Competition in Indonesia’s crowded mobile market – with seven players — is starting to stabilise as strong demand for 3G/4G data service is forecast to drive annual revenue growth of 8-10 per cent for the next 18 months.
Moody’s changed its outlook for the country’s second and third largest operators — Indosat and XL Axiata — to positive from stable due to ongoing improvements in their financial and operating profiles. It said data revenue is expanding by 15-20 per cent year-on-year.
Over the last four quarters Indosat reported revenue growth of 11-13 per cent, above the sector average in Indonesia of about 9 per cent, while XL has undertaken capital restructuring initiatives and substantially reduced its debt following its $865 million debt-funded acquisition of Axis Telecom in 2014.
Indosat has shown strong growth in its subscribers and data revenues over the last year after significantly stepping up its marketing initiatives. However, its subscriber additions have come at lower ARPU levels compared with Telkomsel and XL.
Despite this, Moody’s said the company has maintained its adjusted EBITDA margins at levels above 45 per cent and grown absolute EBITDA.
The operator plans to invest IDR7 trillion to IDR8 trillion ($510 million to $580 million) this fiscal year to expand the capacity of its data network. It currently offers 4G coverage in 27 cities.
Turning things around
XL has focused on higher revenue customers and cost-cutting initiatives. Its total subscriber base fell by about 18 per cent year-on-year to 42.5 million in Q1, as it continued to clean up its inactive subscribers and shifted its focus to higher revenue-generating subscribers. As a result, blended ARPU for the January-March quarter increased about 39 per cent year-on-year to IDR39,000. This increase in ARPU is now helping to offset the negative effects of its reduced subscriber base, with year-on-year revenue growth of 2.5 per cent in Q1.
“XL has benefitted from early gains in margins from its new strategy,” said Nidhi Dhruv, a Moody’s senior analyst.
XL sold 2,500 towers to Profesional Telekomunikasi Indonesia in March for IDR3.57 trillion ($270 million) and will use the proceeds to pay down debt. The deal allows XL to lease back the towers from Protelindo at below the prevailing average tower rental rates in Indonesia.
In addition, XL will complete a rights issue within the April-June quarter to repay its $500 million shareholder loan from Malaysian parent company, Axiata Group, further reducing adjusted debt to about IDR31.5 trillion from IDR38.6 trillion at end-March.
It also significantly reduced its foreign exchange exposure over the last 12 months. After the completion of its rights issue, it will have only about 23 per cent of its debt in US dollars, a major reduction from 43 per cent as of March.