Revenues could continue to be under pressure as competition increases.
The increasing number of dual SIM cards in the market, coupled with falling tariffs, was always expected to hurt revenues for telecom operators. But that Idea Cellular’s revenues have remained sequentially flat at Rs 2,891 crore for the September 2009 quarter is rather disappointing.
The management attributes the weak top line to seasonal factors, given that 40 per cent of the company’s revenues now come from rural markets and the monsoon was delayed. But that is hardly convincing and it is evident that Idea is losing some share to the competition.
What’s of greater concern is that revenues for the eleven legacy circles have fallen by over a per cent sequentially. Not surprisingly, operating margins are down by 140 basis points quarter-on-quarter at 25.3 per cent, with margins in the legacy circles lower by 40 basis points. With industry participants looking to gain market share, it’s quite possible that tariffs may drop further as companies announce new schemes.
Whether Idea follows suit or not by dropping tariffs, its revenues will continue to be under pressure given that the volume of traffic isn’t increasing either. Idea’s minutes of usage (mou) per month for the September quarter were down a sharp 5.5 per cent at 429 minutes.
What works for Idea is its strong balance sheet with a net debt of just Rs 3,600 crore and 900 MHz of spectrum in several circles. However, while it’s probably true that many of the other telcos, whose balance sheets are not as strong as that of Idea’s, may find it harder to survive the next couple of years before the consolidation happens, Idea too will find the going tough.
After all, it doesn’t have the kind of scale that market leader Bharti Airtel has and is yet to become a pan-India player. The Idea stock lost 3 per cent on Monday to close around Rs 57 and could be under further pressure.
