Idea spectrum market share higher than revenue share, says Himanshu Kapania

Mumbai: After acquiring fresh spectrum, Idea Cellular Ltd’s market share in telecom airwaves is higher than its revenue market share, said a top executive.

The firm is also comfortable with its high leverage ratio and has taken steps to monetize its tower business in case of any short-term funding disruptions, he added.

“Our spectrum share now, with this purchase, is higher than our revenue market share. This will allow us to sustain our current position in the market which is that of the fastest growing telecom operator,” said Himanshu Kapania, managing director, Idea.

On Thursday, Idea Cellular said it had purchased 349.2MHz of spectrum for Rs12,798 crore, an increase of 64% over its current airwave holdings. After the auction, Idea’s spectrum share is 20% (considering only the top four companies including Bharti Airtel Ltd, Vodafone India Ltd and Reliance Jio Infocomm Ltd). Its revenue market share for fiscal 2016 is 18.9%.

“Once we deploy all this spectrum, our capacity will increase 14-15 times to support the current volumes of data we generate. We would have covered a substantial portion of our capacity needs for the next decade,” said Kapania.

Spectrum is typically contracted for 20 years.

“Idea’s spectrum purchases in this auction are a clear indicator of the company not backing away from its pan-India ambitions even as the challenges of doing so on the current balance sheet strength were evident in the choices made,” wrote Kotak Institutional Equities in a 6 October note.

This spectrum spend adds to Idea’s rising capital expenditure and concerns over its leverage ratio. Net debt to Ebitda for the current fiscal is estimated to touch 4.2 times. Ebitda is earnings before interest, taxes, depreciation and amortization.

Kapania, however, said leverage growth was on expected lines and will come down as the firm grows its revenues and operating profits. “We are comfortable operating at 4 to 4.2 net debt to Ebitda. However, if the situation demands, we have a choice of monetization through (our) tower (business),” he said.

The firm is “consolidating all our towers in a single company and getting out management in place and strengthening our operations”.

Idea wants to monetize its tower business without losing control, he said. It has a 16% stake in Indus Towers, which owns around 120,000 towers. It further has a fully owned unit that has around 10,000 towers. The total value of its tower holdings is $2.5 billion, he said. “It is always good to have back-up sources of funds for any short-term disruptions. While the long-term business potential remains robust, there may be short-term, three or four quarters, disruption and this is one of our options.”

Concerns over rising leverage and capital expenditure, which have crimped earnings, and the launch of Jio have made investors jittery about Idea. Its shares have lost 49.7% against a decline of 6.74% for Bharti and 37.47% for Reliance Communications Ltd.

“With this purchase, we have given the response to the market of the seriousness Aditya Birla group has in telecom business,” said Kapania.

He also said any pressure from Jio’s launch is only a passing, short-term phenomenon. “We have short-term pressures of bunching of investment of spectrum. Once we pass this phase, we will be back to double digit RoCE,” he added. RoCE is return on capital employed.

He said the number of customers who had ported to Jio was “very small”, without revealing details.