Would anyone care to make a prediction as to what Dialog's bottom line is likely to be for Q1?
I'm expecting a loss of Rs.4,000-4,500 million. They lost Rs.3,900m in the quarter to December and observing things from a distance no significant changes are apparent in the business, apart from the fairly small VRS which will have an impact from Q2 onwards.
The loss in revenue should be greater in Q1 because they will not have the one-off sign on fee that customers paid to register for the Blaster package. I customers were charged Rs.500 each to sign-on and assuming a million signed up, Dialog could have booked in Rs.500m in revenue, depending on how it was accounted for. I suspect a far higher number signed on and if they accounted all the fees as revenue then this will not appear in Q1.
A company that manages to lose such large sums of money has something fundamentally wrong with it: it needs to re-look at its business model from scratch; incremental changes will not help.
Anyone who is expecting volume growth to compensate for tariff cuts must remember that this tied to the economy: the spending power of retail consumers (which is being eroded by inflation, salary cuts, job losses and the like) as well as the general level of business activity, which is what drives business usage. In any case it is the height of optimism to expect a 60% tariff cut to translate to a 60%+ usage increase (I'm just looking at the Dialog to Dialog charge which was Rs.5 in Jan 2008 and is now Rs.2). Nor are tariff cuts likely to increase penetration significantly given that it is already at a fairly high level.
Update: Dialog announces a first quarter loss of Rs.1,800m today.
The results are far better than I expected. Am trying to get my hands on the numbers analyse them further to see where the improvement came from.
Had a quick look at the accounts and I'm baffled. Gross margins are down by around half, operating profits are down by a similar amount but cash generated is up significantly, from 893m in 2008 to 3,617m in 2009. Even odder, cash generated from operations exceeds gross margins (in comparison, last years cash generated was around 18.7% of gross margin). EBITDA, which should be pretty close to the cash generated figure is only 1.33bn so how cash generation was double that is a mystery.
The company succeeded in raising 16bn of debt in the quarter which should keep them going for a while, although it is not known on what terms the debt was raised.