Operating margins have dropped, thanks to weak revenues and higher operating costs.
The signals from Idea Cellular’s September 2008 quarter numbers have been rather weak. The net profit dropped 45 per cent sequentially, driven down by lower operating profit margins which came off nearly 700 basis points to just over 26 per cent. Surprisingly, price elasticity does not seem to be kicking in for the Birla-promoted telco; revenues were up just 5.8 per cent at Rs 2,303 crore sequentially.
In the June quarter revenues had risen by over 10 per cent and in the March quarter by about 15 per cent. In both those June quarters, Idea had seen the benefits of lower tariffs kicking in with a rise in the minutes of usage(mou) . In the September quarter, however, not only has the average revenue per user has fallen to Rs 261 from Rs 278, a very sharp drop of 6 per cent, the mou too has come off by 2.6 per cent to Rs 417.
What has also hurt margins is the increase in network operating costs which have soared by 19 per cent compared with 15 per cent in the June quarter and 12 per cent in the March quarter. During the quarter, the company rolled out operations in Mumbai and is has also been adding cell sites in circles where it already operated; in the last six months, Idea has increased its presence by over 36 per cent.
Besides, expenditure on customer acquisition and advertising, as a share of sales, has also risen sharply by 300 basis points to 14.2 per cent. While Idea’s aggressive expansion is understandable, it needs to translate into top line growth. At the end of September the telco had 30.38 million subscribers but is yet to turn profitable in the circles of Himachal and Rajasthan ; the management says it has broken even, at the operating level, in the Uttar Pradesh (east).
