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A.

Corporate Governance Analysis


(1) Is this a company where there is a separation between management and ownership? If so, how
responsive is management to stockholders?

Corporate Governance refers to set of systems and practices which ensures that business and
affairs of an organization are conducted in a manner that promotes sustainable business model
and enhances shareholders value in the long term. Corporate Governance is about
commitment to conduct business in a fair and transparent manner. The good Governance
framework encourages the efficient use of resources and creates a mechanism of checks and
balances to ensure that business is conducted in the best interests of the stakeholders and
society at large. We believe that sound Corporate Governance practices can deliver
sustainable, profitable growth and create long term value not only for our shareholders but also
for all our stakeholders.

The Aditya Birla Group is committed to the adoption of best governance practices and its
adherence in the true spirit at all times. Our governance practices are a product of self-desire,
reflecting the culture of trusteeship that is deeply ingrained in our value system and reflected in
our strategic thought process. Our governance philosophy rests on five basic tenets:
Board accountability to the Company and shareholders;
Strategic guidance and effective monitoring by the Board;
Protection of minority interests and rights;
Equitable treatment of all shareholders; and
Superior transparency and timely disclosure.
In line with this philosophy, Idea Cellular Limited, an Aditya Birla Group Company, continuously
strives for excellence through adoption of best governance and disclosure practices. Corporate
Governance has always been intrinsic to the management of the business and affairs of our
Company. Our governance framework enjoins demonstrating high levels of accountability,
transparency and integrity in all its transactions. The Company constantly endeavors to adopt
innovative approaches for leveraging resources and fostering its growth. Your Company is
committed in meeting aspirations of the all the stakeholders by benchmarking its corporate
governance practices with global standards.

(2) How does this firm interact with financial markets? How do markets get information on the
firm?
The Company discloses quarterly financial results, presentation made to Institutional Investors /
Analysts, official news releases and other general information about the Company are uploaded on
the Companys website (www.ideacellular.com). The quarterly financial results of the Company are
generally published in The Economic Times (all editions) and Western Times (a regional daily
published in Gujarat). At the end of each quarter, the Company organizes earnings call with the
analysts and investors and the transcripts of the same are uploaded on the website thereafter


(3) How does this firm view its social obligations and manage its image in society?

Idea Celllular Companys advertising has earlier tried to explore mobility based solutions to the
challenges faced by society through campaigns based on World without Caste, Going beyond the
Language Barrier, Education for All and Use Mobile, Save Paper. Ideas network covers over 308,000
villages and towns to bring into its ambit a large share of rural mobility subscribers. Company has
consciously expanded its network coverage and invested in the strife ridden Naxalite belts of
Chhattisgarh, Jharkhand, Maharashtra and Andhra Pradesh as well as into tribal and economically
depressed regions of other states to promote inclusiveness and to make available to those citizens of our
country the advantages of mobile communication. To promote localization of anufacture, which in turn
would generate employment, we encouraged a SIM Card supplier to move his factory setup from outside
the country to set it up in Bangalore. Company has also worked with global companies and has
encouraged them to develop local vendors for imported equipments like antennas.Employees are making
an ongoing contribution of around ` 4 lacs per month through its payroll to Give India foundation which
works with over 200 NGOs working for various charitable causes. Through the year several blood
donation camps were organized by its offices across cities in India as well as specific visits to houses and
schools for underprivileged were organized on the occasion of Womens Day, etc. During the Joy of
Giving week, employees donated a total of around ` 7.8 lacs in cash and 350 cartons of clothes and other
items for the lesser privileged.Company is clear that its growth paradigm will be built on Porters Shared
Value model.
B. Stockholder Analysis
(4) Who is the average investor in this stock? (Individual or mutual fund, taxable or tax-exempt, small or
large, domestic or foreign)
As On 30 September 2013 share holding pattern is as below



Transfer of shares in dematerialized form is done through the depositories without any
involvement of the Company. Transfer of shares in physical form is normally processed within a
period of 12 days from the date of the lodgement, subject to documents being valid and
complete in all respects. All transfers are first processed by the Registrar and Share Transfer
Agent and are submitted to the Company for approval thereafter

The distribution of shareholding of the company as on 31 March 2013 was as follows



Shareholding Pattern of the company as on 31 March 2013 was as follows

(4) Who is the marginal investor in this stock?
Idea operates in all 22 telecom circles in the country, and has a relatively strong presence in non-
urban areas in several circles. In this context, the Company has identified economically
disadvantaged people residing in rural and geographically remote villages as marginalized and
vulnerable stakeholder groups. With regard to the rural, geographically remote and economically
challenged population in the country, the Company recognizes its responsibility to improve their
development and well-being through generation of local employment and deployment of various
rural-focused mobile solutions.
As part of a corporate group committed to societal growth and development, Idea considers
community development and nation-building as key components of its sustainability strategy. Idea is
a fully integrated telecom services provider offering its 121.6 million mobile subscribers a choice of
national, international and internet services. The Companys services are available in 4,634 census
towns and 298,686 villages
across India. Moreover, the Companys rural penetration was more than 50% by the end of fifth year
from issuance of its license, which is more than its licensing obligation. Idea has adopted a
Corporate Social Responsibility (CSR) Policy, which aims at inclusive growth and poverty allevation
through focus on education, health care, sustainable livelihood, infrastructure development and
espousing various social causes
F. Optimal Capital Structure
(18) Based upon the cost of capital approach, what is the optimal debt ratio for your firm?
Idea has very comfortable Net Debt to EBITDA at 1.39 (Q1 FY14) in Indian
telecom industry including only $657 Mn unhedged forex debt
(19) Bringing in reasonable constraints into the decision process, what would your recommended debt
ratio be for this firm?
The debt ratio compares a company's total debt to its total assets, which is used to gain a general idea
as to the amount of leverage being used by a company. A low percentage means that the company is
less dependent on leverage, i.e., money borrowed from and/or owed to others. The lower the
percentage, the less leverage a company is using and the stronger its equity position. In general, the
higher the ratio, the more risk that company is considered to have taken on.
Businesses take on debt even when they have assets that could pay for their expenses when they know
they can get a better rate of return on the borrowed money than what they are paying out in interest.
The leverage the borrowed funds creates allows investors to have a greater amount of return on their
money. Therefore, not all debt is necessarily bad debt. However, too much debt can be a sign of
instability. In some cases, a debt ratio of less than 1 means greater stability. Whenever the ratio exceeds
this figure, it indicates a heavily reliance upon debt for continued operations. Wise investors often
compare the debt ratio of one company to another in the same industry to determine whether the debt
ratio should be judged as either good or bad.
(20) Does your firm have too much or too little debt ? relative to the sector? relative to the market?
Aditya Birla Group company Idea Cellular is sitting on un-hedged debt of about $1 billion and this could
impact its earnings from 2016-17 if the rupee falls to 70/dollar, warn analysts.

As of March this year, the companys total loans stood at about Rs 14,000 crore. Of this, about $1 billion
(at Rs 62/dollar) was in foreign currency. Half the principal repayments of this foreign debt were
hedged; the interest payments were un-hedged. All the loan repayments due in the next 36 months are
fully hedged. The $657-million un-hedged portion represents loan repayments due from 2016-17 to
2023-24.
G. Mechanics of Moving to the Optimal
(21) If your firm's actual debt ratio is different from its recommended" debt ratio, how should they get
from the actual to the optimal? In particular,
(22) Should they do it gradually over time or should they do it right now?
(23) Should they alter their existing mix (by buying back stock or retiring debt) or should they take new
projects with debt or equity?
(24) What type of financing should this firm use? In particular, should it be short term or long term?
What currency should it be in? What special features should the financing have?
H. Dividend Policy
(25) How has this company returned cash to its owners? Has it paid dividends, bought back stock or
spun off assets?
(26) Given this firm's characteristics today, how would you recommend that they return cash to
stockholders (assuming that they have excess cash)?





G. Mechanics of Moving to the Optimal
(21) If your firm's actual debt ratio is different from its recommended" debt ratio, how should they get
from the actual to the optimal? In particular,
Idea had a 6% improvement compared to last FY in average realized rate and they have also mentioned
separately that growth is never a line function; it is always a step function. There is a model that idea have
pursued in the past and in that model for idea the theme always had been growth. The model in the past
was driven mostly by subscriber growth which led to volume growth. Now, idea are experimenting with the
second model of correcting the debt rates which had fallen to unreasonable levels. While idea were growing
at a very good pace in terms of revenue its translation to EBITDA was not at a healthy pace. Idea have now to
move on to the second model where they have to clamped down on a large component of free and
promotional minutes. They have to start the clamp down for new customers, its effect was seen on churn
and then they have to clamp down on existing customers especially on U&R programs as well as value
vouchers, which give discounted minutes.
(22) Should they do it gradually over time or should they do it right now?
This would effect the elasticity so as aware Q2 or the monsoon period is a weak quarter for idea because
they have a very higher percentage of customers from the rural areas and rural customers typically tend to
speak less during the period of monsoons. So idea has to wait to see if the overall impact of slower minutes
growth than what they had also projected on account of elasticity has effect during the season. The right
time to be able to give a clear indication of that would be in the period of October to December. Having said
that,industry is operating in a disciplined manner. Same kind of fear was seen when idea started reducing the
trade margins on subscriber acquisition. Given the fact that in spite of trade margin reduction, Idea has 37.5%
of incremental VLR share, idea have been able to hold on to VLR growth and idea company are extremely
confident that even with this (ARPM) change idea will be able to hold on to VLR growth.
(23) Should they alter their existing mix (by buying back stock or retiring debt) or should they take new
projects with debt or equity?
Idea have reached an enviable position of net debt-to-EBITDA. also for running ideas operations they do not
need any cash. Idea have a huge amount of headroom available to be able to increase their overall debt
which has fallen down to very low levels. Having said that there will be bunching of payments that is going to
happen. License renewal for idea is due in 2015 and 2016. In their discussion with DoT, there is a possibility
that DoT may ask for payments one or one and a half years before the license renewal and they need to
prepare for that eventuality. Secondly, as aware that at this point Idea has not completed its Pan India
footprint for the 3G and Wireless Broadband and they will evaluate opportune point of time for these. Having
said that, this is an enabling resolution; this is not a decision of capital injection at all. They are very
committed to be able to take any form of capital injection only if their business model gives sufficient return
on investments as well as return-on-equity. Over the last one year, return-on-investment, return-on-capital
employed, return-on equity has been going up and idea is reaching very competitive levels of performance
and there is no reason for them to be able to do capital injection unless they are convinced as management
that they will deliver business model which will enhance the overall return-on-equity. .



(24) What type of financing should this firm use? In particular, should it be short term or long term?
What currency should it be in? What special features should the financing have?
The financing required for such investments may not be available to idea on acceptable terms
or at all and company may be restricted by their existing or future financing arrangements. If
they decide to raise additional funds through the incurrence of debt, their interest obligations will
increase and they may be subject to additional covenants, which, among other things, could
limit their ability to access cash flows from their operations and significantly affect financial
measures such as their earnings per share (EPS).Their ability to raise additional funds
through the issue of equity may be restricted by, among other things, the limitations on foreign
ownership imposed by Indian law.If idea do raise additional funds through the issuance of
equity, their ownership interest in company will be diluted. Any inability to obtain sufficient
financing could result in the delay or abandonment of companys development and expansion
plans, the failure to meet roll-out obligations pursuant to companys licenses or its inability to
continue to provide appropriate levels of service in all or a portion of their markets (which may
lead to penalties or loss of license). As a result, if adequate capital is not available, there could
be a material adverse effect on companys business, results of operations, financial condition
and prospects. We have entered into various financing arrangements that contain provisions
that restrict companys ability to do,among other things, any of the following:

incur additional debt;
pay dividends;
merge into or acquire any other company;
issue Equity Shares;
make investments or dispose of assets; and
enter into, amend or terminate material contracts.

In addition to the restrictions listed above, company is required to maintain certain financial
ratios under financing arrangements. These financial ratios and the restrictive provisions could
limit its flexibility to engage in certain business transactions or activities, which could put idea
company at a competitive disadvantage and could have a material adverse effect on our
business, results of operations, financial condition and prospects.


H. Dividend Policy
(25) How has this company returned cash to its owners? Has it paid dividends, bought back stock or
spun off assets?
Company has not paid any dividends since incorporation and do not anticipate paying any dividends in
the
foreseeable future. Company can not be in a position to pay dividends until it has cleared its
accumulated losses. Additionally, its debt arrangements restrict its ability to pay dividends unless they
maintain certain financial ratios and adequate reserves and obtain approval from their lenders. In
addition, to pay a dividend, they will need the approval of the Promoters. They also will need to pay
dividends to any preference shareholders prior to considering paying any dividends on its Equity Shares.
Further, the declaration and payment of any dividends in the future will be recommended by their Board,
in their own discretion, and will depend on a number of factors, including Indian legal requirements,
companys earnings, cash generated from operations, capital requirements and overall financial
condition.
(26) Given this firm's characteristics today, how would you recommend that they return cash to
stockholders (assuming that they have excess cash)?
They should return cash to stock holders as per companies act.