The Hindu Business Line : Battle royal over Idea Cellular ownership

The battle over the ownership of Idea Cellular, between the Tatas and the Birlas, holding equal stakes in the mobile venture, witnessed a strange twist recently.

The Tatas have claimed that by disclosing the financial details of Idea Cellular in the Aditya Birla Nuvo Web site, Birlas have breached the shareholders' agreement.

Interestingly, the Aditya Birla Nuvo's latest third quarter results carries the key parameters of Idea Cellular such as revenues, operating profits, profit before interest and tax, profit after tax and return on capital employed.

This information is available for the latest quarter and nine months ended December 31, 2005. More or less similar details are also available for the second quarter, when Aditya Birla Nuvo hiked their equity stake in Idea to 20.7 per cent out of 50.2 per cent equity held by the Birlas in Idea.

As a GSM operator, the financial performance of Idea Cellular is comparable to the mobile business segment of Bharti Tele-Ventures.

While the financial parameters of Bharti are distinctly superior compared to Idea on practically every count, however, the few financial variables that stand out are:

Revenues: Compared to 14 per cent sequential (quarter-on-quarter) revenue growth clocked by Bharti for the third quarter ended December 31, 2005, Idea's growth at 11.3 per cent has been fairly healthy.

Unlike Bharti, in the case of Idea, the revenue growth has also outpaced the growth in mobile subscribers of 8.7 per cent in the latest quarter.

Margins: The operating profit margins of Idea are marginally higher at 36.8 per cent vis-à-vis 36.5 per cent of Bharti for the third quarter.

Even for the nine months, the operating margins are comparable.

This is surprising given that Idea's mobile subscriber base at 6.47 million is substantially lower than 16.32 million for Bharti and scale economies ought to be working in Bharti's favour.

The explanation for this is missing as the break-up of costs for Idea into license fees and operating costs are not available.

Return on capital employed: Coming down to the EBIT (earnings before interest and tax) and post-tax earnings level, it is obvious that Bharti scores over Idea in all parameters. For the latest quarter, the return on capital employed (EBIT/ stockholders equity plus net debt) of Bharti (for the entire business including mobile) works out to 20-22 per cent, considerably superior to that of Idea at 9-11 per cent.

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