iifl-logo

Spice Communications Ltd merged Management Discussions

0
(0%)

Spice Communications Ltd merged Share Price Management Discussions

SPICE COMMUNICATIONS LIMITED ANNUAL REPORT 2008-2009 MANAGEMENT DISCUSSION AND ANALYSIS Industry Growth: The Indian mobility industry continues to grow at a rapid pace. During the period under review, the number of mobility subscribers grew from 233.63 mn as on 31st December, 2007 to 391.76 mn as on 31st March, 2009, being a 67.7% growth over 15 months. This represents a penetration level of 33.7% and hence there is still scope for high growth. One of the trends of this period has been the increased contribution of rural subscribers to total net additions, and the trend is expected to gain strength. Discussion on Financial and Operational Performance Subscriber Base: As on 31st March, 2009, the Company has registered a growth of 8% and has an aggregate of 4.1 mn subscribers, as against 3.8 mn as on 31st December, 2007. Service & Sales Revenues: During the fifteen months ended 31st March, 2009, Revenues from Services & Sale of Trading Goods grew by 32.0% (annualized basis) to Rs 15,805 mn from Rs 9,578 mn for the previous year ended 31st December, 2007. Other Income: Other income for the fifteen months ended 31st March, 2009 amounted to Rs 271 mn as against Rs 4,720 mn during the year ended 31st December, 2007, and includes profit on sale of passive infrastructure amounting to Rs 221 mn and Rs 4,393 mn for each period respectively. Operating Expenses: During the fifteen months ended 31st March, 2009, the Company incurred Operating Expenses of Rs 12,893 mn representing 81.6% of service revenues. The break up includes Network Operating Expenditure 24.7% (including passive infrastructure rentals on the towers taken on lease basis as against the running and maintenance cost incurred on owned sites during most of the previous period), Roaming & Access charges 17.9%, Subscriber Acquisition and Servicing Expenses 13.2%, License and Spectrum charges 10.2%, Administration and Other expenditure 6.3%, Personnel Expenditure 5.3%, and Advertisement & Business Promotion expenditure 4.0%. Profit before Interest, Depreciation and Amortisation: During the fifteen months ended 31s1 March, 2009, the Company made a Profit before Interest, Depreciation and Amortisation of Rs 3,183 mn against Rs.6,947 mn for the year ended 31st December, 2007. Finance Charges: Net Interest & Financing Charges of Rs 3,023 mn include charges amounting to Rs 1,241 mn for assets taken on finance lease. Depreciation and Amortisation: During the fifteen months ended 31st March, 2009, the Company had a depreciation and amortization expense of Rs 4,915 mn. This included effects for revision in the estimates of useful life and obsolescence of Rs 1,132 mn for certain asset categories. Amortisation of miscellaneous expenses not written off of Rs 596 mn includes an additional amount of Rs 496 mn, following the change in accounting policy. Impairment of License values: The Company had made an impairment provision of Rs 4,845 mn for the license / entry fee paid to DOT. Profit and Taxes: During the fifteen months ended 31s1 March, 2009, the Loss was Rs 10,196 mn. The company had a cash profit of Rs 160 mn during fifteen month ended 31st March, 2009. The tax charge for the current period for Fringe Benefit Tax is Rs 13 mn. Excess provision for Tax for earlier year amounting to Rs 66 mn has been written back during the year. Balance Sheet: The Gross Block as at 31st March, 2009 stood at Rs 32,441 mn, representing a net increase of Rs 5,786 mn during the period. The Net Block including Capital Work in Progress (CWIP) stood at Rs 18,254 mn as at 31st March, 2009. The decrease in net current assets amounting to Rs 5,262 mn is largely due to the realization of other debtors amounting to Rs 5,122 mn on account of sale of passive infrastructure, besides the increase in creditors for Capital Expenditure. Total loan funds stood at Rs 20,586 mn and include amounts payable under vendor finance of Rs 5,888 mn. The debit balance of the Profit and Loss Account stood at Rs 13,668 mn as at 31st March, 2009 and exceeds the Share holder funds of Rs 11,842 mn. Human Resources: The Company has strong HR practices and has been able to attract quality talent. The manpower on rolls of the Company as on 31st March, 2009 stands at 823. Regulatory: COAI petition/writ against DoT on crossover policy: COAI (including Idea Cellular) had approached TDSAT on the issue of the manner in which the cross over spectrum policy was announced by the DoT on 19th October, 2007. After the TDSAT refused to grant any stay in the matter, COAI had approached the Honble High Court of Delhi for an interim stay in the matter. The High Court dismissed the COAI writ petition/ application. The TDSAT also, has now given its verdict on the issue. Key highlights are: GSM operators do not have any vested rights up to 15MHz of spectrum and level playing field has not been disturbed by allocation of spectrum under dual technology. Guidelines on Active Infrastructure Sharing: The DoT has formulated guidelines on active infrastructure sharing among Service Providers and Infrastructure Providers. Sharing will be limited to antenna, feeder cable, Node B, Radio Access Network (RAN) and transmission system only. Sharing of allocated spectrum is not permitted. TRAI Press release on phasing out of ADC: The TRAI, on 27th March, 2008 via IXth amendment to the Interconnection Usage Charges (IUC) regulation, decided to phase out the ADC on domestic calls w.e.f. 1st April 2008. Further, the ADC on the international incoming calls was made payable at a reduced rate of Rs 0.50 for the period from 1st April 2008 to 30th Sep 2008, after which this component of ADC is also phased out. DoT guidelines on Intra Service Area Merger policy: On 22nd April, 2008, the DoT released its new Intra Service Area Merger policy. As per this, post merger, the number of players should not fall below 4, and the market share of the merged entity should not be more then 40%, either in terms of subscriber base or AGR. The total spectrum held post merger should be in line with applicable spectrum policy within three months of merger. DoT amendment on Intra Circle Roaming: On 12th June, 2008, DoT amended the license, allowing a licensee to enter into mutual commercial agreements with other service providers within the same service area for the purpose of intra-circle roaming facility. WPC order on Microwave Spectrum charges: WPC, on 10th November, 2008, specified the microwave spectrum charges for 7th to 11th carrier. The DoT had earlier revised the microwave spectrum charges vide its order dated November 3, 2008, wherein charges for a maximum of 6 carriers were specified. The order was made effective w.e.f November 3, 2006, thus increasing the charges applicable to operators holding more than 6 access spectrum carriers (access & backbone separately) with effect from November 3, 2006. Guidelines for Mobile Number Portability (MNP): The DoT on 01st August 08 issued guidelines for MNP license. As per the guidelines, the country has been divided in two MNP zones for grant of MNP license, with 11 licensed service areas in each zone. On 20th March 2009, DoT signed the MNP operator license issued with M/s Syniverse Technologies (Zone I) and M/s MNP Interconnection Telecom Solutions (Zone II) giving six months time for MNP implementation in metro service areas and category A service areas, and one year time for other service areas. Amendment to Interconnect Usage Charges (IUC) regulation: On 9th March 2009, TRAI released the Interconnection Usage Charges (IUC) Xth Amendment and accordingly, with effect from 1st April 2009, termination charges for incoming calls stood reduced to INR 0.20 per minute from INR 0.30 per minute, while the termination charges for international incoming calls stood increased from INR 0.30 per minute to INR 0.40 per minute. Opportunities, Risks, Concerns and Threats: Indian telecom industry has continued to demonstrate strong growth even in a period of global economic recession. This establishes that mobile communication, which not too long ago was seen as a luxury affordable to a limited few, has become a necessity even with consumers from the lower income groups. This creates an opportunity for further growth with increasing penetration. It also shows that the industry is not as susceptible to economic cycles as some other consumer segments. The increasing level of competition is resulting in higher churn which continues to be a threat as well as an opportunity. The churn rates may increase in the short term following the implementation of Mobile Number Portability (MNP), but in the long term it is not expected to have any significant impact on market shares. The increasing competition is also likely to have an adverse impact on margins. However, as your Company is expected to merge with Idea, the overall strengths of the merged entity will strengthen it to withstand competitive pressures. The telecom industry has seen rapid progresses in technology and hence competition from alternative technologies is an inherent threat in such a business. The government proposes to auction 2100 Mhz spectrum to be used for rolling out 3G technology. The final structure of the auction and the number of spectrum slots will also have a bearing on the competitive landscape. The Company requires certain approvals, licenses, registrations and permissions for operating its business. In addition, regulators may impose conditions in relation to the grant of licenses and approvals and any such requirements could have a material adverse effect on the Companys business. The Company, however, is confident that the regulatory changes will ensure a level playing field for all service providers. The Companys business is dependent on a limited number of vendors to supply critical network equipment and services. Besides this, its ability to provide quality mobile network and expanding its area of operations and the subscriber base is also dependent on the spectrum allocation by government. The Company believes in partnering with vendors who are of international repute, and with whom it builds long term relationships. Outlook: We believe that the telecom sector will continue to demonstrate continued growth. In the short term the competition is likely to intensify which may place pressure on margins. However, in the medium to long term we believe that some consolidation in the industry is inevitable. Your Company, subject to necessary approvals, will be merging with Idea Cellular. This merged entity is expected to be a strong industry player with advantages of spectrum and scale.

Invest wise with Expert advice

By continuing, I accept the T&C and agree to receive communication on Whatsapp

Knowledge Center
Logo

Logo IIFL Customer Care Number
(Gold/NCD/NBFC/Insurance/NPS)
1860-267-3000 / 7039-050-000

Logo IIFL Capital Services Support WhatsApp Number
+91 9892691696

Download The App Now

appapp
Loading...

Follow us on

facebooktwitterrssyoutubeinstagramlinkedintelegram

2025, IIFL Capital Services Ltd. All Rights Reserved

ATTENTION INVESTORS

RISK DISCLOSURE ON DERIVATIVES

Copyright © IIFL Capital Services Limited (Formerly known as IIFL Securities Ltd). All rights Reserved.

IIFL Securities Limited - Stock Broker SEBI Regn. No: INZ000164132, PMS SEBI Regn. No: INP000002213,IA SEBI Regn. No: INA000000623, SEBI RA Regn. No: INH000000248

ISO certification icon
We are ISO 27001:2013 Certified.

This Certificate Demonstrates That IIFL As An Organization Has Defined And Put In Place Best-Practice Information Security Processes.