IDEA Cellular Limited An Aditya Birla Group Company

Transcription

1 IDEA Cellular Limited An Aditya Birla Group Company Registered Office: Suman Tower, Plot No. 18, Sector-11, Gandhinagar , India Corporate Office: 5 th Floor, Windsor, Off C.S.T. Road, Near Vidya Nagari, Kalina Santacruz (East), Mumbai , India Quarterly Report of Unaudited Results Third Quarter Ended December 31, of 26!dea Quarterly Report December 08

2 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 entirely 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. For definitions, please see Glossary on page 24 of this report. 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. In this report, the terms we, us, or our, unless the context otherwise implies, refer to Idea Cellular Limited and its subsidiaries namely Swinder Singh Satara & Co. Limited, Aditya Birla Telecom Limited, Idea Cellular Services Limited, Idea Cellular Infrastructure Services Limited, Idea Cellular Tower Infrastructure Ltd and Joint Ventures Indus Towers & Spice Communications. We have included statements in this report which contain words or phrases such as will, aim, will likely result, believe, expect, will continue, anticipate, estimate, intend, plan, contemplate, seek to, future, objective, goal, project, should, will pursue and similar expressions or variations of such expressions that could be considered to be forward-looking statements. Similarly, statements that describe our objectives, strategies, plans or goals are also forward-looking statements. Actual results may differ materially from those suggested by the forward-looking statements due to 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. 2 of 26!dea Quarterly Report December 08

3 Table of Contents 1. Overview Financial Highlights Operational Highlights Stock Market Highlights Management Discussion & Analysis Key Accounting Policies Glossary of 26!dea Quarterly Report December 08

4 1. Overview Introduction A leading GSM mobile services operator with over 38 mn subscribers, Idea Cellular along with Spice Communications (Spice) and Aditya Birla Telecom Limited (ABTL), has licenses and spectrum to operate in all 22 service areas of India and has licenses to provide National Long Distance services and International Long Distance services. Idea along with ABTL and Spice, currently has commercial operations in 15 service areas with a national subscriber market share of 11.0% as on Dec 31st These service areas are Delhi, Himachal Pradesh, Rajasthan, Haryana, Uttar Pradesh (East), Uttar Pradesh (West) & Uttaranchal, Madhya Pradesh & Chattisgarh, Gujarat, Maharashtra & Goa, Andhra Pradesh, Kerala, Mumbai, Bihar & Jharkhand, Punjab and Karnataka. Idea is listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Idea Cellular is a part of Aditya Birla Group, India's first truly multinational corporation. The group operates in 20 countries, and is anchored by over 100,000 employees belonging to 25 nationalities. 4 of 26!dea Quarterly Report December 08

5 Business Overview Idea along with ABTL and Spice, had commercial operations in 15 telecom service areas as of 31 st December 2008, out of which 2 service areas of Mumbai and Bihar were rolled out during the current fiscal year. Service areas of Punjab and Karnataka are operated through the Joint Venture Company Spice Communications in which Idea holds 41.09% stake (wef 16 th Oct 08). Idea holds 16% holding in another joint venture, Indus Towers through its wholly owned subsidiary ABTL. Rs. Mn Quarter Ended Quarter Ended Dec-08 Sep-08 QoQ Dec-07 YoY Gross Revenue-11 Service Areas 25,726 22, % 17, % Gross Revenue-2 Service Areas (Mumbai + Bihar) Gross Revenue- 13 Service Areas 26,209 23, % 17, % Proportionate Revenue from Joint Ventures 1, Intersegmental eliminations (171) (34) Total Revenue 27,311 23, % 17, % EBITDA -11 Service Areas 7,570 6, % 5, % EBITDA - 2 Service Areas (Mumbai+Bihar) (765) (366) EBITDA -13 Service Areas 6,805 6, % 5, % Proportionate EBITDA from Joint Ventures 169 (13) Total EBITDA 6,974 6, % 5, % EBITDA Margin -11 Service Areas 29.4% 28.1% 1.3% 33.3% -3.9% EBITDA Margin 13 Service Areas 26.0% 26.4% -0.5% 33.3% -7.3% Proportionate EBITDA Margin from Joint Ventures 13.3% -19.8% 33.1% - - EBITDA Margin 25.5% 26.3% -0.8% 33.3% -7.8% Note: Figures of past period are regrouped, wherever necessary Intersegmental eliminations are on approximations 5 of 26!dea Quarterly Report December 08

6 2. Financial Highlights Summarized Statement of Operations (Idea and wholly owned subsidiaries on Standalone basis) Rs mn Quarter Ended Quarter Ended Dec-08 Sep-08 QoQ Dec-07 YoY Gross Revenue 26,209 23, % 17, % Opex 19,404 16, % 11, % EBITDA 6,805 6, % 5, % Depreciation & Amortisation 3,579 2, % 2, % EBIT 3,226 3, % 3, % Net Int.& Financing Cost 600 1, % % PBT 2,626 1, % 2, % Tax % % PAT 2,562 1, % 2, % Cash Profit 6,180 4, % 4, % Summarized Statement of Operations - Idea Consolidated (Idea Standalone, Wholly owned subsidiaries, Indus and Spice) Rs mn Quarter Ended Quarter Ended Dec-08 Sep-08 QoQ Dec-07 YoY Gross Revenue 27,311 23, % 17, % Opex 20,336 16, % 11, % EBITDA 6,974 6, % 5, % Depreciation & Amortisation 3,937 3, % 2, % EBIT 3,037 3, % 3, % Net Interest and Financing Cost 874 1, % % PBT 2,163 1, % 2, % Tax (31) % % PAT 2,195 1, % 2, % Cash Profit 6,075 4, % 4, % 6 of 26!dea Quarterly Report December 08

7 Summarized Balance Sheet Rs Mn Idea Idea Consolidated (Incl. standalone wholly (Incl. Joint Ventures) owned subsidiaries) as on As on Dec-08 Mar-08 Dec-08 Mar-08 Sources of Funds Equity Share Capital 31,020 26,354 31,020 26,354 Outstanding Emp. Stk. Options Reserves & Surpluses 112,217 23, ,217 23,134 Loan Funds 99,230 65, ,773 65,154 Deferred Tax Liability(Net) 1, Total 243, , , ,340 Application of Funds Gross Block 176, , , ,010 Depreciation 49,526 42,219 55,744 42,219 Net Block 126,620 96, ,051 96,791 CWIP 12,055 10,372 13,539 10,372 Total 138, , , ,163 Goodwill , Cash & Cash Equivalent 79,587 10,535 81,606 10,535 Non Compete fee 5,440-5,440 - Investments 22, Net Current Assets (9,433) (16,497) (17,852) (16,497) Profit & loss A/c 7,348 14,079 7,813 14,079 Total 243, , , ,340 Note: There was no significant impact of Indus consolidation on March'08 Balance Sheet Ratio ROCE 8.7% 17.9% 8.5% 17.9% Net Debt to Funded Equity Net Debt to Annualised EBITDA Note: ROCE & Net Debt to Annualised EBITDA is for the quarter. 7 of 26!dea Quarterly Report December 08

8 3. Operational Highlights Trending for Key Performance Indicators: Idea Cellular (Incl. Bihar) Operations Trending- Idea - 13 Service Areas Quarter Ended Unit Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Operating Service Areas No Idea's presence in Mobility market (Based on no. of Subscribers) % 58.0% 57.9% 58.0% 63.3% 68.2% Subscribers Subscriber Base Mn Prepaid subs (% of EoP subscribers) % 92.6% 93.0% 93.7% 94.0% 94.3% Subscriber Market share of company* -11 operating Service Areas % 15.5% 15.9% 16.3% 16.5% 16.7% -2 New Service Areas % % 1.7% Market share mobility net adds (13 Service areas)* % 17.3% 18.9% 20.8% 17.2% 17.6% Post-paid Churn % 2.9% 2.5% 2.5% 2.5% 2.7% Prepaid Churn % 4.9% 4.8% 4.1% 4.0% 4.4% Blended Churn % 4.7% 4.6% 4.0% 3.9% 4.3% Revenue Parametrs Average Revenue Per User (ARPU) Per Sub Average Minutes of Use Per User Per Sub Average Realised Rate (ARR) Per Min VAS revenue (% of ARPU) % 8.0% 8.2% 8.9% 9.8% 9.5% Coverage Minutes of Usage Mn 22,457 27,824 33,087 36,315 40,254 Towns and Villages Covered No. 70,556 82,630 90, , ,585 Manpower Manpower No. 5,923 6,107 6,380 6,521 6,670 *Subscriber Market share and Net Additions share has been regrouped to include BSNL (W) and MTNL (W). 8 of 26!dea Quarterly Report December 08

9 Trending for Key Performance Indicators: Spice Communications Trending - Spice Communications Punjab + Karnataka Operations Unit Jun-08 Sep-08 Dec-08 Operating Service Areas No Spice's presence in Mobility market (Based on no. of Subscribers) Subscribers % 10.8% 10.2% 10.0% Subscriber Base 000 4,548 3,600 3,802 Prepaid subscribers as a % of EoP subscribers % 87.3% 84.5% 85.7% Subscriber Market share of the company % 14.7% 11.2% 11.0% Market share mobility net adds % 15.3% -85.6% 8.5% Post-paid Churn % 3.6% 6.2% 5.4% Prepaid Churn % 3.0% 15.3% 6.3% Blended Churn % 3.1% 13.9% 6.2% Revenue Parametrs Average Revenue Per User (ARPU) Per Sub Average Minutes of Use Per User Per Sub Average Realised Rate (ARR) Per Min VAS revenue (% of ARPU) % 8.7% 8.7% 10.9% Coverage Minutes of Usage Mn 4,894 5,119 5,445 Towns and Villages Covered No ,466 Manpower Manpower No ,167 1,158 9 of 26!dea Quarterly Report December 08

10 4. Stock Market Highlights Idea Cellular General Information BSE Code NSE Symbol Reuters IDEA IDEA.BO/IDEA.NS No of Shares Outstanding (31/12/08) Million Nos Closing Market Price - NSE (31/12/08) Rs/Share Combined Volume (NSE & BSE) (01/10/08 to 31/12/08) No. in Mn/Day 6.6 Combined Value (NSE & BSE) (01/10/08 to 31/12/08) Rs in Mn/Day Market Capitalisation (31/12/08) Rs Bn 163 EPS (excl. Joint Ventures) for the Quarter Rs/Share 0.83 Net Debt to annualised EBITDA (excl. Joint Ventures) Times 0.72 Enterprise Value (31/12/08) Rs Bn 183 Stock Performance Idea Cellular Daily Stock price (NSE) & Volume (Combined of BSE & NSE) Movement Volume (no. of Shares) 25,000,000 Rs per Share ,000, ,000, ,000, ,000, Oct Oct Oct Oct Oct Oct Oct Nov Nov Nov Nov Nov Nov Dec Dec Dec Dec Dec Dec Dec-08 Source: BSE & NSE web site BSE & NSE Combined Volume NSE Cl Price 10 of 26!dea Quarterly Report December 08

11 Shareholding Pattern as on December 31, 2008: Idea Cellular Promoter and Promoter Group No. of Shares % holding Indian 1,522,937, % Foreign - - Sub Total 1,522,937, % Public Shareholding No. of Shares % holding Foreign Holding 1,241,359, % Indian Institutions 207,148, % Others 128,649, % Sub Total 1,577,157, % Total 3,100,095, % Spice Communications Promoter and Promoter Group No. of Shares % holding Indian 344,257, % Foreign - - Sub Total 344,257, % Public Shareholding No. of Shares % holding Foreign Holding 338,211, % Indian Institutions % Others 7,455, % Sub Total 345,667, % Total 689,925, % 11 of 26!dea Quarterly Report December 08

12 5. Management Discussion & Analysis Significant Industry Development WPC order on microwave spectrum charges. (Issue date: November 10, 2008) WPC has specified the microwave spectrum charges for 7th to 11th carrier. DoT had earlier revised the microwave spectrum charges vide its order dated November 3, 2008, wherein charges for maximum of 6 carriers were specified. The order has been made effective wef November 3, 2006 & thus operators holding more than 6 access spectrum carriers(access & backbone separately) would be liable to pay increased charges from November 3, 2006 onwards. Recommendations on Modifications proposed by DoT on the spectrum usage charges for 3G services. (Issue date: December 10, 2008) TRAI has given its recommendation on the DoT reference of November 25, 2008 relating to increase in spectrum charges for 2G+3G operators & stand alone 3G operators. As per the recommendations, spectrum charges are to be increased by 1% over all existing slabs till 8 MHz & 2% for 8 MHz & above. Spectrum charges would be on total AGR basis viz. 2G+3G revenues. Stand alone 3G operators would pay 3% of AGR a spectrum charges, with a one year moratorium. TRAI has also recommended that, both 2G+3G & standalone 3G operators to pay 2% of the highest bid amount as the annual administrative charge during the validity period of 3G license of 20 years. One year moratorium was recommended for this charge. DoT is yet to clarify its final stand on this issue. DoT releases 3G & BWA Information Memorandum (Issue date: December 12, 2008) The DoT has released the information memorandum (IM) for auction of 3G & BWA spectrum. This IM supplements and updates the guidelines that were issued by the DoT on 1 st August, 2008 along with the amendments issued on 11 th September, The Information Memorandum contains the details about eligibility criteria, schedule of activities, number of slots available for auctioning, pre qualification process, and auctioning process. As per the Information Memorandum there are no slots available for 3G spectrum in the service area of Rajasthan, one slot available in the service area of 12 of 26!dea Quarterly Report December 08

13 Northeast which will be reserved for BSNL, and in West Bengal only 2 slots are available out of which one is reserved for BSNL. In other service areas there will be 3 to 4 slots available after allocation of one slot to BSNL/MTNL. In case of BWA spectrum there are 3 slots available for auctioning after allocation of one slot to BSNL/MTNL. Reserve price 3G and BWA spectrum is Rs crore and Rs 1010 crores respectively, on Pan India basis. TRAI consultation paper on review of Interconnect Usage Charges. (Issue date: December 31, 2008) The TRAI has issued a consultation paper on Review of Interconnect Usage Charges (IUC). IUC are payable by one telecom operator to others for use of their networks either for origination, termination or carriage of a call. Inter operator calls constitute a major part of the total calls handled by the network. These charges transfer network costs between operators and thus affect their relative scale and profitability. A cost based IUC promotes competition among operators and reduces wastage of economic resources. The regulator has to ensure that the adopted methodology should not provide hurdles and there should be ease and flexibility of introduction of innovative tariff plans by service providers. Issues raised in the Consultation paper are: which of the component of IUC charges to be reviewed, what should be the methodology for calculation the termination charges, should the mobile termination charges be same for existing and new operators, should fixed and mobile terminations cost calculation use the same methodology, how should the termination charge on international incoming calls be fixed, how would new networks and services like 3G, WiMax and NGN affect the IUC. TRAI has also provided in the Consultation Paper details of the calculation exercise for IUC with data of the financial year TRAI consultation paper on Lock-in period for Promoter s Equity and Other Related Issues for UASL (Issue date: January09, 2009) The telecom sector in the country is set to grow with the introduction of new technologies and services like 3G, Next Generation Network (NGN), Mobile Virtual Network Operator (MVNO), Mobile Number Portability (MNP), Voice Over Internet Protocol (VOIP) etc. A large number of operators have entered the market. Under the current licensing regime, there are unclear and inadequate provisions on lock-in of equity shareholding 13 of 26!dea Quarterly Report December 08

14 and increase of equity. The issues raised in the consultation paper are whether there should be a condition in the Unified Access Service license agreement providing for a lockin period on sale of equity of promoters, what should be minimum lock in period, from which date it is to be reckoned, how to prevent entry of fly-by-night operator, whether there should be any restriction on change in management control, etc. 14 of 26!dea Quarterly Report December 08

15 Results of Operations of Idea Cellular Limited and its wholly owned subsidiaries on standalone basis Key Highlights for the Quarter ended December 2008 Revenue Rs 26.2 billion EBITDA Rs 6.8 billion Cash Profit - Rs 6.2 billion PAT Rs 2.6 billion Revenue During this quarter, revenues grew by 13.9% over the quarter ended September 30, 2008, and stood at Rs mn. Operating Expenditure During this quarter, the operating expenditure was 74.0% of revenue at Rs mn yielding an EBITDA margin of 26.0%. EBITDA and Cash Profit For this quarter, EBITDA and Cash Profit (PAT + Depreciation & Amortization + Deferred tax liability) stood at Rs 6805 mn and Rs 6180 mn showing an increase of 11.9% and 34.3% respectively, compared to the quarter ended September Finance & Treasury Charges (Net) The gross interest cost for the quarter is Rs 2263 mn, accompanied by interest income of Rs 1794 mn from the investment of surplus funds, resulting in Net Interest cost of Rs 469 mn. In addition, the Company incurred a Foreign Exchange loss of Rs 131 mn for the quarter, against a loss of Rs 187 mn for the previous quarter ended September 08. Depreciation & Amortisation Depreciation and Amortisation for the quarter is Rs 3579 mn, an increase of Rs 583 mn against the quarter ended Sep of 26!dea Quarterly Report December 08

16 Net Profits Net Profits for the quarter stood at Rs 2562 mn against Rs 1501 mn for the quarter ended September 08. The increase in Net Profit is a result of increase in EBITDA of Rs 724 mn and a combined net decrease in Interest & Financing charges, Depreciation & Amortization, & Tax of Rs 337 mn. BALANCE SHEET During the quarter, Gross Block including CWIP has increased by Rs mn indicating a sustained pace of network expansion. Loan Funds stood at Rs mn, an increase of Rs 1933 mn during the quarter. This increase is attributable to foreign currency borrowing of USD 100 mn from International Finance Corporation, net of repayment of some short term loans. On 5th Dec 08, an affiliate of Providence Equity Partners has invested Rs. 21 bn in Aditya Birla Telecom Limited (ABTL) by way of subscription to mn Compulsorily Convertible Preference Shares to be converted into 16.14% of equity share capital of ABTL post conversion. Shareholders fund stood at Rs mn on a gross basis, which, after reducing the Profit & loss debit balance of Rs 7348 mn, results in net-worth of Rs mn. Cash and cash equivalents stood at Rs mn resulting in net debt of Rs mn, resulting in a net debt to equity ratio of of 26!dea Quarterly Report December 08

17 Results of Operations of Idea Cellular Limited Consolidated Key Highlights for the Quarter ended December 2008 Consolidated Revenues Rs 27.3 billion Consolidated EBITDA Rs 7.0 billion Consolidated Cash Profit - Rs 6.1 billion Consolidated PAT Rs 2.2 billion Revenues During this quarter, consolidated revenues grew by 18.5% over the quarter ended September 30, 2008, and stood at Rs mn. Operating Expenditure During this quarter, the consolidated operating expenditure stood at Rs mn at 74.5% of revenues giving an EBITDA margin of 25.5%. The EBITDA margin of 25.5% showing a reduction of 0.8% compared to EBITDA margin of 26.3% for the quarter ended September The main reason for reduction in the margin is lower EBITDA margins of joint ventures and full quarter impact of Mumbai and Bihar launches. EBITDA and Cash Profit For this quarter, Consolidated EBITDA and Cash Profit (PAT + Depreciation & Amortization + Deferred tax liability) stood at Rs 6974 mn and Rs 6075 mn level showing an improvement of 14.9% and 33.7% respectively compared to the quarter ended September Finance & Treasury Charges (Net) The gross interest cost for the quarter is Rs 2612 mn, reduced by interest income of Rs 1840 mn from the investment of surplus funds, resulting in the net Interest cost of Rs 772 mn. In addition, Company has incurred Foreign Exchange loss of Rs 102 mn for the quarter against a loss of Rs 187 mn during the quarter ended September of 26!dea Quarterly Report December 08

18 Net Profits Net Profits for the quarter stood at Rs 2195 mn against Rs 1441 mn for the quarter ended September 08 showing a growth of 52.3%. The consolidated PAT is depressed by Rs 367 mn on account of the consolidation of Idea s 41.09% shareholding in Spice Communications from 16th Oct 08 and on account of Idea group s 16% shareholding in Indus Towers. Balance Sheet During the quarter, Gross Block including CWIP increased by Rs mn, out of which Rs mn is for the proportionate consolidation of Spice communications and Indus Towers. Loan Funds stood at Rs mn with an increase of around Rs 8800 mn during the quarter mainly because of Proportionate consolidation of Joint Ventures for an amount of Rs 6867 mn. Shareholders fund stood at Rs mn on gross basis which after reducing the Profit & loss debit balance of Rs 7813 mn results in net-worth of Rs mn. Consolidated Cash and cash equivalents stood at Rs mn resulting in net debt of Rs mn giving net debt to equity ratio of of 26!dea Quarterly Report December 08

19 6. Key Accounting Policies 1. Basis of Preparation of Financial Statements: The Consolidated Financial Statements of Idea Cellular Limited ( the Company ), its subsidiary companies and Joint Ventures (together referred to as the Group ) have been prepared in accordance with Accounting Standard 21 on Consolidated Financial Statements and Accounting Standard 27 on Financial Reporting of Interests in Joint Ventures issued by the Institute of Chartered Accountants of India ( ICAI ). The Consolidated Financial Statements are prepared under historical cost convention on accrual basis. The mandatory applicable accounting standards have been followed in preparation of these financial statements. 2. Principles of Consolidation: The basis of preparation of the Consolidated Financial Statements is as follows: The Financial Statements (The Balance Sheet and the Profit and Loss Account) of the Company, its subsidiaries and joint venture have been combined on a line-by-line basis by adding together the book values of like items of assets, liabilities, income and expenses, after eliminating intra-group balances, transactions and the resulting unrealised profit or losses. The Financial Statements of the subsidiaries used in the consolidation are drawn upto December 31, 2008, the same reporting date as that of the Company The differential with respect to the cost of investments in the subsidiaries over the Company s portion of equity is recognised as Goodwill or Capital Reserve, as the case may be. The Consolidated Financial Statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances except where stated otherwise. The list of subsidiaries, which are included in this Consolidated Financial Statements along with Company s holding therein, is as under: No. Name of the Company Voting Power % as at December 31, 2008 March 31, Swinder Singh Satara and Co. Limited Aditya Birla Telecom Limited Idea Cellular Services Limited Idea Cellular Infrastructure Services Limited Idea Cellular Towers Infrastructure Limited All the above subsidiaries are incorporated in India. The Joint Venture, which is included in this Consolidated Financial Statements along with Company s holding therein, is as under: 19 of 26!dea Quarterly Report December 08

20 No. Name of the Company Voting Power % as at December 31, 2008 March 31, Indus Tower Limited * Spice Communications Limited * entire shareholding is held by Aditya Birla Telecom Limited 3. Fixed Assets: Fixed assets are stated at cost of acquisition and installation less depreciation. Cost is inclusive of freight, duties, levies and any directly attributable cost of bringing the assets to their working condition for intended use. Site restoration cost obligations are capitalised based on a constructive obligation as a result of past events, when it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made. Such costs are depreciated over the remaining useful life of the asset. 4. Expenditure during pre-operative period of licence: Expenses incurred on project and other charges during construction period are included under pre-operative expenditure (grouped under capital work in progress) and are allocated to the cost of fixed assets on the commencement of commercial operations. 5. Depreciation and amortisation : Depreciation on fixed assets is provided on straight line method (except stated otherwise) on the basis of estimated useful economic lives as given below:- Tangible Assets Years Buildings 9 to 30 Network Equipments 10 to 13 Optical Fibre 15 Other Plant and Machineries 5 Office Equipment 3 to 9 Computers 3 Furniture and Fixtures 3 to 10 Motor Vehicles Up to 5 Leasehold improvements Period of lease Intangible Assets : i) Cost of Rights and Licences including the fees paid on fixed basis prior to revenue share regime is amortised on commencement of operations over the period of license. ii) Software, which is not an integral part of hardware, is treated as intangible asset and is amortised over their useful economic lives as estimated by the management between 3 to 5 years. 20 of 26!dea Quarterly Report December 08

21 iii) Bandwidth / Fibre taken on Indefeasible Right of Use (IRU) is amortised over the agreement period. 6. Licence Fees Revenue Share: With effect from August 1, 1999 the variable Licence fee computed at prescribed rates of revenue share is being charged to the profit and loss account in the Period in which the related revenue arises. Revenue for this purpose comprises adjusted gross revenue as per the license agreement of the license area to which the license pertains. 7. Inventories: Inventories are valued at cost or net realisable value, whichever is lower. Cost is determined on weighted average basis. 8. Foreign currency transactions: Transactions in foreign currency are recorded at the exchange rates prevailing at the dates of the transactions. Gains/losses arising out of fluctuation in exchange rates on settlement are recognised in the Profit and Loss account. Foreign currency monetary assets and liabilities are restated at the exchange rate prevailing at the Period end and the overall net gain/ loss is adjusted to the Profit and Loss account. In case of Forward Exchange Contracts, the difference between the forward rate and the exchange rate at the date of transaction is recognised in the Profit and Loss account over the life of the contract. 9. Leases: Operating: Lease of assets under which significant risks and rewards of ownership are effectively retained by the lessor are classified as operating leases. Lease payments under an operating lease are recognised as expense in the profit and loss account, on a straight-line basis over the lease term. Finance: Leased assets acquired on which significant risk and reward of ownership effectively transferred to the Company are capitalised at lower of fair value or the amounts paid under such lease arrangements. Such assets are amortised over the period of lease. 10. Taxation: Current Tax: Provision for current income tax is made on the taxable income using the applicable tax rates and tax laws. Deferred Tax: Deferred tax arising on account of timing differences and which are capable of reversal in one or more subsequent periods is recognised using the tax rates and tax laws that have been enacted or substantively enacted. Deferred tax assets are not recognised unless there is virtual certainty with respect to the reversal of the same in future years. 21 of 26!dea Quarterly Report December 08

22 11. Contingent Liability: Disclosure for contingent liabilities are considered to the extent of notices / demands received by Idea group. 12. Retirement Benefits: Contributions to Provident and pension funds are funded with the appropriate authorities and charged to the profit and loss account. Contributions to superannuation are funded with the Life Insurance Corporation of India and charged to the profit and loss account. Liability for gratuity as at the period end is provided on the basis of actuarial valuation and funded with Life Insurance Corporation of India. Provision in accounts for leave benefits to employees is based on actuarial valuation done by projected accrued benefit method at the period end. 13. Revenue Recognition and Receivables: Revenue on account of mobile telephony services and sale of handsets and related accessories is recognised net of rebates, discount, service tax, etc. on rendering of services and supply of goods respectively. Recharge fees on recharge vouchers is recognised as revenue as and when the recharge voucher is activated by the subscriber Unbilled receivables, represent revenues recognised from the bill cycle date to the end of each month. These are billed in subsequent periods as per the terms of the billing plans. Debts (net of security deposits outstanding there against) due from subscribers, which remain unpaid for more than 90 days from the date of bill and/or other debts which are otherwise considered doubtful, are provided for. Provision for doubtful debts on account of Interconnect Usage Charges (IUC), Roaming Charges and passive infrastructure sharing from other telecom operators is made for dues outstanding more than 180 days from the date of billing other than cases when an amount is payable to that operator or in specific case when management is of the view that the amount is recoverable. 14. Investments: Current Investments are stated at lower of cost or fair value in respect of each separate investment. Long-term investments are stated at cost less provision for diminution in value other than temporary, if any. 22 of 26!dea Quarterly Report December 08

23 15. Borrowing Cost: Interest and other costs incurred in connection with the borrowing of the funds are charged to revenue on accrual basis except those borrowing costs which are directly attributable to the acquisition or construction of those fixed assets, which necessarily take a substantial period of time to get ready for their intended use. Such costs are capitalized with the fixed assets. 16. Earnings Per Share: The earnings considered in ascertaining the Group s EPS comprises the net profit after tax, after reducing dividend on Cumulative Preference Shares for the Period (irrespective of whether declared, paid or not), as per Accounting Standard 20 issued by the Institute of Chartered Accountants of India. The number of shares used in computing basic EPS is the weighted average number of shares outstanding during the Period. The diluted EPS is calculated on the same basis as basic EPS, after adjusting for the effects of potential dilutive equity shares unless the effect of the potential dilutive equity shares is anti-dilutive. 17. Impairment of Assets: Assets that are subject to impairment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the assets carrying amount exceeds its recoverable amount. The recoverable amount is higher of the assets fair value less costs to sell and value in use, For the purpose of impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. 18. Provisions: Provisions are recognised when the Group has a present obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. 19. Issue Expenditure: Expenses incurred in connection with issue of equity shares are adjusted against share premium. 20. Employee Stock Option: In respect of stock option granted pursuant to the company s Employee Stock Option Scheme, the intrinsic value of the option is treated as discount and accounted as employee compensation cost over the vesting period. 23 of 26!dea Quarterly Report December 08

24 7. Glossary Definitions/Abbreviation AGR (Adjusted Gross Revenues) Annualized EBITDA ARPU (Average Revenue Per User) AS AUSPI Churn Circle/ Service Area COAI EBIT EBITDA (Earnings before interest, tax, depreciation and amortisation) Description/Full Form Total revenue less interconnect charges payable to other operators, roaming revenues actually passed on to other service providers and service tax/sales tax (if any is included in total revenue). This revenue figure is used for computing license fees paid to the DoT Annualisation of last quarter EBITDA We calculate ARPU 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 Accounting Standards as issued by the Institute of Chartered Accountants of India Association of Unified Telecom Service Providers of India (formerly Association of Basic Telecommunications Operators) An industry term used to refer to subscribers leaving a network. We calculate Churn by dividing the total deactivations in a period by the average number of subscribers for that period and dividing the result by the number of months in the relevant period. The Churn calculation varies from operator to operator as there are no set standards for calculation of the same. 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 Cellular Operators Association of India Earnings Before Interest and Tax This is the amount after deducting operating expenditure from total 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 24 of 26!dea Quarterly Report December 08

25 Definitions/Abbreviation EOP Description/Full Form 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 End of period FY /Fiscal Financial year ending March 31 Indian GAAP Net Adds Net Debt NLD P/E Ratio Indian Generally Accepted Accounting Principles Refers to net customer additions which is calculated as the difference between the closing and the opening total customers for the period Total loan funds reduced by cash and cash equivalents National Long Distance. An NLD license allows an operator to offer long-distance domestic calls across Circles in India Price/Earnings Ratio ROCE The same has been calculated as under :- (PAT + Gross Interest and Financing cost) / ( average capital employed) Subscribers TDSAT Tele-density TRAI UAS License USO VAS (Value Added Service) 3G (UMTS) Mobile telephone service customers Telecommunications Dispute Settlement Appellate Tribunal The number of telephone connections in use for every 100 individuals in an area Telecommunications Regulatory Authority of India, constituted under the Telecommunications Regulatory Authority of India Act, 1997 Unified Access Services License Universal Service Obligation All services other than standard voice calls, including services, such as SMS, data transfer or internet connectivity A digital mobile communications technology which uses a technology known as W-CDMA (or UMTS) to deliver high-speed mobile communications 25 of 26!dea Quarterly Report December 08

26 26 of 26!dea Quarterly Report December 08