F

inancial pressure is predicted to keep haunting cell phone operator PT Indosat (ISAT) this year, after the company posted a Rp 2.7 trillion (US$232.2 million) loss in 2013 after bleeding the entire year.

Ciptadana Securities analyst Triwira Juniarta Tjandra said Indosat, one of the country'€™s largest phone operators, performed below expectation in 2013. '€œWe initially forecast that they would book a loss of
Rp 2.16 trillion,'€ he said. '€œHowever, revenues have remained in-line with expectations set at Rp 24.3 trillion.'€

Triwira further said that although the loss had been largely on paper and would not affect Indosat'€™s operations, the mobile operator'€™s performance had been, in general, lackluster.

In their financial highlights, Indosat reported that they closed last year with Rp 2.78 trillion in foreign exchange (forex) losses, with total debt reaching almost Rp 24 trillion.

This forex loss, coupled with Rp 22.3 trillion in expenses, wiped out the Rp 23.8 trillion revenues the mobile operator earned in 2013.

Trust Securities analyst Reza Priyambada said that high expenses had caused Indosat to end up with a loss.

'€œThe rise in revenues was incomparable to the increase in expenses,'€ he said.

Revenues moved upwards by 6.4 percent annually while expenses climbed up by 16.2 percent year-on-year.

Analysts also predicted that Indosat would continue facing pressure from forex losses and inflated expenses this year.

Triwira said that, taking the most optimistic outlook, Indosat was expected to grow revenues by 13.4 percent this year.

'€œIndosat'€™s bottom-line should, in that way, be approximately Rp 300 billion this year. However, we might revise our estimates once the mobile operator publishes its fully-audited report,'€ he said.

Reza similarly said that Indosat could recoup profits only if the company could grow its business by twofold this year.

'€œThe growth will also mean increases in costs, such as those related to administration and equipment. This means the company needs to earn more,'€ he said.

Moody'€™s Investors Service assistant vice president, Nidhi Dhruv, added that Indosat was expected to continue spending much on capital expenses for network modernization and spectrum re-farming, which would '€œweaken cash flow metrics over the next 1-2 years'€.

'€œNonetheless, these investments are imperative to make Indosat'€™s networks 3G-ready and for it to remain competitive, especially against its closest competitor, PT XL Axiata, which has significantly spent on network expansion since 2011, and is likely to be in a position of strength following the acquisition of Axis Telekom,'€ he added in a statement.

Moody'€™s estimated that Indosat'€™s cash balance of Rp 2.2 trillion as of December 2013, in addition to an expected operating cash flow up to roughly Rp 9 trillion in the next 12 months, would sufficiently cover capital expenditure of
Rp 8-9 trillion.

Triwira added that this year, Indosat had to refinance their US dollar-denominated debt to improve their financial condition.

'€œHowever, refinancing comes at a cost which they must weigh up too,'€ he noted.

Reza added that the prices Indosat offered to their subscribers were '€œextremely affordable'€.

The average revenue per user (ARPU) of Indosat last year was roughly Rp 27,600, or 1.8 higher annually. Indosat served 59.6 million subscriptions, hence, recording a 1.9 percent annual increase.