Recent Blog Entries

  •   Salman Khan: Swara Bhaskar is Very Talented #SalmanKhan #SwaraBhaskar #VeryTalented Salman Khan’s upcoming movie Prem Ratan Dhan Payo is under the direction of Sooraj Barjatya. Salman Khan and Sonam Kapoor are playing lead roles in the film. Swara Bhaskar is playing Salman's sister...
  • Nickname of Ranveer Singh on ‘Bajirao Mastani’ sets #Nickname #RanveerSingh #BajiraoMastanisets Ranveer Singh’s upcoming movie, ‘Bajirao Mastani’ is under the direction of by Sanjay Leela Bhansali. According to the latest update, Ranveer Singh has got a new nickname...
View All

Share with your Friends.

Sponsored Links

2G auction will not impact Idea Cellu

  • The balance sheet health of Idea Cellular will not be affected much in the near term post the 2G spectrum auction even if the bidding gets as aggressive as anticipated by the telecom minister.

    The provision of upfront payment of only 33% of the total spectrum bid value and the rest in a phased manner for 10 years will keep the financials of the telcom player largely unscathed at the operating level provided it maintains the current growth of operating profit before depreciation, shows an ET Intelligence Group analysis.

    Idea Cellular needs to bid for 2G spectrum in the 1,800 megahertz (MHz) band in at least seven circles following cancellation of licences in these circles by the Supreme Court in early February. The Department of Telecommunications (DoT) issued a memorandum on Monday detailing the base price for the auction in each of the 22 telecom circles in the country.

    "Funding will not be a problem for telcos such as Idea with cash generating business model. We feel, Idea will not incur any issues to bid at the auction reserve price," said a telecom analyst at a local brokerage on condition of anonymity. Idea will have to bid for at least 5 MHz of spectrum in each of the seven circles if it needs to retain a presence there.

    These include Tamil Nadu (auction reserve price of Rs 306.09 crore for 1.25 MHz spectrum), Kolkata ( Rs 113.7 crore), West Bengal ( Rs 25.84 crore), Orissa ( Rs 20.27 crore), Assam ( Rs 8.67 crore), North East ( Rs 8.84 crore), and Jammu & Kashmir ( Rs 6.63 crore). They account for nearly 7% of Idea's total subscriber base of over Rs 11.7 crore.

    The balance sheet health of Idea Cellular will not be affected much in the near term post the 2G spectrum auction even if the bidding gets as aggressive as anticipated by the telecom minister.



    The calculations show that at the base level, Idea will spend Rs 1,960 crore to regain these licences. But it will only pay one-third or Rs 653 crore upfront and enjoy a moratorium of two years wherein it need not pay interest and the principal amount of debt.

    The company reported a cash balance of Rs 126.5 crore at the end of June 2012, which means it will have to largely depend upon borrowings to fund the auction outgo. Assuming it funds the whole down payment through debt, the loan funds on its book will increase to Rs 12,265 crore from Rs 11,612 crore as of June 2012. Its debt-equity ratio will inch up by a modest 5 basis points to 0.92. Net debt (debt less cash on books) relative to earnings before depreciation, interest, and taxes (EBITDA) will also increase by a tad 14 basis points to 2.42 times.

    Further, the impact will remain muted even in case of aggressive bidding. Telecom minister Kapil Sibal told ET on Friday that he expects pan-India license bid to go as high as Rs 20,000 crore, over 42% more than the reserve price of Rs 14,000 crore. Assuming a proportionate increase in the bidding in each of the seven circles where Idea will bid, the company's debt will increase to Rs 12,526.2 crore. Its debt-equity ratio will increase to 0.94 from the current 0.87 and net debt as a percentage of EBITDA will inch up to 2.62.

    Industry trackers, however, expect a muted response for the auction given the existing debt burden of the telecom sector. "The bidding may not be aggressive as it was during the 3G auction two years ago since teclos will have to borrow more funds," says Romal Shetty, telecom practice head, KPMG. He expects a selective bidding with most palyers bidding for limited number of circles. Norway's Telenor, which lost nine licences, will have to shell out over Rs 7,000 crore at the reserve price.

    Established players such as Bharti Airtel and Vodafone are less likely to participate in the auction but they will have to accept the spectrum price that will be decided through the bidding process at the time of renewing their licences. Bharti, for instance, will renew its licenses in Delhi and Kolkata in 2014, which will cost over Rs 4,000 crore at the reserve price.

    Telecom players are expected to gain traction in data driven services with advent of new technologies that tend to merge personal computation with mobility. This should cushion the spectrum outgo in the long run.

Share with your Friends

(200 symbols max)

(256 symbols max)