Right ring for biggies

Cell firms' ARPUs fall, but revenue growth has not been hit

Data released by the Cellular Operators Association of India for private GSM operators clearly indicate that the big operators are getting bigger.

Bharti and Hutch, the two biggest players in the private GSM space, accounted for 94 per cent of the q-o-q increase in revenues of private GSM players in the June quarter.

Together, they now account for 65 per cent of the GSM space controlled by private operators. What's more, the decline in average monthly revenue per user (ARPU) was the lowest for Bharti and Hutch at 5.4 and 1.4 per cent respectively, compared to average decline of 6.8 per cent for the industry.

Of the two, Hutch did much better with an increase of 16.2 per cent in revenues, compared to a 9.5 per cent growth for Bharti. Besides, Hutch's ARPU is about 17 per cent higher than that of Bharti's.

The trend going forward is not expected to be much different, where these big players will have a larger share of the market, especially since inorganic growth is the order of the day.

But at the same time, ARPUs are likely to trend downward, since most of the new customer additions are at a much lower ARPU. To add to GSM players' woes, Reliance Infocomm (CDMA) has slashed airtime rates for calls within its own network by 60 per cent for its pre-paid customers.

GSM players are expected to respond with similar offers and if this happens, ARPUs will be hit further. What's more, BSNL has been fast expanding, which obviously spells bad news for private players, given the lower rates it offers.

For now, the declining ARPUs have not hurt Bharti. EBITDA of its mobility business grew 21 per cent on the back of a 290 basis points jump in profit margin. Things shouldn't have been much different for the other large GSM operators.

More on NatSteel

Tata Steel will have its work cut out improving NatSteel's performance. The financials for NatSteel's steel division show that, in the quarter ended June 30, total turnover went up 20 per cent year-on-year to S$ 443 million, or Rs 1196 crore.

However, operating profits before tax fell by 43 per cent to S$ 7.5 million, or a mere Rs 20.25 crore. What's more, the Singapore Steel operations incurred a loss of S$2.7 million, which was offset by the company's overseas steel operations, which fetched it operating profits before tax of S $ 10.2 million.

While higher steel prices were the reason for the higher turnover, a margin squeeze on account of higher raw material costs, lower contributions from international trading and foreign exchange losses led to the losses at its Singapore operations.

Perhaps Tata Steel sending low cost semi-finished steel to the NatSteel plants will help increase margins. Among its overseas units, its Chinese operations too were affected by the measures taken by the Chinese government to cool its economy, leading to lower demand and prices.

Profits were much higher in the half-year ended June with operating profits before tax at S$31.3 million, but the Singapore operations made a loss for the half year as well. Operating profit margins were 1.7 per cent in the June quarter and 3.53 per cent for the half year, the group's trading operations pulling down margins.

Indian Oil's linear alkyl benzene plant

Indian Oil Corporation (IOC) has recently commissioned its Rs 1,248 crore Linear Alkyl Benzene (LAB) plant at its Koyali refinery in Gujarat. This project is part of the state-owned oil major's strategy of investing Rs 25,000 crore over the next eight years to become a large player in the petrochemicals sector.

However, entering the LAB market is not expected to result in large profit growth for IOC in the short term given current lacklustre demand conditions in the key home market. Five domestic manufacturers produced about 3,73,000 tonne of LAB in 2003-04 at a time when the domestic demand was only around 2,85,822 tonne.

Hence exports had a crucial bridging role to play. Going forward, the situation is not expected to improve substantially as domestic demand is projected at approximately 3,00,111 tonne in 2004-05 while domestic production is expected to increase to around 4,20,000 tonne.

Hence, finding new markets overseas would be key and it is not expected to be easy, given capacity expansion in other parts of the world too.

No doubt current international LAB prices are 17 per cent higher year-on-year and that was largely due to surging prices of kerosene and benzene.

However, in the domestic markets they have grown only around 8-8.5 per cent. And there are numerous factors responsible for this ""- there was cut in customs duty in January 2004 from 30 per cent to 20 per cent.

Also price rises in domestic markets have been comparatively smaller as large users of LAB such as domestic and multi-national manufacturers of detergent, apparently use strong bargaining power. A visible upside for the IOC is that it would be able to source the key raw materials of benzene and kerosene from its refinery and that should help keep its costs under control.

With contributions from Mobis Philipose and Amriteshwar Mathur