Soft launch

Reliance pre-paid plan is less aggressively priced than expected

The much-awaited launch of Reliance India Mobile's pre-paid scheme has finally happened. Like its other schemes, the pre-paid package is clubbed with a handset.

But unlike its earlier Rs 501 scheme which was a roaring success because it brought down the entry barrier for going mobile, the minimum initial outgo for the pre-paid package is rather high at Rs 3,500.

Apart from a Motorola C131 handset, the Rs 3,500 package includes connectivity for a year and 10 recharge vouchers of Rs 324 each which must be used within 6 months.

If the customer chooses to go for a Java and multi-media enabled LG or Nokia phone, the package will cost Rs 6,500, including recharge vouchers worth Rs 6,480, which again will be valid only for 6 months.

Although the handset is effectively free in the hands of the customer, the initial outgo is rather high.

Besides, in the case of the Rs 6,500 deal, usage would have to be high at Rs 667 per month in order to make use of the free vouchers. For perspective, average revenue per user of pre-paid customer for Bharti is just around Rs 350 per month.

Significantly, with a Rs 324 recharge voucher, a customer gets Rs 200 worth talk time or 62 per cent of the total value of the voucher.

In case of competitors in the GSM space, the talk time in a similar voucher is around 50 per cent of the total value. Reliance was expected to announce recharge fees that were lower than industry, but analysts point out that it's not been too aggressive on this count.

Since the difference is not too much and because the entry cost is high, analysts feel that Reliance's pre-paid scheme may not result in high churn for GSM players.

Competitors like Bharti may not have to cut rates, and it looks like the feared price war will not happen post Reliance's pre-paid launch.

This is a positive for GSM players like Bharti, since the recharge fees directly flows to the bottomline. If Reliance had been too aggressive with lower recharge fees, competitors would have to follow suit, which would obviously hit margins.

Nevertheless, Reliance's new offer will result in the expansion of the market, albeit it won't be at the same rate as the Rs 501 scheme.

Dr Reddy's Laboratories

The US Food and Drug Administration has reportedly moved to stay the approval of AmVaz, the anti - hypertension and angina drug from Dr Reddy's Laboratories.

The pharma major has been keen to expand its overseas product offering rapidly due to a combination of factors - revenues from its European operations declined by 20 per cent to Rs 19.8 crore in Q3 FY04, due to increased competition in its bulk drug Omeprazole.

Also margins at Dr Reddy's bulk Ramipril exports are showing signs of coming under pressure due to growing competition.

In America, the high growth pharmaceutical markets include medication for hypertension and depressants, with a market size estimated at $20 billion each year.

Analysts were optimistic that Dr Reddy's AmVaz, a version of Pfizer's Norvasc, could have ramped up sales of $200 million in about two years, if all the permissions had been obtained.

Big product launches, which have been absent for almost two years at Dr Reddy's Laboratories, are being viewed as key to reverse the 10 per cent drop in profit after tax in Q3 FY04, to Rs 59.2 crore.

Another key area of concern for analysts are the growing legal expenses of the company, which have shown signs of putting strain on the bottomline.

The company is also engaged in litigation with Eli Lilly, and that has prevented it from launching a generic version of the blockbuster anti-depressant Zyprexa.

Dr Reddy defends itself by pointing to its past track record. Its launches in the past 12 months in the North American market have included Ibruprofen and Nefazodone, and they have already clocked Rs 10.2 crore sales in Q3 FY04. Also it has a strong pipeline, with 31 ANDAs pending approval with potential sales running into billions of dollars.

Analysts are optimistic that the company's vast experience of dealing with regulatory authorities would help it to overcome the current obstacles.

On the bourses, where the key indexes ended higher, nervous investors pushed the Dr Reddy's Laboratories scrip lower by 6 per cent, to close at Rs 1,250.

With contributions by Mobis Philipose and Amriteshwar Mathur