Tariff trouble

The telecom price war has taken a toll on the Bharti stock

Reliance Infocomm has now cut airtime rates for its post-paid subscribers. But, unlike the price war that followed its pre-paid rate cuts last month, the new rates are unlikely to trigger another price war.

First, the new airtime rates on the basic "149" plan are on par with GSM players. It's the new airtime rates on other schemes, "New Joy 399" and "Joy 499" that are lower than competition.

These plans are suited for high value users, as the minimum monthly charge (excluding airtime) for these plans is Rs 424 and Rs 524 respectively. Even within these plans, the rate differential (vis-a-vis competition) is considerable only in the STD segment.

GSM players may lower STD airtime rates for clients in the high usage bracket, but this segment is not as price conscious as the entry "149" segment. In other words, Reliance's latest price cuts are unlikely to impact airtime rates in the GSM space considerably.

That could be some relief for the Bharti stock, which has fallen around 15 per cent since Reliance announced its pre-paid rate cuts. Average revenue per user for the company had fallen 16 per cent year-on-year in the June quarter (according to COAI data), and the latest round of cuts would bring the ARPU even lower.

Thus far, the industry has made up by high subscriber growth. But latest figures show that industry growth numbers have tapered.

There are signs that the new airtime rates and the hullabaloo surrounding it have now triggered subscriber growth to some extent, but it may not be enough to cushion the expected fall in ARPUs. At least, that's what the fall in Bharti's stock price signifies.

Cement despatches for August

Gujarat Ambuja Cement Limited (GACL) has reported a 6 per cent increase in despatches for August. This was lower than the growth in July, but one has to bear in mind the transporter's strike in the latter part of August.

In addition, cement demand especially in the South and Central India had shown signs of weakening in August, due to the revival of the monsoons.

Nevertheless, GACL's August despatch growth figures were more or less in tune with the all - India growth in cement dispatches of 5.3 per cent witnessed between April - July 04. Also GACL's using alternative transport modes like ships to transport cement has helped to minimise the impact on the company.

Similar to GACL, ACC's August despatches grew 5.59 per cent in August. In contrast, Grasim's August despatches dropped 4.92 per cent and UltraTech CemCo fell 11.13 per cent. Analysts attribute the fall to increasing use of road transport by both the companies.

However, cement dispatches for Grasim during April - August 04 were up 3.57 per cent and for UltraTech CemCo they rose 5.12 per cent. It is understood that prices of cement in South and Central India weakened by approximately Rs 2- 3 per bag in August due to the slighter weaker demand conditions.

Going forward, analysts are expecting cement despatches to improve significantly riding on a pick up in the construction sector in the post-monsoon season. Demand - supply equilibrium in the key Northern Indian market is expected in September and this should also help cement companies' realisations.

RBI's new rules

The RBI's decision to throw a lifeline to banks reeling under the impact of higher interest rates hasn't fully satisfied the banking community, because of the stipulation that the transfer to the "held to maturity" (HM) category will be at the lowest of the market price/acquisition cost/book value of the securities.

Simply put, if the market price is the lowest of the three, the depreciation will have to be booked in the P&L account, and it's only future depreciation in the portfolio that banks will be able to avoid if they shift securities to the "Held to Maturity" segment, since these securities need not be marked to market.

Banks had represented to RBI that it was unfair to limit the HM segment to 25 per cent of their investment portfolio when they were required to compulsorily hold SLR securities equal to 25 per cent of their demand and time liabilities.

Recognising the force of the argument, the central bank has now said that banks holding SLR up to the stipulated minimum 25 per cent of demand and time liabilities can now hold all these securities, if they want to, in the HM segment. The shift can be made once in this financial year.

Under the new rules, extra SLR securities""the banking system holds much more than the required amount as SLR""cannot be shifted to the HM category, which means that banks will have to mark to market this portion of their portfolio.

The PSU banks, of course, will gain. The important thing is that banks will have to take a view on interest rates and decide how much and when they should shift to the HM segment.

With contributions from Mobis Philipose and Amriteshwar Mathur