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Bharti net slumps on forex swings, fees

Bharti net slumps on forex swings, fees
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First Published: Wed, Feb 02 2011. 10 07 PM IST
Updated: Wed, Feb 02 2011. 10 07 PM IST
New Delhi: Bharti Airtel Ltd, India’s biggest phone company, reported a 41% drop in third-quarter net profit on account of unexpectedly wide currency fluctuations as well as an increase in payments for spectrum to the government among other expenditure.
Profit in the three months ended December dropped to Rs1,303 crore from Rs2,195 crore a year earlier, the company said on Wednesday.
Profitability in the quarter was also eroded by a Rs340 crore rebranding exercise. The currency fluctuations accounted for a loss of Rs151 crore. Excluding these two items, profit remained largely flat year-on-year.
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Although increasing pressure on margins and profitability is expected to weigh down the country’s telecom service providers, Bharti indicated the company may be better prepared to face the next few quarters of uncertainty on the strength of its Africa operations and increasing revenue from data operations.
Consolidated revenue rose 53% to Rs15,756 crore from Rs10,305 crore. Africa revenue grew 8.7% to $911 million (Rs4,154.16 crore) while that of South Asia rose 13.7%.
While the company didn’t add as many subscribers as expected in Africa, it’s been able to “pull back 1% of revenue market share, which is a more important index”, said a senior analyst with a Mumbai-based multinational brokerage firm on condition of anonymity. “In Africa, Ebitda (earnings before interest, taxation, depreciation and amortization) increased despite the large-scale tariff cuts.”
Manoj Kohli, head of international operations for Bharti, said that the rate cuts were not aimed at starting a tariff war, but they were corrective measures. The tariffs set by Zain (whose Africa assets Bharti acquired in 2010) had been 30-40% higher than the market, he said.
“We want to maintain pricing power and use it to the fullest extent while maintaining affordability,” Kohli said. Bharti has cut prices in 10 of 16 African markets. “As the restructuring continues and gets completed in the next one or two quarters, the operating cost will get under control and, therefore, profitability will grow.”
A key concern is that minutes of usage haven’t risen as is typical for the third quarter, analysts said.
“Africa is showing improvement and is positioning itself to become the main revenue generator in case the business in India faces difficulties,” said another Mumbai-based analyst. “Things are shaping up such that they will be able to maintain longer-term profitability, but it is still early to bet on Africa completely. The numbers could have been better.”
Kohli expects things to improve in the next fiscal year. “We expect that Africa will be on auto growth by the second quarter of the next financial year,” he said.
As telecom companies launch third-generation (3G) mobile services, they also need to contend with any changes in regulation that may arise from the new telecom policy that’s in the making.
The government is also in the midst of reviewing the policies that govern spectrum, even as the inquiry into frequency allocation in 2008 led to the arrest of former telecom minister A. Raja and two of his aides on Wednesday.
“We expect that whatever the final policy is, it will ensure sustainability and long-term profitability, and, if it also includes a level playing field, then we welcome it,” said Sanjay Kapoor, Airtel CEO, India, and South Asia.
With an increase in demand for broadband expected, Airtel is moving from being a pure voice provider to a voice and data provider.
Globally, even operators with 40-50MHz of spectrum are operating at the limit due to data usage, Kapoor said, adding that he hoped the new policies would make more spectrum available to operators in need. Bharti has as much as 10 MHz of spectrum in some circles such as Delhi and Mumbai.
The company also repaid part of its debt during the quarter. “We have paid $415 million towards our debt, of which a large part has gone towards the Indian debt from the 3G and BWA (broadband wireless access) auctions,” said Manik Jhangiani, group CFO for Bharti Enterprises, the parent company of Bharti Airtel. “We will continue using the free cash flows to to deleverage our debt.”
Bharti has begun rolling out 3G services and expects to cover the whole country by the end of the fiscal.
The services are expected to boost non-voice revenue in a market where low-margin voice calls account for close to 90% of total revenue.
The company doesn’t expect any negative impact from mobile number portability (MNP), which allows users to switch providers without changing numbers, which was launched across the country on 20 January after Haryana adopted it in late November.
“What is important from MNP is the impact of revenue market share and not subscriber movement,” Kapoor said. “Most of the subscribers that are moving are smaller revenue generators, and their impact on the financials will only be seen after some time.”
Bharti’s South Asia non-voice revenue rose to 13.7% from 12.7%, which assumes significance since analysts expect consolidation because of squeezed voice revenue due to the recent tariff wars.
According to Kapoor, Bharti’s non-voice businesses, which include digital TV, broadband as well as IPTV (Internet protocol TV) are growing at a fair pace with one in every fourth DTH (direct-to-home) subscriber joining Bharti Airtel.
“We have also launched our IPTV business in Bangalore,” Kapoor said. Airtel also made investments in cable (undersea and terrestrial) capacity to ensure longer-term sustainability during the quarter.
The company’s tower businesses “have started generating free cash flow and steady growth in revenue”, Jhangiani said.
Bharti added 10.93 million subscribers in the quarter, “including 9.9 million mobile subscribers, while more than two billion minutes are being produced by the network every quarter,” said Kapoor.
Bharti’s monthly Arpu (average revenue per user) fell 14% to Rs198 from a year ago while that in Africa eased to $7.3 in the quarter from $7.4 in the quarter ended September.
The Africa performance is encouraging while the revenue per minute is stabilizing in India, said Sameer Naringrekar, telecom analyst with BNP Paribas Securities (Asia) Ltd. “We also expect no significant pressure from MNP.”
Profit: Rs1,303 crore, 41%
Revenue: Rs15,756 crore, 53%
Graphic by Yogesh Kumar/Mint
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First Published: Wed, Feb 02 2011. 10 07 PM IST