idea project from suresh jaiswal 09936175259

Summer traing report

Ways to Increase the Idea Cellular Ltd.

Submitted By :Nuzahat AfroseSubmitted To :

C.Lal IMS (Shepa)

In partial fullfillment of the requirement of mba degree of u.p. Technical university, lucknow

Session : 2009-10

Enrolment No…………….. Roll No. 0918470034

INSTITUTE OF MANAGEMENT SCIENCES

SHEPA

(Nibia, Bachchaon, VRM Bypass, Varanasi-210011)

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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 report on 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 course from ISMT, Varanasi

Nuzahat Afrose

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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 out my 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:

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Contents

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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%

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.

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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.

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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

ensure that customers are always connected while on the move, across the globe.

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.

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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


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

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)

8

Launched services in Mumbai metro in the largest single metro city launch, ever

Launched services in Bihar

2007


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

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)

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31, 2006: 12,442,450

Became part of the Aditya Birla 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


Reached the five million

Birla AT&T commence Cellular operations Maharashtra & Gujarat

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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

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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

Changed name to Birla AT&T

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Communications Limited following joint venture between Grasim Industries and AT&T Corporation

1995

Incorporated as Birla

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 IdeaAnywhere connectivity - bringing India closer.

The Technology Advantage IdeaTomorrow's technology to enrich today.

The Customer Focus IdeaMake a single interaction a lasting relationship.

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The Employee Focus IdeaNurture 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 Per User) for the company.

The objective of the summer project was to understand the customer preferences while choosing a

telecom service provider.

Other main objective of the project was to study the trends in the International Telecom market.

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STRATETEGY 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.

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

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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.

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2) Promotional Alliance:

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”.

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Organization structure & management

Board of Directors -

Mr. Kumar Mangalam Birla (Chairman)Smt. Rajashree Birla Mr. Sanjeev Aga (Managing Director)Mr. Arun ThiagarajanMs. Tarjani VakilMr. Mohan GyaniMr. Gian Prakash GuptaMr. R.C. BhargavaMr. P. MurariMr. Biswajit A. SubramanianDr. Rakesh JainMr. Juan Villalonga NavarroDr. Hansa Wijayasuriya (Alternate to Mr. Juan Villalonga Navarro)

Management Team -

Corporate Leadership Team

Mr. Sanjeev Aga, Managing DirectorMr. Akshaya Moondra, Chief Financial Officer Mr. Anil K. Tandan, Chief Technology OfficerMr. Prakash K. Paranjape, Chief Information OfficerMr. Pradeep Shrivastava, Chief Marketing OfficerMr. Navanit Narayan, Chief Service Delivery OfficerMr. Vinay K. Razdan, Chief Human Resource Officer Mr. Rajat K. Mukarji, Chief Corporate Affairs OfficerMr. Rajesh K. Srivastava, Chief Materials & Procurement OfficerMr. Ambrish Jain, Director - OperationsMr. Himanshu Kapania, Director - Operations

Circle Heads

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Mr. Iyer Subbaraman S., Chief Operating Officer, Andhra PradeshMr. Rajendra Chourasia, Chief Operating Officer, Madhya Pradesh & ChattisgarhMr. Virad Kaul, Chief Operating Officer, Uttar Pradesh (West), Delhi & HaryanaMr. T. G. B. Ramakrishna, Chief Operating Officer, KeralaMr. Sashi Shankar, Chief Operating Officer, MumbaiMr. P.Lakshminarayana, Chief Operating Officer, Maharashtra & GoaMr. Naozer Firoze Aibara, Chief Operating Officer, Uttar Pradesh (East) Mr. Sunil Kataria, Senior Vice President - Operations, RajasthanMr. Arul Bright, Senior Vice President - Operations, GujaratMr. M. D. Prasad, Senior Vice President - Operations, BiharMr. M. Srinivas, Senior Vice President - Operations, Tamil Nadu & ChennaiMr. Siva Ganapathi, Chief Operating Officer, KarnatakaMr. Anish Roy, Chief Operating Officer, Punjab, J&K and Himachal PradeshMr. Aloke Malik, Chief Operating Officer, East (Kolkata, Rest of Bengal, Orissa & NESA)

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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

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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

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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, 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

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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%

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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

stock exchange.

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.

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C. Corporate Structure

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

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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.

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 subscriber base. 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

October 16,

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2008.

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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. October 16, 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.

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4. Financial Highlights

A. Standalone Profit & Loss Account

B. Consolidated Profit & Loss Account

C. Revenue & Profitability Break-up

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D. Summarized Balance Sheet

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5. Key Performance Indicators

A. Financial Indicators – Idea Standalone

B. Operational Indicators – Idea Standalone

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C. Operational Indicators – Spice

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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.

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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.

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.

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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.

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

36

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.

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 Approach for 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

37

leader in 3 of these service areas, and is overall in the second

spot. The twin

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 opposed to 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.

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.

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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

7. Stock Market Highlights

Idea Cellular Daily Stock price (NSE) & Volume (Combined of BSE

& NSE) Movement

Volume (no. of Shares) Closing Price

20,000,0005516,000,0005012,000,000458,000,000404,000,0003

503099999999999999999999-0-0-0-0-0-0-0-0-0-0-0-0-0-00-00-

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

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

41

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 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

42

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 Telecommunications

Regulatory Authority of India, constituted under the

Telecommunications Regulatory Authority of India Act, 1997

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.Market 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

44

was awarded “Mobile Operator of the Year Award -India” for 2007

and 2008 at the Annual Asian Mobile News Awards.

A national brandHuman 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.

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

45

2007.Their promoters-1. Aditya Birla Nuvo Limited2. Grasim

Industries Limited

3. Hindalco Industries Limited

4. Birla TMT HoldingsPrivate LimitedWeaknessesHigh Debt-

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.Concentration:

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.

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.

OpportunitiesThe 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

46

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.Competition 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-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.Alternative technology is evolving very rapidly in the

telecommunications industry. For instance, “Wi-Fi”and “Wi-

47

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-Major competition comes from

the industry leader Bharti Airtel. Bharti Airtelhas 24.3% customer

market share and 33.8% revenue market share.Vodafone 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 -

BSNL has taken full advantage of its wide network and fixed line

subscriber base, and has established itself as the provider with

maximum coverage over the country.

While 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

48

in a huge way. They have large cash reserves at their disposal to

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.TATA

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

operatorsThe industry operates with high fixed costsThe

product is not much differentiated and can be replacedby

49

substitutesSwitching to an alternative product is relatively

simple and is not related to high costsCustomershave low

margins and are price sensitiveThecustomer knows about the

production costs of the 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.

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.

50

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 sector

to 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.

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

51

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:

'Super Power', ‘2 Minutes Outgoing Free’, ‘Lifelong offer’,

‘Women'sCard’, 'Lifetime Idea'etc are some of the offerings of

IDEA.

IDEAisthe 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.

They are also providing GPRS and EDGE services for transferring

data.The new product introduced by IDEA is the EDGE enabled

USB Data Card which is named as 'NetSetter'. Initially ‘NetSetter’

was offered to post paid customers only. Now it is available to

prepaid customers in selected circles.

IDEA’s 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.

52

Their ad campaign showing AbhishekBachanin different settings

but all clearly showing their corporate social responsibility is

great. Their approach is different from others.Idea 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.

53

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 in newer 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

54

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.

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.

58

ACCUMULATE

Performance Highlights Price Rs43 „ Top-line soars on strong subscriber adds, 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

subscriber base, which grew by an impressive 62.4% yoy and 12.6% qoq. At the end of Investment Period 12 months

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 / Low 129 / 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

59

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 Bloomberg Code IDEA@IN

rent-paying sites for Idea rose by 146% yoy to 21,459 (8,721 in 3QFY2008). Shareholding

Pattern (%) 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 of

158.4% (Rs76.5cr) in the Mumbai and Bihar circles also 49.1

adversely impacted the company’s Margin profile.

MF/Banks/Indian FIs

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: [email protected]

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

60

Mobile ARPUs (Rs/user/month)340 295 257 247

Source: Company, Angel Research

January 23, 2009 1

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

subscriber base, 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.

61

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

62

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

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 Total minutes 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.

63

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

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 Proportionate EBITDA from JVs - (1) 17 - - Total 569 606 697 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 spectrum for all circles

64

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.

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

65

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

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 spectrum holdings 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

66

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

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

67

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.

68

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.

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

69

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.

70

Mar

ket G

row

th R

ate

(in %

) 0

L

OW

15

H

IGH

30

HIG

H

10X 1X 0.39X 0.1X

Relative Market Share

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


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

72

Mar

ket G

row

th R

ate

(in %

) 0

L

OW

15

HIG

H

30

10X 1.35X 1X 0.1X


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


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 Cellular Limited with respect to Airtel

73

Mar

ket G

row

th R

ate

(in %

) 0

L

OW

15

HIG

H

30

10X 1X 0.74X 0.1X


Mar

ket G

row

th R

ate

(in %

) 0

L

OW

15

HIG

H

30


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.

74

10X 1X 0.6X 0.1X


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.

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

Development0.15 4 0.6

Global Opportunities0.05 5 0.25

Market Rivalry0.20 5 1.0

Pricing 0.15 3 0.6

Total 1.00 4.05

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.

75

3. Profitability: Telecom industry net profits just increased from 12% to 14% from the last

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.

76

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.

77

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

FactorsWeight Rating(1-5) Weighted Score

Market Share 0.10 4 0.4


Profit Margin relative

to competitors0.15 5 0.75

Technological

Innovation0.15 4 0.6

Brand Reputation0.10 4 0.4

Sales Distribution

Effectiveness 0.10 3 0.3

Advertising and

Promotional

Effectiveness0.15 4 0.6

Pricing strategies0.05 4 0.2

Customer Loyalty 0.10 3 0.3

Total= 3.95

78

79

LOW

M

ED

IUM

H

IGH

STRONG MEDIUM WEAK 5

3.66

2.33

15 3.66 2.33 1

19%

1

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:-

80


3.66

2.33

15 3.66 2.33 1

31%

1

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


Profitability 0.10 3 0.3

Technological

Development0.15 4 0.6

Global Opportunities0.05 5 0.25

Market Rivalry0.20 5 1.0

Pricing 0.15 3 0.6

Total 1.00 4.05

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

Key Competitive Weight Rating(1-5) Weighted Score

81

Factors

Market Share 0.10 4 0.40


Profit Margin relative

to competitors0.10 3 0.30

Technological

Innovation0.10 4 0.40

Brand Reputation0.15 3 0.45

Sales Distribution

Effectiveness 0.05 5 0.25

Advertising and

Promotional

Effectiveness0.15 4 0.60

Pricing strategies0.10 4 0.40

Customer Loyalty 0.15 3 0.45

Total= 3.60

Competitive Strength

82

LOW

M

ED

IUM


3.66

23%

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.

83

LOW

M

ED

IUM

5

3.66

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.

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.

84

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:

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”.

85

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.

86

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.

87

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.

88

Financial Analysis 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 croreFY 2006 - Rs 210.61 croreFY 2007 - Rs 509.30 croreFY 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).

89

Investors can accumulate the stock around Rs 110-Rs 112.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.

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

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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.

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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.”

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http://www.ideacellular.com/

– Data Approach: ‘In the beginning data or 3G services were not picking up in Western Europe and USA

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: Equipment procurement issues not fully resolved for 3G

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

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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. 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 project report :

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Objective of the project

The summer internship done with Idea Cellular Objective was to find the ways of increasing the ARPU

(Average Revenue Per User) for the company.

The objective of the summer project was to understand the customer preferences while choosing a

telecom service provider.

Other main objective of the project was to study the trends in the International Telecom market.

95

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

observations from the data collected. Data collected with help of questionnaire was put in excel 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 they are the trend setters. They are the customers where revenues come 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 survey was conducted during June 15 to June 30.

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Period of study

IDEA Cellular Limited was incorporated in 1995 and is one of the leading GSM mobile services operators.

Headquartered in Mumbai, it has licenses to operate in all 22 service areas across the country, though

commercial operations are currently in 13 services areas.

IDEA enjoys a market leadership position in many of its operational areas. It offers GPRS on all its

operating networks for all categories of subscribers, and was the first company in India to commercially

launch the next generation EDGE technology in Delhi in 2003. As a pioneer in technology deployment, it

has been in the forefront through the adoption of bio fuels to power its base stations, and by employing

satellite connectivity to reach inaccessible rural areas in Madhya Pradesh.

IDEA has been a leader in the introduction of value-added services, and there are several firsts to its

credit, including a voice portal ‘Say Idea’, Idea TV, voice chat, instant messenger, and many more. Tariff

plans have been customer friendly, catering to the unique needs of different customer segments

In 2007 IDEA was listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

Contact us

Idea Cellular Ltd.

Corporate office

5th Floor, Windsor

CST Road, Kalina

SantaCruz (E),

Mumbai 400 098

India

Tel: 022 6682 0000 (board line)

Website: www.ideacellular.com

97

Idea Cellular

Idea Cellular started its operations in 1995 and is under the Aditya Birla Group, which holds 98.3% stake

in the company. The Company Idea Cellular Limited is one of the telephony wireless companies that

functions in many states in India.

The Company Idea Cellular is the leading mobile services GSM operator in the country. The Company

Idea Cellular Limited is the only cellular operator in India to launch EDGE and GPRS. The chairman of the

company is Mr. Kumar Mangalam Birla and the managing director is Mr. Sanjeev Aga. Idea Cellular

Limited has the license to provide services in 11 telecom circles in the country. The telecom circles

where the Company Idea Cellular has operations are Goa, Maharashtra, Andhra- Pradesh, Chattisgarh,

Kerala, Haryana, Uttaranchal, Gujarat, Delhi, UP- West, and Madhya Pradesh. The company's footprint

at present covers around 45% of the population of India and more than 50% of the telecom market.

Idea Cellular Limited was the 1st cellular company in the country to launch the scheme of music

messaging with background tones, cellular jockey, and group talk. The company was also the 1st to

launch mobile email services and voice portal. Idea Cellular Company offers various services to its

customers that includes prepaid and post paid mobile services. The company also offers roaming, value

added services, and call management services to its customers. The Company Idea Cellular Limited has

offered revolutionary tariff plans to its customers such as Lifetime Idea, Super Power, Women's Card,

Lifelong offer, and Outdoing 2 Minutes Free.

Idea Cellular in call management services offers various services to its customers such as call conference,

CLIP, CLIR, call divert, itemized bill, and call wait facilities. The company provides roaming facility to its

customers who is very efficient for the company has a very wide network, which covers more than 530

cities in the country and also in around 80 countries across the world. The Company Idea Cellular also

provides it customers with the facility that they can pay their mobile bills on line through the company's

website. As the company provides the best services to its customers, the subscriber base of the

company has increased at a very rapid pace. The subscriber bases of Idea Cellular in various states of

India are:

• Andhra Pradesh - 1,737,116

• Haryana - 834,786

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• Rajasthan - 235,330

2

• Maharashtra - 2,807,982

• Madhya Pradesh - 1,328,780

• Gujarat - 1,715,774

• Kerala - 1,482,799

The Company Idea Cellular Limited has won the GSM Association Award in the category of Bill Flash. The

company is the 1st cellular operator in the country who has won an award on such a big platform. Idea

Cellular Limited in order to expand even more has acquired the Company Escotel in 2004. The number

of telecom circles where the company operates has increased with this acquisition and thus it has

helped the company to have a pan India presence. The Company Idea Cellular is also planning to

upgrade its network that will ensure that the best quality of service is provided to its customers.

Idea Cellular has become the topmost company in the telecom sector in India on the basis of the quality

of its services. And so in the future also, the company must continue to provide its customers with

better facilities for this will help the company to grow and prosper.

Method of study

The study is a cross sectional study because the data were collected at a single point of time. For the

purpose of present study a related sample of population was selected on the basis of convenience.

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Sources of Information

Idea Cellular LimitedIdea Cellular is India's fifth largest telecom wireless service operator with ~11% of the wireless subscriber base and ~13% revenue market share. Idea is a leading GSM (Global System for Mobile Communication) mobile services operator with about 66.7 millionsubscribers at the end of May, 2010. The company covers all the 22 2G telecom circles in India. It operates both in the 900 MHz & 1800 MHz spectrum. The company bagged 11 circles in the recently concluded 3G auction. Idea also has NLD and ILD operations.Idea has acquired Spice Telecom which is a leading player in the Punjab and Karnataka telecom markets. Aditya Birla Group is the promoter of Idea Cellular.

KEY INVESTMENT ARGUMENTS_ Successful 3G spectrum auction for the companyIdea’s strategy for the 3G auction was considered the most successful among the telecom operators who participated in it. It bagged 11 service areas, covering 49% of all India revenue generation. They include Kerala, Maharashtra, Andhra Pradesh,Gujarat, Madhya Pradesh, Uttar Pradesh (West), Uttar Pradesh (East), Haryana, Panjab, Himachal Pradesh & Jammu & Kashmir. It is a market leader in 4 of these circles and is ranked second in other 3 circles. Its average revenue market share in the bagged 3G markets is 21%, which augurs well from a payback perspective. It also protects Idea’s 80% existing 2G revenue as and when the number portabilitybecomes a reality. Total payment for 3G spectrum stands at Rs 5769cr., which is the circles it lost. The mobile penetration in the circles it won is around 53%. The average monthly revenue per user in the circles it has won is Rs 199 compared with Rs 146 in the circles it lost.

_ Addition of new 2G telecom circles to boost financialsThe company launched its services in Orissa, Chennai & Tamil Nadu, Jammu &

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Kashmir, Kolkata & West Bengal and Assam & North East states in phases duringFY 2009-10. It is now a pan India operator. The impact of the subscriber addition inthese areas would accrue in the coming quarters.

_ Attractive 2G spectrum profileSource: CompanyInvestment DetailsCMP (Rs.) 58.0Target (Rs.) 69.0Upside Potential (%) 19.0Horizon (Months) 10-12 MShareholdingSource: BSE. Figures as on March 31, 2010.Analyst:Atul [email protected] by:Alok [email protected] TelecomMarket Cap (Rs cr.) 19141.3Face Value (Rs.) 10.052-week high/low (Rs.) 84.8/47.8Book Value (Rs.) 34.3Price / Book Value 1.7PE Ratio (TTM) 20.1Dividend (%) 0.0Average Daily Volume (1 Y) 6425658Stock idea – Idea Cellular Ltd.Bajaj Capital Centre for Investment Research 2/6_ Idea is doing very well in the 900Mhz frequency service areasOut of the nine 900 MHz circle under its belt, Idea is the leader in four of them. It isthe no. 2 player in other three service areas. Overall it is the no. 2 player in these 9

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service area with a market size of 20.6%.Telecom Service Area(900 Mhz)Revenue Market Share(RMS)RankMadhya Pradesh 29.1% 1Kerala 29.0% 1Maharashtra 28.4% 1Uttar Pradesh (West) 27.7% 1Haryana 20.4% 2Punjab 17.8% 2Andhra Pradesh 16.1% 2Gujarat 18.0% 3Karnataka 6.4% 6TOTAL 20.6% 2Source: Company_ Growth in subscriber base, Minutes of use on network & VASIdea closed FY09 with ~39 million subscribers. The company crossed the ~50 million subscriber mark in August 2009. The growth has been very strong with the subscriber base touching 66.7 million by the end of May 2010. Total Minutes of Usage on the network were 44.2 billion in Q4FY09, against 68.3 billion in Q4FY10, showing a growth of 54.5% on a YoY basis. Value Added Services (VAS) as % of revenue has grown from 9.5% in Q4FY09 to 12.4% in Q4FY10.

_ The Indus advantageIndus is the largest independent tower company in the world, having about 1,03,000 towers under its management. It provides infrastructure service in 15 service areas. Indus benefits from assured tenancy from its promoters and the other operators. Idea benefits from the reduced capital expenditure and the embedded value of the shareholding.

Source: Company_ Strong promoters & management

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Idea cellular, belonging to the Aditya Birla group has a strong promoter background. It also has a strong management. The management quality was very evident in the recently concluded 3G spectrum auction where Idea managed to bag most of the 3G service areas it aspired for, paying the least amount among the major telecom wireless service providers.

Idea Cellular V/s NSE2G Telecom Circles CoveredSource: CompanySubscriber Base (million)Source: CompanyStock idea – Idea Cellular Ltd.Bajaj Capital Centre for Investment Research 3/6_ Increase in revenue market shareIdea’s revenue market share has increased from ~10% in Q4FY08 to ~13% in Q4FY10. Market Share – Q4 2008 Market Share – Q4 Source: CompanyKEY CONCERNS_ Broadband woesThe company failed to win any broadband spectrum in the recently concludedBroadband Wireless auction._ Hyper Competition and OvercapacityThe overcapacity in the telecom sector has led to cut throat competition among theservice provider’s with prices dipping to all time lows._ Decline in Operational IndicatorsAverage Revenue per user (ARPU) has declined from Rs. 255 in Q4FY09 to a lowof Rs. 185 in Q4FY10. Realized Rate per minute has declined from Rs.0.63 toRs.0.47 for the same period._ TRAI may charge the company for excess 2G spectrumTRAI may charge GSM players Rs. 10,500cr. as a one time fee for the excess 2Gspectrum held by them. Idea’s share comes to Rs. 1100cr.

VALUATIONS

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The decision of the government to increase the number of players in each circle has led to a sharp fall in the telecom tariffs. The prices that were already among the lowest in the world seem to have nosedived further and may not be sustainable in the long term. We feel that the tariffs have bottomed out and so has the Idea stock, which has priced in all the bad news. Idea cellular, a Rs 19141.3 cr. company by market capitalization, is currently trading at a share price of Rs 58.0. The current EPS is Rs 2.9, which translates into a PE of 20.1. Interms of price to book value, it is current available at 1.7. Market cap to sales ratio is 1.5. Given the growth prospects of the company, the stock is an attractive buy. We recommend a “BUY” on the stock with an investment horizon of 10-12 months and target price of Rs. 69.CellSitesSource: CompanyAverage Revenue per User(ARPU)Source: CompanyValue Added Services as % ofRevenueSource: CompanyStock idea – Idea Cellular Ltd. (%)Net Sales 3319.0 3135.8 2930.1 5.8 13.3Other Income 51.9 0.0 0.0Total Income 3399.7 3149.5 2942.5 7.9 15.5Total Expenditure 2424.2 2335.3 2130.6 3.8 13.8PBIDT 975.5 814.1 811.9 19.8 20.2PBIDT Margin % 29.4 26.0 27.7Interest 114.1 93.8 104.9 21.6 8.8PBDT 861.4 720.4 707.0 19.6 21.8Depreciation 566.7 513.1 431.0 10.5 31.5PBT 294.7 207.3 276.1 42.2 6.8Tax 28.1 37.2 21.1 -24.4 33.4Adjusted PAT 266.6 170.1 255.0 56.7 4.6APAT Margin (%) 8.0 5.4 8.7Financials: Consolidated

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Rs. Cr.0903 200803 200703 2006034 yrCAGR %Share Capital 3300.2 3100.1 2635.4 2592.9 2259.5Networth 13245.2 3540.8 2179.8 650.6Capital Employed 22159.3 10056.2 6430.3 4419.2Total Income 12530.7 10652.2 6919.1 4411.4 2989.6 43.1Total Expenditure 9039.9 7309.9 4458.5 2889.3 1890.9 47.9Revenues 12397.9 10131.3 6720.0 4366.4 2966.2 43.0PBIDT 3490.8 3342.2 2460.6 1522.1 1098.7 33.5Other Income 83.6 516.3 199.1 46.2 24.5Interest 400.5 1000.3 469.0 341.1 329.4Depreciation 2014.9 1402.8 876.8 671.8 549.5PBIT 1475.9 1939.4 1583.8 850.3 549.2 28.0APAT 953.9 664.5 1004.1 493.9 210.3 45.9Operating Cash Flows 2264.2 2522.4 1605.7 1277.7Free Cash Flows -7613.8 -3454.4 -669.4 755.6Dividend % 0.0 0.0 0.0 0.0 0.0CEPS (Rs.) 7.4 7.3 4.5 3.4EPS (Rs.)* 2.9 2.1 3.8 1.9 0.9 32.8Debt-Equity Ratio 0.9 1.9 2.3 2.9Interest Coverage Ratio 1.7 3.4 2.5 1.7RoNW % 7.1 21.8 14.4 9.0PBIDT Margin % 28.2 33.0 36.6 34.9 37.0PBIT Margin % 11.9 19.1 23.6 19.5 18.5APAT Margin % 7.7 6.6 14.9 11.3 7.1Total Asset Turnover Ratio 0.5 0.6 0.6Fixed Asset Turnover Ratio 0.8 0.9 0.8Market Cap/Sales 1.5PE Multiple 20.1P/BV Ratio 1.7

Stock idea – Idea Cellular Ltd.Bajaj Capital Centre for Investment Research 6/6Disclaimer: This document has been prepared by Bajaj Capital Centre for Investment Research (BCCIR), a unit of Bajaj CapitalLimited (BCL). BCL and its subsidiaries and associated companies form an integrated unit imparting investment banking,

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Statistical tools and techniques used

The current state of industrial application of statistics does not live up to its glorious creative past. We have statistical methodology but not the clarity of purpose or the market image that facilitates its use. When statistically based Quality and Reliability methods are used they are not always used correctly.

Taking stock of the current and future state of the application of statistics in quality improvement in industry and commerce, the first question must be do the old needs for statistics still exist? Have the questions changed? Technological change and a change of mind set have indeed clearly made their mark. Just as for most purposes we no longer need tables of logarithms, computing power and on-line instrumentation have converted some of the analysis, forecasting and control issues of the past into history. Of course, change has also created new problems, as old methodologies prove inadequate and new needs are revealed. But the problems are more complex, more complicated and more academic – and therein lies the real problem.

From being a well-founded routine analysis process, employing relatively large numbers of statistical assistants to carry out the laborious calculations of numbers according to an assured well-defined unchanging enumerative framework, statistics has evolved into an elitist, remote, obtuse – and for many in industry and commerce, unnecessary – set of approaches and people. There are two dimensions of this change. Firstly, the work of statistics has changed: computational power together with the switch in statistical emphasis from enumerative to analytic studies, which draw inferences about future but currently badly defined processes, mean that statistics has become less automatic and hence less accessible. Secondly, statisticians have not adequately tackled the consequent public relations challenge and, by some of their more “academically interesting” work, have added to the “bad press”. For example, O’Connor (1991), in arguing that statistical methods for quality and reliability prediction and measurement are counter-productive and should be discarded in favour of a return to traditional engineering and quality values, stated

“They lead to over-emphasis on expensive, bureaucratic and esoteric approaches to quality and reliability. Many successful equipment designers and manufacturers generate highly complex yet reliable products without recourse to these methods.”

Similar points were made by some respondents in the recent study by the Engineering Quality Forum on the Quality Education of Engineers (Cullen et al, 1997). The real question therefore is that, with all this bad press, does statistics and statisticians, have a future in industry and business at all?

The gap between the potential of statistics to help quality improvement and what is actually achieved is not a specifically British or specifically Western phenomenon. It was present also in the early days of the introduction of statistically based quality improvement methods into Japan and for much the same reasons (Ishikawa, 1985). There is evidence also of a similar situation in the USA and Germany (McMunigal et al, 1990; Bendell, 1994). The subsequent success of statistically based quality improvement methods in helping to transform the Japanese economy is evidence not just that this

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problem is solvable but that in bringing the messages and methods of statistics to the people in business and industry they do need to be clarified, simplified, communicated and “packaged”. The emphasis in Ishikawa’s work of the simplification, “packaging”, mass education, team basis and consequent mass use of statistical tools by all or many employees (eg the “seven tools of quality control”) reappears also in the work of other Japanese quality gurus such as Taguchi and Shingo (Bendell, 1991). The emphasis is on making statistical techniques understandable and usable by the customer and not on blaming the customer for not understand or not using them.

It can be argued that the need is not just to re-educate others: the engineers, managers and other professionals who just do not appreciate the importance of variation and the part that statistics has to play. Even more importantly, the need is to re-educate the statistical community. For statistics to have a future, now is the time for statisticians to come out of their closets, to cross the boundaries into the real work problems, to avoid unnecessary complexity, to start their role earlier in the project and to end it later, to become fully integrated, to lose their “statistician” stigma, to become the facilitators of large-scale simplistic routine application of statistical methods by all workers (like Ishikawa’s seven tools of quality control). There are few enough statisticians left in industry (eg Greenfield, 1996) and the need and the opportunities are strong; maybe never stronger. All around we see examples of the lack of use, misuse and abuse of statistics.

The responsibility is not only with those in industry. The role of academic statisticians, and the academic tradition of statistics, is also in much need of attention. It is here that the greatest elitism and barriers are created and carried on through education to future generations. And it is here that the greatest opportunity exists for a new ethos of statistical service; of removing the jargon, complexity and elitist barriers and of creating clarity, simplicity and focus.

To illustrate many of the points in this section, we shall now discuss three key areas of statistical application in quality.

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LIMITATIONS OF THE STUDY

The research will be conducted in a limited area.

The internet information can be irrelevant.

Time will be a major constraint.

Significance of the study :

IDEA CELLULAR (IDEA)

Live BSE QuotesAug 11, 2010

9:48:00 AM

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1.49

Volume182,846

Value (Rs)13,073,489

52-Week H/L

84.85 /

48.05

Live NSE QuotesAug 11, 2010

9:49:57 AM

Price (Rs)

71.55

Open (Rs)71.50

High (Rs)72.00

Low (Rs)

70.35

% Change

1.27

Volume1,371,980

Value (Rs)98,096,570

52-Week H/L

84.80 /

48.80

110

Valuation

EPS (Rs)*2.60

P/E Ratio (x)27.49

Market Cap (Rs m)

235,966.45

P/BV (x)1.78

*Trailing 12 months earnings, excluding extraordinary / exceptional items.

BSE Sensex | S&P CNX Nifty | Best Performing Stocks & Funds | BUY/SELL?

PEER GROUP: QUOTE &

AGC NETWORKSBHARTI AIRTELHFCLIDEA CELLULARITI LTD.KRONE COMM.MTNLRELIANCE COMMTATA COMM.TATA TELESERV (MAH)

111

http://www.equitymaster.com/result.asp?symbol=HGTEL

http://www.equitymaster.com/result.asp?symbol=VSNL

http://www.equitymaster.com/result.asp?symbol=RCOM

http://www.equitymaster.com/result.asp?symbol=MTNL

http://www.equitymaster.com/result.asp?symbol=KRCM

http://www.equitymaster.com/result.asp?symbol=ITIL

http://www.equitymaster.com/result.asp?symbol=IDEA

http://www.equitymaster.com/result.asp?symbol=HFCM

http://www.equitymaster.com/result.asp?symbol=BTVL

http://www.equitymaster.com/result.asp?symbol=TTEL

http://www.equitymaster.com/ptmail/hprr.html

http://www.equitymaster.com/stockquotes/mkt-stats

http://www.equitymaster.com/stockquotes/mkt-stats

http://www.equitymaster.com/result.asp?symbol=NIFTY

http://www.equitymaster.com/result.asp?symbol=BSNX

Reason for Choosing Idea

3% 9% 0%

34%51%

3%

Attractive Number Better Connectivity Brand NameCall Rates New Good Scheme Value Added Services

Reason for Choosing any Service Provider

5%

27%

10%25%

5%

25%3%

Attractive Number Better Connectivity Brand NameCall Rates Good Customer Service New Good SchemeValue Added Services

Analysis

1. Reason for Choosing

The survey reveals that the main reason for choosing Idea is New Good Scheme; more than 50% Idea

user who responded the survey were attracted to buy Idea Cellular because of its New Good Scheme.

Other main reason for choosing Idea was Call Rates of Idea Cellular. But if we see the General trend,

people choose any mobile service mainly because of its better connectivity.

112

Duration of Usage of Idea

33%

15%12%

40%

Less than 3 Months 3-6 Months 6-12 Months More than 1 Year

Duration of Usage by any Mobile User

32%

8%13%

47%

Less than 3 Months 3-6 Months 6-12 Months More than 1 Year

2. Duration of Usage

The duration of usage shows the loyalty towards a brand. Here according to the survey, only around

50% of the Idea customers are using Idea for more than 6 months but if we see the general trend, the

people using a telecom service provider’s service for more than 6 months is 60%. So there is less

customer retention in case of Idea Cellular as compared to other users.

113

Monthly Bill for Idea

20%

51%

23%

6%

Below Rs.300 Rs. 300-500 Rs. 500-800 Above Rs.800

Monthly Bill for any Mobile User

24%

48%

19%

9%

Below Rs. 300 Rs. 300-500 Rs. 500-800 Above Rs.800

3. Monthly Bill

Monthly bill for Idea cellular is almost similar to the other service providers but if we see it closely the

portion of user spending more than Rs.800 is lesser than the Industry average.

114

Attention Paid to VAS Messages by any User

21%

79%

Yes No

4. Attention to VAS messages

There is a positive sign that 30% of the Idea users pay attention to the VAS messages sent by the

company whereas only 20% of the mobile users pay attention generally to these messages. So it’s a

positive sign because until they know about the VAS, they will not buy that service.

Pay Attention to VAS Messages by Idea Users

30%

70%

Yes No

115

VAS Used by Idea Users

12%6%

3%

9%

70%

Dialer Tones GPRS Picture Messages Ringtones None

VAS Used Generally

2%1% 12%10%

1%4%15%

55%

Background Tones Contests Dialer TonesGPRS Mobile Mail Picture MessagesRingtones None

5. VAS Used

According to the survey 55% of the mobile users do not use VAS but this figure is alarming high for Idea

Cellular i.e. 70%. Main VAS used by Idea customers is dialer tones and ring tones. And same is the case

for the whole telecom industry. So it needs to introduce new attractive VAS and make people know

about them.

116

Amount Spent on VAS by Idea User

73%

15%

9% 3%

Below Rs. 15 Rs. 15-40 Rs. 40-80 Above Rs. 80

Amount Spent on VAS by any Mobile User

67%

22%

8% 3%

Below Rs. 15 Rs. 15-40 Rs. 40-80 Above Rs. 80

6. Amount spent on VAS

The survey shows that only 27% of the Idea users spend more than Rs.15 per month and rest of them

are spending either nothing or less than Rs.15. And the general trend is not quite different; generally

around 33% of the user spends more than Rs.15. So the average revenue for Idea from VAS is lower than

the Industry average.

117

Satisfaction Level with Price (Idea)

3%21%

37%

27%

12%

Strongly Dissatisfied Dissatisfied Neutral Satisfied Strongly Satisfied

Satisfaction Level with Price (Airtel)

5% 12%

33%40%

10%

Strongly Dissatisfied Dissatisfied Neutral Satisfied Strongly Satisfied

7. Satisfaction Level with Price

The survey result shows that around 24% of the Idea users are not satisfied with the price charged by

the Idea cellular. 37% of the Idea users are neutral. But if we compare it with Airtel only 17% users are

dissatisfied. And satisfied portion is around 40% whereas Airtel has around 50% of satisfied customers.

118

Satisfaction Level with Connectivity (Idea)

3% 15%

21%

46%

15%

Very Poor Poor Neutral Good Very Good

Satisfaction Level with Connectivity (Airtel)

0%0% 12%

55%

33%


8. Satisfaction Level with Connectivity

Connectivity for Idea Cellular is not considered to be very good, but on this front Idea has improved. But

if we compare it with Airtel, its far behind. Idea has 61% users satisfied whereas Airtel has 88% satisfied

customers.

119

Satisfaction Level with VAS (Idea)

0% 9%

58%

27%

6%

Strongly Disagree Disagree Neutral Agree Strongly Agree

Satisfaction Level with VAS (Airtel)

2% 11%

48%

34%

5%


9. Satisfaction Level with VAS

The survey shows that there is a major portion who is not bothered about the VAS and that portion is

neutral. 58% of the Idea users are neutral about the VAS as compared to 48% of Airtel users. Here 9% of

the Idea cellular users are dissatisfied as compared to 13% of the Airtel users.

120

Customer Care Service Idea

3% 12%

27%52%

6%


Customer Care Service Airtel

5% 7%

24%

52%

12%


10. Customer Care Services

58% of the Idea customers are satisfied as compared to 64% of Airtel. Also 15% of the Idea customers

are not satisfied as compared to 12% of the Airtel. Both of these have almost equal portion of neutral

customers.

121

Brand Idea

6%

23%

42%

23%

6%


Brand Airtel

0%2%24%

53%

21%


11. Brand Name

Idea is not considered to be a big brand name as compared to Airtel. Only 29% of the Idea users

consider it a better brand name while 74% of Airtel users consider Airtel a better Brand name. Also only

2% of Airtel users think that Airtel is not a better brand whereas 12% of the Idea users consider Idea it a

poor brand.

122

Idea Gives Attractive New Schemes

0%3%

36%

46%

15%


Airtel Gives Attractive New Schemes

5% 10%

44%

36%

5%


12. Attractive New Good Scheme

Idea is famous for giving new schemes. 61% of the Idea users say that Idea gives attractive new schemes

as compared to Airtel’s 41%. Only 3% of the Idea users do not agree to this statement as compared to

15% of Airtel users. So idea is far ahead in giving new attractive schemes.

123

Promotional Offer by Idea

3% 3%

29%

50%

15%


Promotional Offer by Airtel

2% 5%

39%47%

7%


13. Promotional Offer

According to the survey 65% of the Idea users believe that Idea’s promotional are good as compared to

54% of Airtel user think that its promotional offer are good. 29% of the Idea users are neutral as

compared to Airtel’s 39%.

124

FINDINGS

55% of the people use only mobile, and 40% of respondents use both the

services & only 5% people use the telephone service. It shows the popularity

of cellular phone services.

34% of respondents are using the idea services, which is the highest

percentage of users of cellular phone. Airtel takes 2nd place in Gwalior with

28% of users. Then comes reliance and BSNL, and tata indicom having least

customers in the Bhopal.

Prepaid service is most popular in the cellular services with 95% of

customers. The remained uses postpaid services.

In current situation 73% of respondents are using lifetime plans, where the

rest are using general plan of the cellular companies.

64% of respondents are satisfied with the call rates of the lifetime plans; it is

because telecom companies have slashed their call rates few months ago.

Still in this situation 36% of respondents did not satisfy with the call rates

which service they are using.

125

In the lifetime plan of cellular companies most of the respondents are using

this service because of its validity period with 83% of answer. Where 15%

of people like this services because of its call rates.

78% of customer satisfied with the lifetime plans of cellular companies, and

which are not satisfy with the service they are mostly BSNL and TATA

indicom users.

Most of the people are using lifetime services because of money savings

with the percentage of 48. Where 29% of people like this service because of

the facilities provided by the operators. And 23% of people are using this

service because of incoming only.

126

Questionnaire

PART A

NAME _______________________________________

AGE (a) 10-25 (b) 26-40 (c) 41 and above

SEX (a) Male (b) Female

INCOME (a) Up to 2 lakhs (b) 2-5 lakhs (c) 5 lakhs and above (d) N.A.

PROFESSION (a) Service (b) Business (c) Student (d) Any other

PART B

1) Which company’s telecom service you are using?

a) Airtel b) Hutch c) Idea d) Reliance e) Tata Indicom f) Any Other___

2) How long you have been using it?

a) Less than 3 months b) 3-6 months c) 6-12 months d) More than 1 year

3) What was the reason of choosing your present service provider?

a) Better Connectivity b) New Good Scheme c) Attractive Number

d) Brand Name e) Good Customer Service f) Call Rates

g) Value Added Services

4) How much is your monthly mobile bill?

a) Less than Rs. 300 b) Rs. 300-500 c) Rs. 500-800 d) More than Rs. 800

5) Do you pay attention to messages for Value Added Services like ringtones, background tones, dialer tones, contests, picture messages etc.?

a) Yes b) No

127

6) Which Value Added Services you generally use?

a) Ringtones b) Dialer tones c) Background tones d) Contests

e) Picture messages f) Mobile mail g) GPRS h) None

7) How much you spend on Value Added Services per month

a) Less than Rs. 15 b) Rs. 15-40 c) Rs. 40-80 d) More than Rs. 80

8) An overall service offered by service provider justifies the price charged by it.

a) Strongly Agree b) Agree c) Neutral d) Disagree e) Strongly Disagree

9) The connectivity is very good


10) Call rates are reasonable


11) Customer care service is good


12) It is a better brand than others


13) It gives better schemes


128

14) Value Added Services are good


15) How would you rank the promotional offering by the company?

a) Very Good b) Good c) Average d) Poor e) Very Poor

PART C

Mark the following on scale of 1-7: Very Good=7, Very Poor=1

I. Tangibles: The physical facilities at servicing outlets are visually appealing and organized (well maintained

reception area, computerized billing) ____ The payment counters are enough at outlets. ____

II. Reliability : Provide their services at time they promise to do so. ____ If a customer has a problem, shows a sincere interest in solving it. ____

III. Responsiveness: Personnel give prompt services to customers. ____ Any queries at any point of day convenient to customer. ____

IV. Assurance Personnel at servicing outlets are courteous with customers ____ Have knowledge to answer customer’s questions. ____

V. Empathy: Give individual attention and understand specific needs ____ It keeps customers informed about services and schemes offered ____

129

BIBLIOGRAPHY

Books:

Philip Kotler, ‘marketing management’ prentice Hall of India Pvt. Ltd. New

Dehli.

C. R. Kothari ‘Research methodology’, vishwa publication, New Delhi.

Saxena Rajan ‘marketing management’ Tata McGraw-hill publication Co. Ltd.

New Delhi.

H. V. Verma ‘marketing of services’ Global business press, New Delhi.

Business today magazine of February issue, 2008.

Web Resources:

130

www.trai.gov.in

http://www.tataindicom.com/t-aboutus-ttsl-organization.aspx

http://www.rcom.co.in/webapp/Communications/rcom/Aboutus/aboutus_home.jsp

http://www.ideacellular.com/IDEA.portal?

_nfpb=true&_pageLabel=IDEA_Page_AboutIdea

http://www.bsnl.co.in/about.htm

http://www.bsnl.co.in/service/tariff_excel_pre.htm

http://210.212.144.243/utility/tariff.htm

http://www.trai.gov.in/trai/upload/PressReleases/15/pr16jan06.pdf

www. airtel .in

http://www.rcom.co.in/webapp/Communications/rcom/index.jsp

131

http://www.rcom.co.in/webapp/Communications/rcom/index.jsp

http://www.airtel.in/

http://www.trai.gov.in/trai/upload/PressReleases/15/pr16jan06.pdf

http://210.212.144.243/utility/tariff.htm

http://www.bsnl.co.in/service/tariff_excel_pre.htm

http://www.bsnl.co.in/about.htm

http://www.ideacellular.com/IDEA.portal?_nfpb=true&_pageLabel=IDEA_Page_AboutIdea

http://www.ideacellular.com/IDEA.portal?_nfpb=true&_pageLabel=IDEA_Page_AboutIdea

http://www.rcom.co.in/webapp/Communications/rcom/Aboutus/aboutus_home.jsp

http://www.tataindicom.com/t-aboutus-ttsl-organization.aspx

idea project from suresh jaiswal 09936175259

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