Indonesia’s XL Axiata’s EBITDA margin is expected to remain at 40 per cent despite lower-margin data services continuing to substitute more profitable voice/text services as data tariffs remain depressed.
Fitch Ratings said XL’s profitability will benefit from operating cost savings from last year’s acquisition of Axis Telecom, which will eliminate duplicate infrastructure expenses, and the sale of some of its towers. Its revenue this year is forecast to increase by mid-single digits in line with the broader industry, driven by fast-growing data services as the availability of lower-cost smartphones improves.
Price-cutting in the data segment resulted in the segment’s EBITDA margin reaching 15-20 per cent. Data tariffs have softened as operators have favoured pushing mobile internet adoption over profitability. XL’s average data tariff per megabyte fell to IDR40 (about $0.003) in 2014 from IDR70 a year earlier.
Fitch expects intense data competition to force smaller, loss-making operators to consider exiting the market, which would reduce the number of operators (there are currently seven players) and bring more stability to data tariffs. Smartfren Telecom emerged as the sole CDMA operator after Telekom Indonesia and Bakrie Telecom have shut down their struggling CDMA operations.
The country’s second largest operator, which is 66.5 per cent owned by Axiata Group, is the group’s fastest-growing subsidiary and accounted for 34-35 per cent of Axiata’s revenue and EBITDA during the nine months ending 30 September. Axiata supported XL with a $500 million loan to help fund the IDR10 trillion acquisition of Axis.
Its adjusted net leverage is forecast to drop to around 3x from 3.5x last year after it likely pays off part of its IDR30 trillion debt with the IDR5.6 trillion ($467 million) it raised selling off 3,500 towers and the IDR1.1 trillion sale of treasury shares. Its leverage rose to 3.5x when it bought 95 per cent of Axis last May. Fitch believes that XL could further deleverage by selling off its remaining 6,500 towers over the next two year.
The sale and lease-back deal with Solusi Tunas Pratama are credit positive as the cash proceeds outweigh the impact of the debt-like lease commitments and revenue loss from colocations. XL will also benefit from below-market average rentals of IDR10 million per month per tower, Fitch said.
The operator plans to spend IDR7 trillion this year to expand its 3G network and strengthen its optical-fibre backhaul network.
XL reported a net loss of IDR901 billion ($74 million) for the first nine months of last year, while its revenue grew 11 per cent to IDR17.6 trillion for the Jan-Sept period.
Fitch’s outlook for XL remains stable