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Uninor Q2-2012 Concall: On Restructuring Operations; 2G Auctions; Scaling Down Ops

Uninor reported revenues of NOK 1034 million (Rs 9.51 billion) for the quarter ended June 30, 2012, an 8% QoQ increase in local currency and 66% YoY increase in local currency. It also reported an EBITDA loss of NOK 625 million for the quarter, which is slightly higher than NOK 622 million (Rs 5.72 billion) reported in the previous quarter. Here are some notes from the concall:

–  CEO & President Jon Fredrik Baksaas said that he was impressed by the work of Uninor management, despite the present challenging regulatory conditions. During the quarter, Uninor witnessed growth both in terms of customers (2.2 million customers) and in terms of revenues in the Indian market. Uninor took 18% of the net additions in the month of May to garner 4.85% market share in India.

– Uninor is reducing the operational cost base because of which the operational losses are gradually reducing as well. However due to high regulatory uncertainties, the company has decided to not take any investment in Uninor during this quarter as Capex and instead expense it in the profit and loss statement. Therefore it will be showing weaker EBITDA development during the quarter, compared to previous quarters. The company has expensed around NOK 100 million in Profit and loss.

– Jon Fredrik Baksaas said that with the regulator uncertainty and unclear timing and framework of 2G auctions, the company has decided to restructure its operations to focus on the nine best performing circles to reduce the risk going forward and reduce the cost levels. He claimed that some of these circles will reach EBITDA breakeven by the fourth quarter of this year.

– Following this, the company will then gradually scale down operations in four circles – Tamil Nadu, Kerala, Karnataka and Orissa. These four circles currently represent 14% of Uninor’s revenues in Q2-FY12 and 14% of the Uninor’s subscriber base in June. However, Baksaas noted that these four circles account for a much higher relative proportion of its EBITDA losses in the same period. Uninor then plans to re-allocate the network assets and resources to the remaining nine circles in the Indian footprint. Baksaas said that they roughly have 6,000 base stations that can be re-used in other parts of India.

– Telenor believes that it can make Uninor a self-financing operation by the end of 2013, as compared to its previous target of making it self-financing by the first half of 2015. Baksaas said that Telenor will maintain its peak funding commitment to the project of Rs 155 billion as the peak funding figure before it reaches break even and the company is currently awaiting clarity on the auction framework and its timeline.

– Richard Olav Aa, Telenor EVP and CFO, stated that ARPU stayed flat in India but the subscriber growth and the weakening rupee gave then an extra revenue of NOK 336 million (Rs 3.08 billion). The company has reduced the cash burn of NOK 340 million (Rs 3.12 billion) due to the new accounting definition and has also expensed NOK 100 million (Rs 917.2 million) which normally would have been treated as Capex, as stated earlier.

– Richard said that the loans of Uninor have been in default since Februrary 2012, when its licenses were cancelled by the Supreme Court and following discussions with money lenders, they have agreed to accelerate the loans and asked Telenor to pay up on the guaranteed debt. The company has consolidated this as a part of its debt.

– Telenor is now working on various funding options for Uninor until the completion of the company. It has also decided to bid in the auction through NewCo and is currently working on financing options for NewCo.

– During the Q&A session, when asked if Uninor will be bidding only in the nine existing circles, Baksaas said that they will automatically go for licenses in these circles but regulatory decisions in the country are difficult to predict, hence they will decide based on the regulatory framework in place in these nine circles.

– When asked if the company plans to sell the subscriber base present in the four circles being scaled down, Baksaas said that the value and the possibility of such a sale is very restricted since it only has prepaid customers with a high churn rate. Hence, they will possibly be looking for a mobile number portability agreement with other operators.

Conference Call Transcript – Courtesy: Seeking Alpha

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