Idea Cellular sees significant dip in Capex to sales

Indian telecom service provider Idea Cellular posted significant drop in Capex (capital spending) to sales in the last three quarters. The indication is that its Capex will not revive as compared with its income in coming quarters.

Idea Cellular, the Aditya Birla group company, in a discussion with select investors last month, said its Capex to sales dipped to 14.8 percent in the first three quarters of fiscal 2014 against 16.6 percent in FY 2013, 21.4 percent in FY 2012 and 22.5 percent in FY 2011. The substantial dip is despite its ongoing investments in 3G sites across the country.

Idea Cellular MD and CEO Himanshu Kapania

Idea Cellular MD and CEO Himanshu Kapania said during an analyst call in January: “We expanded our coverage by 46,500 towns and villages in last calendar year and this is nearly 15 percent expansion of our coverage. There is not only expenses we are making on Capex or Opex or network, we have to follow up with the similar investment on sales and marketing as we go to larger number of towns and villages. We have to invest in company stores to expand our distribution and this investment are all front loaded.”

The telecoms’ 3G sites have gone up to 19,904 in the first nine month of fiscal 2014 from 17,140 in FY 2013 and 12,825 in FY 2012.

“We don’t expect Capex to the sales ratio to change even if there is additional spectrum that we buy, we don’t expect to change given the pace at which we are growing revenue at 17 percent to 20 percent on a year-on-year basis. 14 percent – 15 percent (Capex to Sales) is sufficient Capex to manage. Within the Rs 3,500 crore of expenditure we are putting up a reasonably large number of cell sites both in GSM and 3G, so we don’t see us to be able to increase our percentage,” he added.

Idea Cellular, which competes with telecoms such as Airtel, Vodafone, Reliance Communications, Aircel, Tata Docomo, etc. is gaining from its 2G and 3G mobile data initiatives. Data ARPU has improved to Rs 91 in Q3 FY 2014 against Rs 55 in Q2 and Rs 54 in Q1. Data revenue increased to Rs 6168 million (9.5 percent of total revenue) in Q3 FY 2014 from Rs 5416 (8.7 percent) in Q2 and Rs 4617 (7.2 percent) in Q1.

Idea Cellular 3G usage

Idea Cellular’s 3G data usage is close to overtake its 2G data. Its 3G data consumption was 9,469 million MB in the third quarter of fiscal 2014 against 11,371 million MB of 2G data, 7,578 million MB of 3G (9,874 million MB of 2G) in Q2 and 6,334 million MB of 3G (7,457 million MB of 2G) in the first quarter of fiscal 2014.

However, its data subscribers as a percentage of total mobile user base dipped to 19.8 percent in Q3 from 26.4 percent in Q2 and 24.7 percent in Q1 as Idea Cellular reported lower data users of 25.5 million in Q3 against 33.6 million in Q2 and 30.9 million in Q1.