New Delhi: Bharti Airtel Ltd, India’s largest telecom service provider by revenue and subscribers, reported a 22% drop in profit as volumes flattened and tax payments rose, sending stocks down.

Profit fell to Rs 1,011 crore in the third quarter from Rs 1,303 crore in the year earlier. This marks the seventh consecutive quarter that the company has posted a fall in net profit year-on-year. The tax rate was at 35% during the quarter and 32.5% for the 2011 calendar year.

Voicing concern:Bharti Airtel CEO (India and South Asia) Sanjay Kapoor says most operators still offer tariffs that don’t even cover margins.(Priyanka Parashar/Mint)

Profit was also impacted by a higher amortization cost of Rs 164 crore to roll out high-speed third-generation (3G) networks and net interest cost rising to Rs 116 crore for the quarter. There was also increased extraordinary expenditure on branding in the quarter due to the Indian Formula One Grand Prix in October, the Delhi Half Marathon and cricket.

However, the decline in net income from the preceding quarter was reined in at 7%. “This shows that the trend of declining net profit seems to have been arrested,” said Srikanth Balachander, chief financial officer, Bharti Airtel.

The increase in taxes is on account of the effective rate in India and Sri Lanka going up from 15% to 23% due to some tax holidays coming to an end, Balachander said.

Total consolidated revenue rose 17% to Rs 18,477 crore from Rs 15,772 crore in the year ago.

Subscriber base grew 17% to 243 million at the end of the quarter, with 176 million subscribers from India and those in Africa crossing 50 million. While total minutes rose 11% to 247 billion, average minutes of use per user fell to 419 from 449 from a year ago, showing that the recent rise in tariffs has hit volume growth.

The average rate per minute rose to 44.6 paise from 44.3 paise and monthly average revenue per user (Arpu) from Indian operations fell 6% to Rs 187 from Rs 199.

“Last year, the tariffs came down in the third quarter over the second quarter, and the minutes also came down. This year, the tariffs were increased, by 1.4 paise per minute and minutes fell almost the same as the last year’s quarters. This shows that there was elasticity in the tariffs,” said Sanjay Kapoor, chief executive officer, India and South Asia, justifying the tariff hike. “Tariffs depend on the amount of competition in the market and the sustainability of the industry. There is enough competition in the market but the bulk of the operators are still offering tariffs that don’t even cover margins,” he added.

Kapoor refused to comment on the direction that tariffs are headed. On the decision by the Telecom Regulatory Authority of India (Trai) to monitor tariffs in the sector, Kapoor said, “It is confusing and dichotomous. On the one hand, we conduct auctions in the market place where all the operators go and bid and, on the other hand, we want to fix prices for what gets sold. If we need to fix prices then those spectra have to be given at nominal prices, both are absolutely at conflict with each other.”

Profitability indices for the company showed marginal improvement. The consolidated Ebitda (earnings before interest taxes, depreciation, and amortization) margin widened 32.2% from 31.7%.

Now six quarters old, Bharti’s Africa operations seem to be on track, albeit with minor hiccups. Airtel Africa posted a revenue of Rs 5,357.7 crore for the quarter, up 32.2% from Rs 4,053 crore. Airtel Africa also cut net losses to Rs 259.9 crore from Rs 524.9 crore. The operation has also become operating cash flow (Ebitda minus capex) positive in the continent.

“We are past our peak capex in Africa. Capex is at $1.4-1.5 billion for the fiscal,” said Manoj Kohli, chief executive of Bharti’s international business. The company is on target to achieving Kohli’s goal of $5 billion revenue and $2 billion Ebitda by mid-2013.

Bharti is betting strongly on mobile payment platform services—Airtel Money—in Africa and has launched the service in six countries.

“We will launch in another eight countries soon,” Kohli said. “There is a focus on non-voice due to the lack of DSL and the lack of banks in the country,” Kohli said. “We are now getting 30% of all the new subscribers and have increased revenue market share significantly as well.”

The firm has launched 3G services in five African countries and is set to start them in another six by the end of the current quarter.

Bharti will launch 4G services in India before March, Kapoor said, referring to high-speed wireless broadband services using time-division long-term evolution (TD-LTE)-based technology.

“While revenue from the core businesses—India and Africa mobile—and the tower business are stable, and as expected, the problem is the allied businesses like that of fixed line, pay TV and enterprise, businesses are still lagging,” a Mumbai-based analyst working at a multinational brokerage firm said.

Bhuvnesh Singh, telecom analyst with Mumbai-based Barclays Capital, said, “Bharti results surprised us with the sequential margin decline. We note that this is a largely fixed-cost business which is exhibiting strong price improvement and continuous revenue growth. In this environment of declining competition, margins should have exhibited a more positive trend.

However, the company has disappointed on margins for the third consecutive quarter. African margins were also weak and we believe the company will miss its 2013 target of 40% Ebitda margin.”

shauvik.g@livemint.com

•••••

Mark To Market: Bharti Airtel’s tariff hikes backfire