INSIGHT: Good subscriber numbers

The Bharti Tele-Ventures stock seems to have gotten over the impact of the drastic price cuts in the mobile telephony space. Having underperformed the broad market soon after the launch of its lifetime validity scheme, the stock has recovered well in the past three weeks thanks mainly to the fact that subscriber additions have been strong since the new scheme was launched. The charts alongside clearly show the divergent trend in Bharti’s stock price movement in the month since the lifetime scheme was launched and the movement in the past three weeks.

The company’s record subscriber addition of 1.05 million in January has further fuelled Bharti’s outperformance in the recent past. The subscriber additions last month were about 15% higher than the additions reported for the month of December. But that’s nothing to get too excited about since the lifetime plan was launched towards the end of December, and the full impact of the scheme was visible only in January. There’s no doubt, however, that growth has picked up considerably for mobile operators lately. In the past two months, growth has averaged 6.3%, much higher than the sub-4% growth in the rest of the financial year.

Another positive from Bharti’s point of view is that the perceived threat from the CDMA segment has tapered off. Tata Teleservices, whose subscriber additions had jumped to as much as 0.73 million in November after the launch of its non-stop mobile scheme, witnessed a massive drop in subscriber addition numbers for the second month in a row.

Its subscriber addition stood at 0.38 million last month, down from 0.47 million in December. Reliance’s subscriber adds were steady at around 0.8 million, but total additions from the CDMA segment were down because of the drop in Tata’s subscriber additions. In the GSM space, BSNL continued to add more subscriber compared with Bharti, with an addition of 1.07 million subscribers last month, thanks to its massive network rollout especially in south India. Hutch, thanks to the addition of BPL to its club reported additions of 0.77 million subscribers. Likewise, GSM players accounted for 75% of total mobile subscriber additions last month, compared to 66% just two months ago.

While growth numbers are impressive for in the GSM space as well as for Bharti, the concern that its new low-price offering would hurt profitability still remains. To what extent profit is actually hit will be known only when the March quarter results are announced.

In case profit margin drops at a rate that’s higher than expected, the stock could correct sharply considering that it would have repercussions on the company’s long-term earnings estimates.

ITC in another FMCG line

ITC reported another quarter of strong growth - its net sales growth of 37.5% was way higher than consensus estimates, as was the net profit growth of 24.8%. The higher-than-estimated growth was largely because of a pick up in cigarette volumes.

The company’s new FMCG business including processed foods, lifestyle retailing, matchboxes, agarbattis, greetings and stationery, saw an impressive 71% jump in turnover. However, these businesses continue to be a drain on overall profitability. Last quarter, they posted a loss of Rs 39.5 crore, or 15% of the revenues of Rs 260.6 crore. But this doesn’t seem to be bothering the ITC management, which will soon enter segments like soaps shampoos and detergents.

The company initially plans to launch these products through its e-choupal network, which according to analysts is a smart move considering that this network is mainly spread across areas which have very low consumption of products like soaps and shampoos. But going by the strategy ITC has followed with its other initiatives, it will only be a while before it launches these products nation-wide.

ITC, of course, given its huge cash reserves, would not mind incurring losses initially while trying to build up a presence in the new segments. Most of its new initiatives are businesses that have a long gestation period, and it would not be surprising to see a price war in the soaps and shampoos space soon. This certainly wouldn’t augur well for HLL, which has just about come out of its price war with P&G. It’s no wonder the HLL stock has underperformed its peer in the FMCG space by a huge margin this year.