Birla has an idea: Tap markets
mumbai — Billionaire Kumar Mangalam Birla, whose Idea Cellular is poised to become India’s top carrier, sees only a handful of businesses surviving a price war roiling the world’s second largest telecom market.
The chairman of the Aditya Birla Group also won’t hazard a guess on when the industry shakeout will end in a country where calls already cost less than two cents a minute — and are sometimes offered free.
“The telecom sector is undergoing a very turbulent and difficult phase,” Birla said in an interview this week. “Probably the fittest three will survive.”
India’s mobile operators have seen revenue plummet and debt soar after last year’s launch of Reliance Jio Infocomm, a wireless carrier owned by Mukesh Ambani, the country’s richest man. That triggered a bruising price war for mobile services. Jio started offering free calls and many others in the industry followed.
Idea Cellular is set to become the biggest player by subscribers after it closes its merger with the local unit of Vodafone Group, but it may still have to tap financial markets to fund its substantial capital requirements, according to Birla. Banks are growing more cautious in lending to the beleaguered industry as telecom profits fizzle out.
With players falling “like nine pins,” Birla predicts that “the tariffs should stabilise at some point”. It’s still hard to say when prices will stop falling, and Idea won’t rule out share sales or bond issues to raise funds, he added.
Idea Cellular’s shares closed almost two per cent higher at 74.65 rupees in Mumbai compared with the 1.1 per cent rise in the S&P BSE Sensex Index and one per cent fall in rival Bharti Airtel’s shares. Idea has gained 0.5 per cent this year compared to the Sensex’s 21 per cent rise.
Birla, 50, now faces the task of reviving profitability at Idea Cellular, which has reported three consecutive quarters of losses. Telecom accounts for about 13 per cent of the overall revenue of the Birla group, which also includes mining, cement and financial services. The Bloomberg Billionaires Index puts Birla’s net worth at $8.2 billion.
The Vodafone merger will help Idea save $2.1 billion a year on operating costs and capital investments, while enabling the combined entity to make better use of wireless spectrum.
Banks though have become wary of wireless operators and are charging more, if they lend to them at all. Combined, the carriers owed ₹4.6 trillion ($71 billion) at the end of March, according to rating company ICRA.
“Banks have become very selective,” Birla said.
“Loans for the telecom unit have become more expensive than for other group companies because it has become a far riskier business.” — Bloomberg