Idea: Crashing network

Despite net additions of 2.5 million in the quarter, net profit of the wireless operator fell 29% to Rs 220 crore.

India's sixth largest wireless operator, Idea Cellular, turned in disappointing numbers for the September quarter with the operating profit margin falling by 200 basis points sequentially to 32.7 per cent and the net profit crashing 29 per cent to Rs 220 crore.

The company, which belongs to the Aditya Birla group and operates mobile telecom services in 11 of the 23 telecom circles in the country, posted a sequential revenue growth of just 5.7 per cent at Rs 1,560 crore despite strong net subscriber additions during the quarter of 2.5 million. Idea's subscriber base is now nudging 19 million.

However, ARPUs (average revenue per user) in the quarter were significantly lower at Rs 288 a month, down sequentially 10 per cent, driven by an ARPM (average revenue per minute) of 80 paise per minute.

Apparently, Idea has added very few customers in the lifetime pre-paid segment "" possibly far less than the 0.7 million it added in the first quarter, otherwise it would have shown up in the ARPU because the company books the entire processing fee upfront rather than over the life of the scheme.

Bharti and Reliance Communications, on the other hand, amortise the same over 48 and 22 months respectively.

The MOU (minutes of usage) too have fallen this quarter to 360 minutes, down 6 per cent sequentially.

So the September quarter has seen new subscribers with a lower income profile and existing subscribers too don't seem to talking too much on their cell phones. Even roaming revenues were lower.

In addition, the network operating costs touched Rs 50 crore primarily because Idea has taken towers on rent, resulted in the operating profit remaining flat at Rs 510 crore.

Since Idea plans to roll out mobile services in two more circles, Mumbai and Bihar, costs should remain high in the near term. Also competition will increase with Reliance Communications rolling out GSM services.

At the current price of Rs 127, the stock trades at slightly under 12 times estimated FY09 EV/EBITDA and is likely to be a market performer.

Nestle India: Strong sales

Nestle India reported an improved performance in the September 2007 quarter thanks to strong sales growth in the domestic market. As a result, its operating profit grew 37.7 per cent y-o-y to Rs 185.9 crore in the last quarter, while its net sales improved 25.5 per cent to Rs 906.7 crore.

Its operating profit margin also expanded 180 basis points y-o-y to 20.5 per cent in Q3 CY07. In contrast, in the June 2007 quarter, its operating profit margin had declined 40 basis points y-o-y to 19.5 per cent.

In the September 2007 quarter, the company's net domestic sales grew an impressive 30.9 per cent y-o-y as sales across product segments like noodles, chocolates and milk products improved.

In Q3 CY07, the company also leveraged improved price realisations on a y-o-y basis. In the June 2007 quarter, its net domestic sales grew 24 per cent y-o-y.

However, Nestle's exports declined 16.25 per cent y-o-y to Rs 68.5 crore in the September 2007 quarter and that was attributed to reduction in its beverage exports to the US, the rupee appreciation and also some restrictions on export of certain milk based products, say analysts.

Going forward, the company is attempting to capitalise on strong demand for processed foods. It has also been proactive in launching new products such as Nestle Nesvita (probiotics curd), Polo sugar-free confectionery and variants in Milkmaid Funshakes and Maggi soups.

Analysts, however, highlight that the company's raw material costs could go up due to rising prices of food commodities such as wheat and milk over the next few quarters. The Nestle stock trades at 27 times estimated CY08 earnings.

With contributions from Shobhana Subramanian and Amriteshwar Mathur