Wireless revenues were affected by a steep 6% drop in average revenue per user. Rural customers now form a large chunk of the company’s net additions and this is resulting in a drop in average revenue per user. Despite the lacklustre growth in revenues, the net profit of Rs2,239 crore was slightly ahead of expectations. It’s heartening to note that Bharti has been able to maintain profit margins in the wireless business despite the drop in average revenue per user. In fact, due to pressure from competitors, the company has also had to increase the amount of free minutes offered. Despite all this, there are no signs of pressure on margins, nor are there signs that the company had to burn cash to induce subscriber additions.

Also See High Valuations (Graphic)

While the company has been managing costs efficiently, the main reason for slight outperformance on the profit front is lower-than-expected losses in the company’s DTH (direct-to-home) and IPTV (Internet protocol television) services. Considering that these services had been launched recently, analysts were expecting larger start-up losses. But going by the performance of companies such as Dish TV Ltd, it’ll be a while before the business breaks even.

While on the one hand revenue growth numbers have been disappointing, on the other, there are positives such as the fact that the company has turned free cash flow positive and it has started paying dividends. The company is well poised to take advantage of new subscriber additions from the rural market thanks to its pan-India network. With growth in urban areas almost stagnating, the relatively high exposure to the rural segment is a positive.

It’s because of these factors that the company continues to enjoy relatively high valuations within the Indian telecom sector.

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Graphics by Ahmed Raza Khan / Mint