not work when there are so many operators on a large term basis. Current handset penetration of 3G in India is still in single digits.(Ed: we think he meant single digit millions) – Operating cost because of 3G will go up, replacing 2G investments. “So yes, it will open up our cost stream but it will also open up revenue stream. It could be that the cost stream kicks in ahead of the revenue stream.” – Payback on 3G: it cannot be calculated because 2G flows into 3G, so the costs “flow into one another and the revenues co-live. One way of looking at is if you paid a certain amount of money for 20 year spectrum.” – Data versus voice margins: worldwide, data demand has increased substantially, but margins have been hard “and there are technical problems around actually billing data which makes it hard.” – Data Approach: ‘In the beginning data or 3G services were not picking up in Western Europe and USA
  90. 90. 90 and there were a lot of “eat as much as you can” plans, which are now becoming problematic. So we will do the sensible thing, we will be very careful. But it is very difficult for me to say because it is a competitive market and it is hard to say what will happen. But we will be sensible about it.” Aga said that they will be serving both voice and data, and doesn’t forsee a data capacity crunch, until about two or three years – 3G Equipment:Equipmentprocurementissuesnotfullyresolvedfor3G Mobile Number Portability - Idea Cellular has been ready for MNP for a long time, and has made enormous investments. Just that “this is one of those things where the slowest camel determines the pace of the caravan, and until everyone is ready it would not happen.” - MNP will help consolidate stronger players, and will not be disruptive. “we do not think it is going to be game changing at all. Given the fact that, a number of people who are looking to retain their number, who have had their number for years, their revenue contribution to the total national sector revenue is not very large. The nature of the Indian market has changed over the years, so we do not think it is going to be a game changing event. Indian Market Scenario & Tariffs - Indian market moved from 6.6 operators per circle (on an average) on 1st January 2009 to 10.2 as of 30th June 2010. However, for the last two years, Idea’s revenue market share has gone up from 9.8% to 12.6% between April 2008 and March 2010, whereas it would have been expected to go down. - In the last one year, “when we saw the bloodbath at its bloodiest, Idea increased its revenue market share by 0.9%.” - “In the quarter ended June 2009, that is exactly one year ago, Idea had reported a realized rate of 58 paisa per minute and a variable cost per minute of 44 paisa. For the latest quarter, which is the quarter that just ended, the realized rate itself is down to 44 paisa, which was the variable cost per minute one year ago. Now, if we had stayed at the variable cost one year ago, we would have had a nil EBITDA margin. However, in the quarter that just ended, the variable cost per minute is down to 35 paisa…we are not the lowest in India (in terms of realised rate per minute), but there are indeed very few companies in India or in the world who can run a quality operation at 44 paisa per minute, keep investing in the future, support losses from nine gestating circles and still make a cash profit of over Rs. 700 Crores per quarter. In fact, over the last six to eight quarters, while the world around us might have changed, our cash profits have remained largely steady.” - Tariffs have declined by about 5.5% on a quarter-on quarter basis. - But if you see last six months, the decline was steeper in the first three of these six months. Since then, the decline, say, from March, April to June, has been slower. It appears that the rate of decline is slowing. That means there is a tendency to flatten, based on pure numbers. - “(Tariff) Bloodbaths don’t happen because anyone wants it. They happen because you have a situation where no one is in control. You get sucked into it. But looking at the economic analysis, if a large number of companies are burning cash, it places an inherent restriction for long term.
  91. 91. 91 In short term you can always get some adventurous or courageous bank to lend money and they are plenty of them in India. But at some point of time, the chickens come home to roost and I think those days are not very far away. So I would be surprised if you have another round of bloodbath” Formulation of problem for the projectreport :
  92. 92. 92 Objective of the project The summer internship done with Idea Cellular Objective was to find the ways of increasing the ARPU (Average Revenue PerUser) forthe company. The objective of the summer project was to understand the customer preferences while choosing a telecomservice provider. Othermainobjective of the projectwastostudythe trendsinthe International Telecommarket.
  93. 93. 93 Scope of the Study The scope of the study was limited to Noida and Greater Noida region. This project was conducted for Idea Cellular Limited to assess the preferences of mobile users in India. The project is limited to direct observationsfromthe datacollected.Datacollectedwithhelpof questionnairewasputinexcel sheets. A survey of 400 Mobile users was conducted in Noida and Greater Noida. The sample has covered the mobile users of other service providers also as to understand the competition and their strength and weaknesses. The survey was limited mainly to the youth because they are the most significant part of the customer base and theyare the trendsetters.Theyare the customerswhere revenuescome from. Scope of the project also includes the analysis of the strengths, weaknesses and opportunities that the company possesses and the various threats posed by the competitors like: vodafone and Airtel in the market. Scope of the survey includes identifying customer needs and services that they expect from a service provider so as to take measures to increase the average revenue per user and increase the market share of Idea. The surveywas conductedduringJune 15 to June 30.

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