MTN and rumours around Indian cellular provider Idea

The rumour doing the rounds right now is that MTN is talking to India's cellular provider Idea, looking to buy a stake of sorts. Idea have rubbished the idea, even though, it was rumoured that in September last year Idea was talking to two companies to sell a stake. The stake in question is owned by the Aditya Birla Group, which owns 47 percent of Idea cellular. The Aditya Birla Group is a massive Indian conglomerate that operates across the region, and even in the developed world. According to the interwebs, the market capitalisation of Idea accounts for one third of the overall group.

So how big is Idea? Or !dea as their branding actually goes, quite a cool name. There are 3.3 billion shares in issue and the price last traded at 68.45 Rupees. 226 billion Rupees, which is around 5 billion Dollars. Which is around 34 billion Rand. Which is just shy of 13 percent of the entire MTN market capitalisation. Amazing, not as big as you think. You would not think that this would be hard to find, but check out the 2011 financial year third quarter media release ---> Idea Cellular announces un-audited results for the third quarter (Q3), did you see subscriber numbers anywhere?

Wiki suggests that by the end of January this year Idea had around 84 million connections in India, and that is around 11 percent of all connections in India. In the Indian market there are another 14 mobile operators. Last quarter the group suggested in the 3Q conference call that they carry over one billion minutes a day. And in their presentation that they are amongst the most competitive anywhere in the world, their call rates are less than 1 US cent per minute. No ways!!

There is a lot of debt stuffed in there, around 97 billion Rupees (2.2 billion Dollars) at last quarter. And not a lot of cash, only 4.6 billion Rupees, 100 million Dollars. So roughly 44 percent gearing, and not hugely cash generative, for the moment, these guys are going through a bit of a rough patch here. And earnings have been falling, they made on 0.67 Rupees a share last quarter, around 2.70 Rupees a share for the full year if you annualise that.

And the stock is at 68 rupees. Hardly cheap on that basis, and trades at 25 times earnings. So already a premium of sorts has been built in here already. Just remind me, a foreign investor can only have a 26 percent stake in an Indian business? So at around 5 billion Dollars market cap that is only 1.25 billion. Which is about 8.4 billion Rand. Which is only 3.2 percent of MTN's market cap. Does not sound like anything to get excited about. Whether, or whether it does not happen.