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BW Businessworld

Drifting Down

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The airlines sector is a classic example. Having taken advantage of the recent economic boom, it is still grappling with the slowdown. Consolidation has also not helped. Merger of Jet Airways with Sahara, which produced the low-cost JetLite, has failed to pull the two out of the red. Jet has made a loss of over Rs 598 crore compared to Rs 174 crore in the previous year. Jet Airways and Kingfisher have now announced a strategic and operational alliance to tide over the crisis. “The cost cutting has come a bit too late,” says Animesh Khan, analyst at Zinnov Consulting in Bangalore. “Although there will be few players in the airline industry, low-cost airlines will do well in the long term.”

The telecom sector, however, has fared better with the subscriber base in the country continuing to grow. But incidentally, the top loser of the year is Tata Teleservices (TTSL), with losses close to Rs 2,000 crore. This was primarily due to capital expenditure on capacity building and a fall in average revenue per user (arpu).
Himachal Futuristic Communications (HFCL) is the other telecom company in our list of biggest loss-makers. The company, which runs operations in Punjab with just 340,000 subscribers, has the lowest arpu of about Rs 115. “The low arpu was taxing on the network and a churn of 20 per cent of its subscribers,” says a senior executive in the company who did not wish to be named. To continue as a serious telecom player, HFCL needs to achieve financial closure to fund its operating and capital funding requirements and to increase its subscriber base.
India’s first Internet Protocol Television Service, Dish TV, registered losses due to their policy of charging subscriber at acquisition cost in the year of acquisition itself. It registered a 90 per cent drop in subscriber growth and a churn of about 25,000 susbcribers to Tata Sky, according to industry sources. It is also facing a marginal pressure on revenue in some states where it has to pay an entertainment and service tax.
Matrix Laboratories posted a net loss of Rs 317 crore on a consolidated basis in 2007-08. This was owing to a write-down in goodwill incurred on its investment in generics drug maker Docpharma of Belgium. Matrix acquired this company in 2005. Owing to government attempts to cut healthcare costs since then, Belgium and Netherlands have seen the introduction of low-margin tender systems for drugs. Other factors such as stiff competition, and the loss of key contracts in the hospitals segment have led to severe margin erosion at Matrix.
While some Indian companies and sectors have managed to weather the financial storm, it has taken its toll on many others. Is the worst over? Only time will tell. We at BW can only hope that things are better when we bring you this list next year.
(Businessworld Issue 21-27 Oct 2008)

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