Idea Cellular Q2 results: Does the Reliance Jio impact show?


Idea Cellular Ltd’s September quarter results were the weakest in its history, but they were more or less in line with analysts’ expectations. Revenue grew only 7.2% year-on-year (y-o-y), the lowest ever growth reported by the firm. Still, they were marginally ahead of estimates by Kotak Institutional Equities, as was its operating profit.

Revenue growth in the data segment fell to 19%, from 27% in the June quarter and as high as 80% a year before that. Falling realizations are to blame, as the chart alongside shows, but things are likely to get worse.

The September quarter has historically been a weak quarter for the industry, owing to the monsoon. And some of the sluggishness in voice and data revenue is because of this seasonal factor. The Jio impact was fairly limited as its launch was only in the month of September, and its subscriber base has built up gradually during this period.

But Jio’s subscriber base now stands at 25 million, which means the impact will be far worse in the December quarter.

For perspective, Idea has around 31 million data subscribers using its 3G or 4G services. In fact, thanks to Jio’s aggressive tariffs, incumbents are abandoning traditional metrics such as average realization per MB (megabyte) of data volume, and are instead recommending that analysts look at average data revenue per user (Arpu).

Not that there is much comfort on that front. Data Arpu fell by 9.7% y-o-y in the September quarter, far worse than the 3.4% drop in the June quarter. The fact that performance metrics are worsening even before the full impact of the Jio launch is visible is clearly a worrying sign for investors.

Analysts at Kotak Institutional Equities said in a recent note to clients, “We believe Jio’s ‘welcome offer’ will impact the incumbents in more ways than one—(1) impact on usage/subscriber for telcos on both voice and data, as both data MBs and voice minutes used by new Jio users would be split between their existing operator and Jio; (2) lower pace of net adds, and (3) a drop in realizations on both voice and data as operators try to retain current customers by giving them better offers.”

Importantly, they added, “We believe these factors would impact Idea more than Bharti as—(1) we believe Idea’s share of floating minutes is greater than that of Bharti, which makes it susceptible to Jio’s free voice ‘welcome offer’ and (2) lower scale and higher leverage for Idea.”

It’s hardly surprising that Idea’s shares have fallen 17% since early September, when Jio announced its tariffs, far higher than the 8% drop in Bharti Airtel Ltd’s shares.

Indeed, if revenue growth has fallen as sharply ahead of Jio’s launch, it could fall to even lower levels with Jio’s operations attaining scale.